Question

Suppose that the president of a carpet manufacturing firm has asked you to look into the possibility of bypassing the firm's wholesalers (who sell to carpet, department, and furniture stores) and sell direct to these stores. What caution would you voice on this matter, and what type of information would you gather before making this decision?

Answer 1

This type of approach would require proper understanding of the logistics operations. One of the biggest caution in this type of decision is that the company has to set up its own logistics systems as well as warehousing and inventory management which would increase the cost by many margin. Company also has to implement new accounting department as retailing requires Credit System which is not usually present in manufacturers supply system. New supply chain has to be developed for directly sending out carpets to the retailers rather than going with the wholesalers. This approach would remove the dependency on the wholesalers but also increase the overall work has to be done by the organisation for delivering the carpet to the retailers. Increasing the reach of the organisation would be a tough task as operation at different part of the regions would not be possible due to the increased logistics and holding cost.
As products have to be supplied from the manufacturing facility, time in delivering to the remote areas would be extended and this would cause delay in the order completion.
For making this type of decision I would look into my Customer Portfolio and decide best available approach for Logistic management. We can also outsource different part of supply chain to improve the overall market presence and to improve the prophets. Determination of the operational structure of the organisation would also provide information about warehousing and inventory management at different location for creating a buffer which would act as a emergency storage option for the company.