TTI is located in Fort Worth, Texas and operates as a specialty distributor of passive, interconnect, and discrete components. “TTI’s mission is to be the most preferred electronics distributor for their customers and suppliers, deliver the right parts exactly on time, and to exceed their internal and external customer requirements through continuous improvement, while providing a home for hardworking, dedicated, knowledgeable, and ethical people who believe in this Company and this philosophy.
” (TTI, Website, 2011) Within this case study we are reviewing the potential effects that TTI would be faced with if they decided to place a Distribution Center (DC) in Asia. From the case study we learn that TTI saw two separate marketing trends on the horizon. The two trends Craig Conrad, Vice President of Sales for TTI, toiled with were that of globalization and customer demand for local inventory to just-in-time objectives. Paul Andrews, founder and president of TTI, and Conrad both were aware that some customers believed TTI needed a foreign presence.
Globalization within TTI’s customer base was rapidly growing as was the expectation from the customers for TTI to become global distributor. Andrew’s main concern with placing a DC in Asia was that TTI would stretch their resources to thin leading to damaged customer service. In the 1990’s TTI had opened sales branches in Europe, Canada, and Latin America. A DC was opened in Munich, but did not share the same success as the Fort Worth DC. This caused management to rethink the potential of opening other international DC’s.
During this time the auto replenishment process was on the rise, but TTI management feared that this process could not service customers overseas. The case study specifically sites these three concerns management had: 1. How much would the new facility and personnel cost? 2. Would TTI’s culture of excellence be maintainable in the foreign market? 3. Would the local market support the cost of the new facility? In particular, how much business required a local presence (VMI) as opposed to how much could be done form Fort Worth or Munich?
TTI was seeing Asia quickly become the fastest growing electronics market during the 1990’s and customers wanted to carry their operations overseas while maintaining the VMI and auto replenishment process that TTI had developed in this US. Because of the limited success TTTI had experienced in the previously mentioned ventures this caused great concern. However, as stated in the case, VMI and Auto replenishment made up 50% of TTI’s business and it was critical that they weight their options carefully. TTI knew that customers were moving toward globalization and that Asia was a hot spot for this move.
This forced TTI to evaluate the possibility of creating a DC in Asia which had the potential to eventually generate 20% of TTI’s overall sales. Some strategic suppliers TTI had long standing relationships with had already moved to China and the Philippines. If TTI did not set up a local DC in Asia this meant the company was looking at accruing an additional 10% shipping charge per product and that was just for a one way shipment. The challenge for Conrad was to make sure that the overall expense of opening the new DC would not cost more than overseas shipping charges.
The other concern Paul Andrews had was whether or not the locals in Asia could operate under the same cooperate structure that was established in the US. If the same cooperate culture could not be met then Andrews would not consider opening the DC in Asia. The three locations TTI considered for establishing this DC were Hong Kong, Singapore, and Malaysia. Each location had different benefits. Hong Kong was most favorable due to its logistical location. Singapore also had a very favorable location and English was the primary language for the locals. Malaysia was the least expensive of the three, but had the worst logistical position.
Selecting the right location was critical to the future success of TTI. In an article written by Karl Heil, he explains the importance of proper location selection. “If a company selects the wrong location, it may have adequate access to customers, workers, transportation, materials, and so on. Consequently, location often plays a significant role in a company’s profit and overall success. A location strategy is a plan for obtaining the optimal location for a company by identifying company needs and objectives, and searching for locations with offerings that are compatible with these needs and objectives.
Generally, this means the firm will attempt to maximize opportunity while minimizing costs and risks. ” (Heil, 2011) Based off of the comparison chart provided in the case study the location that best maximized the opportunity as well has minimized the cost was the Singapore location. The comparison chart clearly showed Singapore to have the most cost effective location. Hong Kong was competitive, but what really set the two apart was the overall facilities cost. Malaysia’s facility cost was half that of Singapore, however the logistical costs were extremely high.
The other benefit that I felt set Singapore apart was the native language. Creating a new DC location was going to be enough of a challenge without having to overcome a language barrier. The fact that English was the native tongue is invaluable for this process. With Singapore being the selected location the next logical step would be to implement a road map on how to set up the new DC. Gross & Associates is a firm that specifically helps companies through this process. On the web-site of Gross & Associates define the following five steps to assist with the process. “Determine the requirements the new facility must satisfy.
Determine the feasible alternatives to satisfy the projected business requirements. Analyze the viable alternatives, including both quantitative and qualitative aspects. Make and document the rationale for decisions and finally implementation. ” (Donald J. Derewecki, 2033) With the rapid growth of globalization I would absolutely have to consider opening a DC in Asia. With suppliers making the move over seas as well as customers it is a natural fit for distribution companies to also make the move. Competitors of TTI were making the jump and if TTI did not follow they were poised to lose a lot of business.
Going back to TTI’s mission statement at the beginning of this case study the term “continuous improvement” was stated. For TTI to continually improve they needed to open the Asian DC. Bibliography Donald J. Derewecki, C. (2033, Unknown Unknown). “GRAND OPENINGS: PLANNING A NEW DISTRIBUTION CENTER”. Retrieved November 14, 2011, from Gross and Associates: http://www. grossassociates. com/articles/design. htm Heil, K. (2011, unknown unknown). Location Strategy. Retrieved November 13, 2011, from Reference for BusinessEncyclopedia of Business, 2nd ed. : http://www. referenceforbusiness. com/management/Int-Loc/Location-Strategy. html