CASE STUDY

Delivery Strategy at MoonChem

John Kresge, vice president of supply chain, was very inventory. John was responsible for inventory as well s
concerned as he left the meeting at MoonChem, a
transportation costs. He decided to take a careful lookat
manufacturer of specialty chemicals. The year-end the management of
meeting evaluated financial performance and discussed consignment inventory andcome up
with an appropriate plan.
the fact that the firm was achieving only two inventory
turns a year. A revealed that more than
more carelul look
half the inventory
MoonChem owned was in consignment MoonChem Operations
with its customers. This was very surprising, given that MoonChem, a manufacturer of specialty chemica had
only 20 percent of its customers carried consignment cente
eight manufacturing plants distribution
and 40 distriou
 Chapter Il Managing Economies of Scale in a Supply Chain CycleInventory 349

The plants manufactured the base chemicals, and the 40,000 pounds; Golden charged a fixed rate given the
mixed them to produce hundreds of
istribution centers origin and destination, regardless of the quantity shipped
customer specifications. In the the truck. MoonChem sent full truckloads to each
that fit on
endproducts customer to replenish its consignment inventory.
chemicals market, MoonChem decided to
soecialty
iferentiate itself in the Midwest region by providing The llinois Pilot Study
onsignment inventory to its customers. The company
wanted to take this stratcgy national if it proved effective. John decided to take a careful look at his distribution
MoonChem kept the chemicals required by each customer operations. He focused on Illinois, which was supplied
in the Midwest region on consignment at the customers from the Chicago distribution center. He broke up
needed, and
stes. Customers used the chemicals
as
lllinois into collection of zip codes that were
a
MoonChem managed replenishment to ensure availability.
contiguous, as shown in Figure 11-9. He restricted
h most instances, consumption of chemicals by customers attention to the Peoria region, which was classified as
was stable. MoonChem owned the consignment inventories zip code 615. A careful study of the Peoria region
d was paid for the chemicals as they were used. revealed two large customers, six medium-sized

customers, and twelve small customers.

The annual
Distribution at MoonChem
consumption type of customer was as shown in
at each

used Golden trucking, full-truckload Table 11-4. Golden charged $400 for each shipment
MoonChem a

carier, for all its shipments. Each truck hada capacity of

PALATINE
ROCKFORD 600
1610 A 602
A611 601
(LA OFFICES) A 603

328 Fox VALLEy CHICAGOO

ROCK 605 607
ISLAND LA SALLE 606
612 613
SOUTH
GALESBURG
KANKAKEE SUBURBAN
1614 604
615 609
(MO OFFICES) PEORIA
634
635 A6l6/BLOOMINGTON
617
623
QUINCY
SPRINGFIELD CHAMPAIGN
6 625 618
626 619

627
EFFINGHAM
624
(NORTH)
620

ST. LOUIS, MO 628

631
(SOUTH) CENTRALIA
622

CARBONDALE
629

W
Figure 11-9 linois Zip Code Map
350 Chapter 11 Managing Economies of Scale in a
Supply Chain Cycle Inventory

TABLE 11-4 Customer Profile for MoonChem in Peoria Region

Consumption
Customer Type Number of Customers (Pounds per Month)
Small 12 1,000
Mediumn 6 5,000
Large 2 12,000

from Chicago to Peoria, and MoonChem's policy was to two groups with one large, three medium, and six small
send a full truckload to each customer as needed. customers in each group. Each group would then be
John checked with Golden to find out what it into single truck going to Peoria. The
aggregated a
would take to include shipments for multiple customers detailed study of the Peoria region would provide the
on a single load. Golden informed him that it would
blueprint for the distribution strategy that MoonChem
charge $350 per truck and add $50 for each drop-off for planned to roll out nationally.
which Golden was responsible. Thus, if Golden carried a
truck that had to make one delivery, the total charge Questions
would be $400. However, if a truck had to make four 1. What is the annual cost of MoonChem's strategy of
deliveries, the total charge would be $550.
sending full truckloads to each customer in the Peoria
Each pound of chemical in consignment cost region to replenish consignment inventory?
MoonChem $1, and MoonChem had an annual holding 2. Consider different delivery options and evaluate the
cost of 25 percent. John wanted to analyze a few different each. What delivery option do you recommend for
costof
options for distribution available in the Peoria region MoonChem?
to decide on the optimal distribution policy. One was to 3. How does your recommendation impact consigninc
aggregate all 20 customers into each truck going to inventory for MoonChem?
Peoria. The other was to separate the 20 customers into