1. The chain stores’ request to reduce cycle time by shipping directly to the stores would seriously affect the service model and delivery costs for BKI. Because, the proposed model would mean that BKI would have to process more number of deliveries in smaller quantities and transport them separately to each store. Cost of delivery will increase due to smaller quantities to be delivered directly to stores resulting in more trips, farther distances and lower economies of scale.
This is in complete contrast to the more structured and systematic current model of weekly deliveries of standard quantities to the stores’ warehouses. 2. In my opinion, Joe Rutner’s proposal of establishing a set of six company-owned facilities to act as regional DCs seems to be a step in the right direction for taking on the supply chain requirements of BKI’s customers in the future. Rather than dismissing this store’s request as a one-off case and handling it on a temporary basis, Rutner has proposed a solution that is likely to take the company forward into the future.
He understands that the retail stores are themselves are looking to cut costs by improving their inventory and supply chain management and such requests would become common from most if not all of the existing customers. Moreover the new retail stores mushrooming in the market are likely to have less regional facilities and would need the proposed arrangement from BKI. 3. The matter of ownership of these facilities is very important for the success of this proposed supply chain arrangement as the management of BKI needs to study the long term impact of the costs involved.
In the long term it would be better if BKI goes for direct ownership of the facilities as it would benefit the profitability of the operations by keeping the costs of maintenance lower than those involved in the alternatives such as co-owned or franchisee structure. However, the management will have to consider the availability of capital resources if it opts for direct ownership. The capital required for the facilities could be lowered to an extent by going for rented building rather than constructing new premises. This would decrease the time required to implement the new proposal also.