ISCOM 370 Week 4 Logistics Integration Example

Ports, Warehouses and Trucks Talking to Each Other: Integrating Logistics at a North Carolina Furniture Maker

[Student Name]

University of Phoenix

ISCOM/370: Strategic Supply Chain Management

Week 4 Assignment

[Instructor Name]

[Date]

Catawba Ridge Furniture, its suppliers, carriers, retailers and figures are composites written for a model paper.

Earlier weeks showed that Catawba Ridge Furniture, a composite western North Carolina upholstery maker, needs different supply chains for its core and custom lines and a new sourcing approach. Both depend on logistics: about 1,400 inbound containers and truckloads a year, a 260,000-square-foot warehouse at the plant, two delivery hubs and 22 trucks. Logistics costs about $16 million a year, 11 percent of sales. Each part is managed by a different department with its own budget. This paper asks what that costs and how to connect the parts.

Following One Shipment

A container of core fabric leaves a mill near Shaoxing, China. Purchasing books it on the cheapest ocean rate, which often means a slower carrier and a transfer in another port. It arrives in Savannah after 34 days on average, with a range of 26 to 52. A drayage firm moves it to a rail ramp, then by truck to the plant. The warehouse learns of the arrival when the truck appears, so receiving labor is often short. The fabric waits an average of six days before it is put away and logged in the system. When finished sofas are built, they wait in the warehouse until the regional route to their city fills, then ride to a retailer or hub.

Across the full flow, from mill to living room, a core sofa's materials spend about 95 days in transit and storage, against about four days of actual building. Most of that time is waiting at handoffs where one department's plan does not reach the next.

Departments Optimizing Alone

Purchasing books the cheapest freight, saving about $180,000 a year, but uneven arrivals force the warehouse to hire temporary labor at a premium, about $220,000 a year.

The warehouse plans staff around a fixed budget and stores slow fabrics in prime locations, adding travel time to every pick.

The delivery team routes trucks to minimize miles, holding finished goods up to nine days until a route fills.

Each department hits its own targets while total cost and lead time grow.

The Bullwhip Effect

Retailer orders for core sofas swing by as much as 40 percent month to month, while retailers' own sales to consumers swing by about 12 percent. Lee et al. (1997) explained this amplification, the bullwhip effect, as the result of four causes: forecasts based on orders rather than end demand, batch ordering, price fluctuations and rationing games during shortages. All four appear here. Retailers order in full truckloads to earn freight allowances, rush orders before holiday promotions and inflate orders when lead times stretch. The plant forecasts from these orders, not from retail sales, and so overreacts.

Retailers sell steadily; it is the way they order that makes demand look wild.

How Integrated Is the Company?

Frohlich and Westbrook (2001) studied manufacturers and found that those with the widest arcs of integration, reaching both suppliers and customers, showed the strongest performance improvements. Catawba Ridge has a narrow arc: little integration among its own functions, little information from suppliers beyond shipping notices and none from retailers beyond orders. Stank et al. (2001) found that internal collaboration was related to logistical service performance and that external collaboration added value when built on internal collaboration, suggesting the company should start inside.

Recommendations

Internal integration first. A weekly sales and operations meeting with purchasing, warehouse, production, delivery and sales leaders will review a single demand plan and agree on inbound bookings, staffing and delivery schedules. Freight will be booked against warehouse capacity, not just ocean rate, with targets for both.

A transportation management system, about $150,000 to install and $40,000 a year, will give purchasing, warehouse and delivery the same view of inbound containers and outbound loads, with advance notice of arrivals.

Point-of-sale sharing. The top 40 retailers, about 60 percent of core volume, will be offered weekly sales and stock data sharing through a simple portal in exchange for steadier ordering and a smaller freight allowance for partial loads. Simatupang and Sridharan (2002) describe collaboration of this kind, with shared information, aligned incentives and joint decisions, as the basis of a collaborative supply chain.

Warehouse redesign. Slow fabrics move to remote storage; fast fabrics and finished core styles move near docks. The Atlanta hub will become a cross-dock for custom pieces, which arrive on mixed trucks and leave on local routes within a day.

Choosing Which Partners First

Not every retailer or supplier is ready to share data or plan jointly. The company will start with partners who meet three tests: enough volume to matter, systems that can exchange data and a history of trust. Eleven of the top 40 retailers already send electronic orders and have asked for better delivery dates; they are the pilot group. On the supply side, the two core fabric mills already send advance shipping notices and will be asked to share production schedules. Starting with willing partners lets the company show results before asking others to change.

What Could Go Wrong

Retailers may take the sales data portal as a sign the company will cut their freight allowances further. The sales team will present the change in person and show each retailer how steadier orders shorten their delivery times. Warehouse staff may resist a new layout; supervisors will help design it. The transportation system could be installed without changing how departments decide, which would waste its cost; for that reason the weekly planning meeting starts before the system goes live.

Costs and Benefits

The recommendations cost about $400,000 in the first year, mostly systems and warehouse changes. Expected benefits include about $220,000 in avoided temporary labor, $250,000 in reduced finished goods carrying cost as orders smooth and a cut in average order cycle time for core sofas from 19 to 12 days.

Measures

Total landed cost per unit, order cycle time, inbound arrival variance, warehouse dwell time, order variability compared with retail sales variability and on-time delivery. A logistics dashboard will be reviewed at each weekly meeting.

Conclusion

Catawba Ridge's logistics departments each run efficiently by their own measures, yet together they produce long lead times, high costs and a chain that amplifies demand swings. Research on the bullwhip effect and on integration explains why and points to a sequence: integrate internally through shared planning and data, then extend integration to the retailers and suppliers that matter most.

References

Frohlich, M. T., & Westbrook, R. (2001). Arcs of integration: An international study of supply chain strategies. Journal of Operations Management, 19(2), 185-200. https://doi.org/10.1016/S0272-6963(00)00055-3

Lee, H. L., Padmanabhan, V., & Whang, S. (1997). Information distortion in a supply chain: The bullwhip effect. Management Science, 43(4), 546-558. https://doi.org/10.1287/mnsc.43.4.546

Simatupang, T. M., & Sridharan, R. (2002). The collaborative supply chain. International Journal of Logistics Management, 13(1), 15-30. https://doi.org/10.1108/09574090210806333

Stank, T. P., Keller, S. B., & Daugherty, P. J. (2001). Supply chain collaboration and logistical service performance. Journal of Business Logistics, 22(1), 29-48. https://doi.org/10.1002/j.2158-1592.2001.tb00158.x