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3 Case Study Brunswick Distribution Inc
3 Case Study Brunswick Distribution Inc
Distribution Inc.
Foundations of Operations
Management
Professor: Neil Bishop
DONE BY:
Jennifer Fellinger
Other retailers may inquire about their products direct from manufacturers or
another distribution company if B.D.I.. loses competitive edge with their
financial resources.
With two distribution channels, and only two, a new strategy would be the
intelligent option.
Direct competition decreased over the past five years, and while Brunswick
assumed the market was going to bounce back, yet it still never has.
The orders are inconsistent with the market nowadays, as it does not pertain
to the data in the past. Although, this ever-changing market means their
dependence on previous historys data and its reliability is objectionable.
Manufacturer requires the customers orders in advance, yet with the way the
clients place their orders, expecting an approximate 60-90 day, and up to 120
days in advance, is too much. B.D.I.. is obligated to absorb/pick up the slack
of the cost.
The 15 day gap between each cut off time exists, leaving it to B.D.I.. to
exhaust their only option of the credit facility.
ROE
ROA
NPM
TATO
Curre
nt
New
Infrastruct
ure
Chan
ge
Basic
AR/A
S
Chan
ge
3.7%
3.2%
1.8%
109.6
%
2.8%
2.4%
2.3%
63.7%
Down
Down
UP
Down
7.0%
4.9%
3.3%
87.9%
UP
UP
UP
Down
Fully
Integrat
ed
AR/AS
4.4%
3.4%
2.2%
94.1%
Chan
ge
UP
UP
UP
Down
Using this metric we see that the New Infrastructure brings down the ratio
meaning that the B.D.I.. would see a reduction in their return on investment
(this would likely change over the long term) while an increase is shown with
both the Basic AR/AS (3.4%) and Fully Integrated AR/AS (4.9%) with the Fully
Integrated having a higher increase.
NPM (Net Profit Margin)
This metric is used to show how much of sales dollars a firm retains.
This metric is one that B.D.I.. will need to address as it is one of key issues
that James Brunswick is concerned with. With all options Net Profit Margin
see increases, with the Fully Integrated AR/AS with the greatest gain at 3.3%
with the Basic AR/AS at 2.2% and the New Infrastructure at 2.3%. With this
information it is important to also state that an increase in NPM is not always
an indicator of increased net income. Net Income will be addressed later in
this report.
TATO (Total Asset Turnover)
This metric is used to display the total sales generated per dollar of assets. A
firm such as B.D.I.. that carries high end, high margin products a lower asset
turnover can be expected.
When looking at the asset turnover changes when implementing each of the
options an across the board drop in ratio is observed, with the New
Infrastructure leading the pack dropping from 109.6% to 63.7% followed by
the Fully Integrated AR/AS (109.6%-87.9%) and the Basic AR/AS (109.6%94.1%) This metric will be important to consider once again as it would
measure the growth of revenue and sales.
Current
Ratio
Inventor
y Turns
WC to
Sales
Fixed
Asset
Turnove
r
Chang
e
2.6
New
Infrastructur
e
3.88
Chang
e
Fully
Integrate
d AR/AS
Chang
e
UP
Basi
c
AR/
AS
2.68
UP
2.63
UP
3.2
3.3
UP
3.1
DOWN
3.1
DOWN
31.6%
65.5%
UP
DOWN
30.9%
DOWN
56.3%
103.6%
UP
31.6
%
78.1
%
UP
105.5%
UP
Current Ratio
Is a metric that measures a company's ability to pay short-term obligations.
New
Infrastructu
Basic AR/AS
Fully
Integrated
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Net Income
Change
588,000
re
826,000
238,000
714,000
126,000
AR/AS
1,071,000
483,000
When addressing B.D.I..s needs Net Income is the bottom line. Regardless of
all other matters a net income is the end goal. By inputting the data into
Exhibit 2 calculator the results show that the Fully Integrated system provides
the highest net income increase.
Summary
As stated above, the ultimate goal for the firm is increasing the net income of
the business, also taken into consideration when deciding which direction to
move an analysis of the markets climate as well as an analysis of the
businesses positioning financially and within the market. Although the New
Infrastructure option presented by Frank Pulaski presents some definite
benefits the risk of taking on a financial commitment that the new
infrastructure presents (12 million dollars and 20 years.) could leave B.D.I.. in
a situation that is too cash poor to function in the event a change in the
market occurs. By taking a route that streamlines the existing business
model B.D.I.. is positioning themselves to be more efficient and with the
potential to expand at a later date if the opportunity arises.
their system so that they are readily available when the time comes to
deal with a larger scale of demand.
Some points are as follows:
Uncertainty regarding future sales.
Dependable delivery/short delivery time
Not enough space with low grade inventory planning they have now,
need better inventory system in their warehouse.
Diversity in products
High inventory as last minute modifications due to retailers orders.
Currently BDI is seeing an inventory turnover rate of 3.2 turns. With the
option to implement a new infrastructure derives a low inventory ratio of
3.1 turns, it seems the other option is a better solution, yet an even lower
ratio is produced when the calculations for the implementation of a new
inventory system is complete.
Drivers Facilities
When a customer creates an order, Brunswick then purchases the products
from the manufacturers, storing them in their own warehouse. This system
was working fine when BDI was only dealing with low end products; however,
theyve recently blossomed into dealing with only high end products.
Currently he is trying to decide whether a larger warehouse is more
beneficial, in comparison to an updated inventory system.
With an entirely new facility, this can create more space for expansion, and
still implement the newer system, with a possibility to use more than two
channels of communication, such as an internet-based ordering system.
Sourcing
Nothing is outsourced.
Transportation
From the warehouse to the retailer, BDI as the distributor is responsible for
that shipment. So what happens if neither the manufacturers, nor the
retailers, want to be the one to handle the shipments? It is just another
situation that falls in Brunswicks lap.
Information
The information they have is limited, these information problems tend to
lead to situations and have a negative effect on BDI. These problems can
lead to delays in delivery as well As various penalties, for if their historical
data is this unreliable as the market continues to shift so many ways since
BDI opened, they will never be able to correctly forecast what may or may
not happen. Relying on past data to predict future sales tends to lose its
credibility because this market is never the same.
Basic level - Full implementation
Lews Plan
Franks Plan
$8.8 million for fully integrated
$2 million property
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system
Operating and training costs of
$0.8 million per year
Saving them in shipping and in
labor, approximately $2,505,120
Deliveries at the current time, are As for transporting the goods, truck
not being handled in an orderly
availability based upon location of
fashion, yet with better system,
new facility, give feedback to client
they
can
potentially
decrease
on their own delivery times, with the
delivery time from 5 days, down to
option
to
view
the
schedule,
2 days.
minimizing risk of complaints.
Strengths:
Four Years good growth
(internal)
Determination (internal)
Experience (internal)
Agreement with Kitchen Aid
(external)
Increased size of Facility
(30,000 ) (internal)
Sixty mile delivery radius
(internal)
Well-kept financials (internal)
Stable Government (external)
Understands their core
competency (internal)
Opportunity:
Competitors closing
Room for growth
Update ordering system
(Interbased)
Areas to add value
More low end (high volume)
Offer early payment discounts
Reduce stock Introduce JIT
Reduce turn over time
Mid-West looking for
Weakness:
Small fleet of delivery trucks
(internal)
Rampant uncontrolled growth
(internal)
Old fashioned ordering
methods (internal)
Loan payments (internal)
Debt collection (internal)
Manufacturers lead time
required (60 120) Days
(external)
Lack of finances (internal)
Threats:
New competition
Net earnings decline
Inventory demand
change
Loss of existing clients
Payments from clients
Exhausted finances
Retailers ordering direct
Change in market
Change in economy
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Technological:
Investment in Information Technology will enhance B.D.I.. capability in
distribution to have competitive edge against their competitors.
Integrated order fulfilment system will speed up companys
communication system so they can improve their order cycle, delivery
time, and cut cost.
Technological obsolescence i.e. the need of upgrading systems to keep
up with changes to optimise processes efficiency and reduce turn over
time.
5.4 Alternatives
1 Maintain current operational structure.
James Brunswick could opt to make no changes to the distribution company
and its operational structure.
Advantages:
Current structure is known and no further training required.
The company could be able to keep all their employees.
No further debt could be accumulated by expanding to a larger
warehouse.
Disadvantages:
The company could continue to see a decrease in net earnings.
If the recession continues the company may see a decline in
sales.
By remaining idle in making decisions the door may be left open
for competitors to move into their market
2 Use Frank Pulaskis recommendation to serve more customers
Frank Pulaskis recommendation is invest in a new infrastructure. He wants to
expand the company by building larger storage facilities. Larger facilities
would enable the company to increase annual sales which should result in
higher net earnings.
Advantages:
The company could increase sales and potentially net earnings.
The company could become a leader in the distribution business.
The company could become a global contender in the distribution
business.
Disadvantages:
The expansion to larger warehouses could strain the companys
financial budget.
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1
Week
X
1
Month
3
Month
6
Month
1
Year
2
Year
4
Year
16
5
Year
AS/RS
options
AS/RS
decision and
order
Arrange
financing
Delivery and
installation
of equipment
Training and
implementati
on
Evaluation of
process
Debt retired
X
X
X
X
The initial cost of the fully integrated system would be 8 million dollars but
the company would amortize this over a five-year period. This would
eliminate a large investment up front and not put a financial strain on the
company. The operating costs would be $.0.8 million dollars yearly and this
cost would be considered fixed expenses. This system would have a large
cost savings for the company.
A fully integrated system would save the company 16 percent in direct
shipping and labor expenses. All savings the company makes would be
divided equally between shipping and labor expenses. The company could
opt to finance this over a five-year debt plan at a rate of 10 percent.
This option works because there are large savings to be made from
more efficient handling of orders and improved warehouse communication.
There would also be a savings on shipping costs. This option is also a safer
choice because of initial cost layout. During a recession this is an important
factor.
business Brunswick faces the possibility of taking on too much debt and
ultimately have the business fail due to lack of cash flow, with the status quo
a continuation of shrinking net income could cause the business to fail. A
streamlined, although does require a financial commitment, offers an
opportunity for B.D.I.. to reduce costs while becoming a more efficient
operation while still leaving the option for expansion at a later date. The
former Prime Minister of India Jawharlal Nehru once stated Obviously, the
highest type of efficiency is that which can utilize existing material to the best
advantage. Using that logic it would be in the best interests of B.D.I.. to use
their existing facility and improve on this already successful business. With
an efficient system there is to stop B.D.I.. from being a greater success.
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