During the last weekly review, the CEO (still Elise Ennis) expressed some concerns about the warehousing operations. She has no real feel for the efficiency of the warehouses. The operations “strike her” as being somewhat expensive. And her impression is that “the cost for each warehouse is sort of all over the place.”
The CEO asked if it would be possible to do a quick analysis of the warehousing function. [Of course, that was a rhetorical question. As you might expect, the answer from Tom Perkins the VP/head of logistics was “sure we can do an analysis for you”.]
The CEO said that she would send over some more specific questions after the meeting.
As a logistician for the company you are to play a key role in doing the analysis and reporting the results to the CEO.
In preparation for the analysis you asked the Comptroller for some financial information. The Comptroller provided the financial statements (income statement & balance sheet) for 2017, the most recent complete year. The income statement and balance sheet are attached.

You also asked the VP who oversees warehousing operations for some data. The manager of warehouse operations sent over the most recent data that was available. The performance results are in a special run in the accompanying file. There is only one tab, so it is hard to miss.
The VP explained that BMC has been using the number of shipments as a key metric for warehousing. No distinction is made between an incoming shipment or an outgoing shipment. They believe that the work effort for either type of shipment is about the same. The shipment information and various expense and budget items are also included.
You ask if there is any other information that you should know — any peculiarities of warehousing operations for LUML? The VP mentions a few things that he says are not so obvious.
#1. The Buffalo warehouse is co-located with the Buffalo manufacturing plant & the company’s headquarters.
#2. All manufacturing is done in-house in Buffalo.
#3. The Buffalo facility is owned by BMC. The other 8 are owned by the 3PL firms operating each site.
#4. All the warehouse staffing is under a 3PL firm. There are no company employees in the warehouses.
#5. As the need arouse for other warehouses/shipping centers, the VP at that time decided to try what was then a relatively new concept. The work at these other sites was contracted out to local operators at each site. The contractors follow basic BMC policies, etc. These operations are what was to become known as 3PL (third party logistics). [Note: If you want to read more on 3PL in our book, then check in the index. However, for this case all that you basically need to realize is that these warehouses are each operated by a separate local operator under contract to LUML.]
#6. Shipments tend to vary a bit.
Shipments from Buffalo can be to customers in the area, or to the other warehouses for inventory and the like. A typical shipment would have some 10 fixtures.
Shipments from the other warehouses tend to be relatively homogeneous over all the sites. These are almost exclusively to customers. Occasionally they ship between warehouses to balance inventory. A typical shipment has 10 fixtures.
#7. Other than the Buffalo warehouse, a “shipment handled” could be incoming from Buffalo or outgoing to a customer. Buffalo shipments are essentially all outgoing (e.g., very few returns).
#8. As far as he can remember, this is one of the first times that the CEO has mentioned multiple concerns. One of them being relative efficiency of warehouse operations. To this point in time the information on the number of shipments has sufficed. But he is pretty sure that the CEO is trying to look past the simple number of shipments.
You thank him and head back to your office.

When you arrive, you find a note on your desk from Tom Perkins. This is forwarding the questions that the CEO had promised to send over.

[Your name]
Here are the questions from the CEO.
Please prepare a written memo to reply. Mrs. Ennis is a “data freak” and so likes to look at the backup numbers and analysis. Be sure to include the basic work that was done. Simple calculations might be in the narrative; more complex might need to be in an attachment.

Thanks,

Tom
Tom Perkins
VP for Logistics

Tom Perkins
Logistics

Tom,

Ref the weekly briefing. Here are the things that jumped into my mind as the topic was being discussed and when I thought about it later in the day. Of course, we are very interested in efficiency and effectiveness. I think that I also mentioned that it seems to me that we have a pretty wide range of warehousing costs over our 8 warehouses.

I’d like the memo per our schedule. Thanks.

Elise

#1. (100 pts) Comparing performance during the first seven months of 2017 with the first seven months of 2018, which warehouse shows the best improvement in performance? What criteria did you use? Briefly explain why you used that criteria.

#2. (100 pts) Comparing performance during the first seven months of 2017 with the first seven months of 2018, which warehouse shows the poorest change in performance? What criteria did you use? Briefly explain why you used that criteria.

#3. (100 pts) Comparing all warehouses, which warehouse is doing the “best job”? What criteria did you use? Briefly explain why you used that criteria.

#4. (50 pts) One possibility might be to terminate one of the current contracts and to engage a new contractor. Some have commented that this might offer the possibility for better performance and/or reduced cost at that location. Also, there may be a “spillover effect” to help “motivate” the other contractors to reduce costs.
If one contractor is to be changed, which one do you recommend? Briefly explain why.

#5. (100 pts) The year 2018 is well underway. How much is BMC likely to spend for warehousing for the rest of the year? How much for the full year? Is this better or worse than budgeted?

I’d like to see this information for each warehouse; and, the total for all our warehousing operations.

Briefly explain your work and answers. [Hint: did you make any assumptions that the CEO should know about?]

#6. (100 pts) Using the 2017 financial statement, what would our Strategic Profit Model (SPM) look like? Briefly interpret the results. Briefly interpret two of the key items that most relate to logistics.

#7. (100 pts) I’d like to reduce warehousing costs. But I need to know the impact. For example, holding all other information constant, what would be the effect on ROA if our warehousing costs declined by 10 percent? Explain.
[Hint: It should be obvious that the CEO is not looking for a simple answer — ROA increases/ROA does not change/ROA decreases. Best to compute and explain the actual change?]

#8. (50 pts) I do not expect the costs to be identical for all warehouses. But is there too great a range in costs per unit between the warehouses? Explain.

#9. (100 pts) What is your overall analysis and recommendation (or recommendations) to help us to achieve our objectives? Briefly explain.

#10. (50 pts) The Comptroller told me that there is probably a bit of money that could be put into our information systems. How can IS/IT be applied in warehousing operations at LUML?

[Hint: recall that we looked at many types of IS/IT. You might include whether each type likely has the potential to help meet the CEO’s goal to reduce warehousing expenses and reduce the range.]

#11. (50 pts) I have heard a bit about logistics and a logistics chain. How can warehouse operations be an activity in the logistics channel? Please provide a short explanation.
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Remember that there are other graded elements that are not separately listed (e.g., on time; format and completeness; purpose; references as needed).

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Your mission? Prepare a memo to the CEO with the answers to her questions. Remember that you also need to send your supporting analysis. The material should be organized as you would send to a senior official. And you should also be sure to cite any material used that is not your own.

The reason that we do this type of analysis is to help manage better, to solve problems, and the like. Interpreting the information in relation to the business situation is important.
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