There are five issues that are relevant. The president’s stance on steady output conflicts with seasonal demand. However, it is unlikely that this will change. The main problem is inventory management. One advantage of having a single, centralized warehouse is the lower need for safety stock due to the canceling effect of random variability in orders from the various regions. Conversely, with separate warehouses, each warehouse needs a relatively larger safety stock to guard against variations in demand. This would enable the centralized warehouse to see what the regional warehouses are stocking and also review their historical demand patterns and future customer forecasts. The fact that the regional warehouses have increased their order size but customer service has not improved reflects that the “wrong” inventory items are very likely being ordered. Relevant costs would include transaction costs, transportation costs, versus the potential increase in profit by making up a shortage. Other issues include the following:
ISSUE ONE: One alternative might be to identify a complementary product that would offset seasonal demand for electric grills.
ISSUE TWO: What is needed is overall control of the system that would take into account seasonal variations in demand and achieve a better match between regional demand and supply. This might involve making or improving regional forecasts. In any case, improved system visibility is essential: direct access to regional warehouse data by the main warehouse is needed in order to be able to coordinate and set priorities on inventory shipments to regional warehouses.
ISSUE THREE: It is also necessary to examine the feasibility of shipping from one warehouse to another when a shortage occurs.
ISSUE FOUR: Develop a policy regarding shipments from the main warehouse (to end user customers versus regional warehouses).
ISSUE FIVE: Invest in software (distribution resource planning [DRP]) which would provide desired visibility and also enable the main warehouse manager to “push” inventory where it is needed versus regional warehouse managers “pulling” inventory where they believe they need inventory, which may not be correct.