Business and Economics
A number of logistic theories and techniques may be used to explain the concepts of logistics and retail distribution. Various companies may opt to have multiple distribution strategies in both domestic and international market. There are various qualitative pros and cons that ABC Company may face in the domestic market by having many distribution centers located within the United States. Some of the main pros include easier and faster delivery of merchandise to their intended distribution centers, low transport costs and easier access to products at any given location. In addition, the inventories can be sourced from different locations, thus, saving the traders time and financial resources. However, the cons in such strategy may include high operational costs due to importance of hiring more personnel. Additionally, little effectiveness on part of the retailer and difficulties in controlling slow moving goods between locations can lead to problems of out-of-stock, thus, depriving customers confidence (Wiley-Little, 2013).
The qualitative pros that a company can enjoy by having one or more international distribution centers include increased conveniences of the client which provides an effective tool in accessing the goods. Indirect exporting can also entail setting up intermediaries in the country of interest and, thus, allowing the company to sell directly to the customer which also enables the company to understand the needs of their customers in the export country better. However, distributing centers may be expensive to run and manage due to fixed costs involved in warehousing.
Option 1: Expanding the warehouse adjacent to the East Coast manufacturing plant
By expanding the warehouse around the manufacturing plant, the CEO will have to consider the effect of transportation of raw materials and finished goods to the West Coast because coolers would occupy more space than raw materials. Thus, the cost-benefit analysis of construction of the warehouse to the company has to be done. The other factor to consider is whether the suppliers would agree to cover the transport cost to any other place; as well as affected parties in case if not. The company also has to consider the warehousing cost prior to the high demand of coolers.
Option 2: Building a West Coast Distribution Center
This option would more likely enable the company to promote the products closer to the west-end market, though certain constraints to this option have to be considered. These are the cost of construction, cost of transportation of coolers from East Coast manufacturing plant and the effect of warehousing cost to the final price. In addition, the CEO has to consider the strategies to be applied by the competitors after this move and assess whether the option is viable.
Option 3: Building a Combination Manufacturing and Warehouse Location on the West Coast
This idea will obviously have high initial cost, but, may be profitable in the long-run. However, a concise analysis of the effect of this move to the raw materials, production process, storage of finished goods and the market in general is important. The advantage would be that freight charge of $200 would be reduced and the price lowered. If the production cost would be cheaper and ABC would sell the coolers at lower cost, the competitors would be more likely required to move their plants to the West Coast and lower their prices as well. The reduction in profit margin would make ABC to seek alternative sources of raw materials and other resources in order to maintain its lower price in the market.
Option 4: Opening a Distribution Center Overseas
This move will enable the company prepare for the 15% annual growth of international demand in Europe especially during warm weather in France and Spain. The main factor to consider for ABC Company is freight charges and warehousing costs in new distribution center. Thus, the company must select the cheapest, safest, affordable and efficient shipping method. However, the issue of foreign exchange in the European market should be factored in before settling for this decision.
Metrics to Assess Success
There are various logistical metrics that ABC can use to assess success of distribution program between the manufacturing plant and the international merchandise. Commonly, the supply chain management metrics help the logistics manager in understanding how the company operated in a given period of time. These measurements cover the areas of procurement, distribution, inventory turnover, production and customer service. Through the use of the right measurement metrics, the management is able to strike a balance between the service and the costs (Sano & Sloan School of Management, 2009).
Some of the most important metric include the following:
Inventory turnovers- this metrics is used to measure the frequency that an organization is able to sell the entire inventory in a given financial period. It also reflects how production rate has been in the manufacturing plant. The higher the inventory turnover, the more successful the supply chain and logistics;
Order tracking- this metrics measures the accuracy and status of a given order that is shipped to a customer. This measurement visualizes and displays the number of key parameters on a global or regional map in order of their accuracy, shipment arrival and departure as well as units shipped into the region;
Inventory sales ratio- this metrics measures the amount of inventory that the company is carrying compared to the number of sales order that the company has fulfilled. The ratio of inventory to sales is an effective performance measure of the company which reflects strength of the prevailing economic conditions and ability of the management to deal with unexpected changes.
Non quantitative Factors
Determining the right logistics and supply chain design involves a lot of quantitative and qualitative considerations. The supply chain of a firm allows it to move products from the production point to final consumption point. A supply chain network is defined by all the stakeholders involved. These include: suppliers, warehouses, manufacturing plant, shipping firms and flow of goods from the point of manufacture to destination. Location and number of such facilities is an important factor that determines success of any supply chain. According to Daft and Marcic (2014), 80% of the supply costs are locked in with the position of the facilities and consideration of the optimal flow of goods between them. Therefore, success of the chain is based upon recognition of location and emphasizing on the right strategies to determine location of the facilities and flow of products.
Therefore, due to the problems of obtaining the right strategic value in an organization, there are many business aspects influenced by the decisions taken and the non-qualitative aspect factored in. Some of the most important non-qualitative data include the strategies of the firm, risk factors, disruption costs, willingness to change, branding and public relations, competition, tax rebates and the relationship between the truck companies, warehouses and other firms in the supply chain. There are various methods of analyzing non-qualitative data such as risks and robustness of the system because as one of the key factors of success of the business.
The most important factors for the CEO to consider before making a decision on how to expand the business are core business strategies/plans, risks of expansion and opportunities available. Core strategies of any business should guide the management in making decisions in the present as well as in the future. They provide the guidelines for selecting the right choice for expansion strategy to the firm. After studying economic indicators of the market, the management should rank the strategies in the order of importance and viability since each market is identified with its opportunities, barriers, competitors and risks.
Understanding possible risks helps the decision maker in making an informed choice to keep abreast on matters of political, economic and socio-cultural changes within the business. The opportunities are then analyzed based on the region of expansion and the strategy with the highest returns and lower risks should is adopted.