Question

CASE STUDY

Naperville Hardware Distribution

Matt Weber and Quinn Domyancic, CEO and COO respectively of Naperville Hardware Distributors (NHD), were frustrated with their fourth quarter financial results. At the beginning of the quarter they had been enthusiastic about the profit picture for the company. The economy had been in an economic slump for several years, but the first quarter results of this year had shown a positive upturn in sales. The second and third quarter results were even better. Matt and Quinn had been almost exuberant even though profits had not shown much improvement. They both felt the profits in the fourth quarter would improve significantly because they had carryover expenses from the previous period, which they covered with revenue generated during the second and third quarters. While their net profits had again improved in the fourth quarter, the results were not what they expected.

NHD purchased the various hardware and plumbing products that they distributed from several manufactures located in Indiana, Illinois, and Wisconsin. They purchased in truckload quantities and had the items moved to a warehouse facility that they maintained in Naperville. They also operated a store that was contiguous to the warehouse plumbing contractors as well as some retail customers who did their own remodeling and repairs. NHD would make deliveries to customers in the greater Chicago area, especially builders and plumbing contractors.

Matt and Quinn asked their CFO, Carl Weber, do a “deep dive” on their costs for the last three years. Carl also did some benchmarking for them. Carl came to the conclusion that NHD was spending too much money on transportation and related distribution service. NHD was currently utilizing a third party logistics services company, LMZ for transportation (inbound and outbound). Carl recommended that they “in-source” all the transportation services.

Matt and Zach were surprised by Carl’s conclusion about the outsourcing of their transportation services because they had been dealing with LMZ for about 10 years. Private transportation service and order fulfillment were not among their core competencies. They had some reservations. Carl pointed out that they had options that they could consider including leasing equipment and drivers.

CASE QUESTION

1. Matt and Quinn have hired you as a summer intern to evaluate their options and requested you to write a short report presenting the opportunities and challenges they would face in pursing Carl’s recommendation. They also asked you to make your own recommendation based upon your analysis

Answer 1

Matt and Quinn have hired me as a summer intern to evaluate their options and requested me to write a short report presenting the opportunities and challenges they would face in pursing Carl’s recommendation. They also asked me to make my own recommendation based upon my analysis

Evaluation of Matt and Quinn’s options: Following are the options for the Matt and Quinn for their business as below

• Purchase and inventory at warehouse: Matt and Quinn can purchase the materials and store it at the warehouse. This could be risky for Matt and Quinn because if the market does not speed up, the inventory holding cost and the cost of material will have big impact on the business. Thus they should avoid storing at warehouse.

• Profits from the outlet store : This is good option for Matt and Quinn to explore as much sale as possible from the outlet store, because it will add to the profit for the organization.

• Deliveries to customer in greater Chicago area: This could be a good option, as it will increase sale for the business.

Opportunities and challenges in pursuing Carl’s recommendations: Carl suggested for the in-sourcing of transportation for the business, so that they can explore more revenue and profit from their current transportation charges.

• Opportunity: This could be a good option for the business because in-sourcing the transportation with leasing the equipments and drivers, could be a good option for the business. They can have good saving in the tough time, with this option. They will not have any risk as the equipment and drivers are on lease. Any time they can be handover back by giving the lease fees.

• Challenges: Since transportation is not the core competency of the business, they will have challenges in developing the competency and skills for the transportation business. But they can manager if they works systematically.

My own recommendations: My own recommendations are as below

• Explore lean business processes, so that the purchasing matches with the sale demand of customers. So it will reduce the warehousing cost for the business.
• Identify key business process of high expense, explore alternate options so that the business gets the profit.
• Explore cost reduction initiative at organization in each and every process of the organization.
• Explore increase sale to the extent possible by exploring other possible regions.