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CASE 10

Management

CASE 10.1Pain Away CorporationGordon Sumner, chief executive officer of Pain Away Corporation (PAC), is feeling stressed out. The producer of transcutaneous electrical nerve stimulation (TENS)?unit, a battery-operated device that people use to treat pain, is faced with a new opportunity but Sumner is not sure how to approach it. The Food and Drug Administration has changed the rules and low current TENS units can be sold directly to consumers, starting in three months. Previously, they required a medical prescription for short-term use and could be rented from medical device companies.The market potential is huge thanks to the aging U.S. population. PAC could sell through national drugstore chains, pharmacies, and Amazon, but Sumner has some reservations. His past experience as chief supply chain officer for a power tools manufacturer has him remembering all the fulfillment issues when dealing with large retailers. He recalls retailers wanting small, frequent shipments to a larger number of locations with faster and faster service, advanced shipping notification, and RFID tags on all products for inventory vis-ibility. Of course, the retailers want to buy products at a wholesale price and sell them at a healthy mark up.Sumner wants to avoid those headaches and protect PAC's profit margins. He believes the consumer market will best be served through an e-Commerce direct sales model. PAC will require an easy-to-use consumer Web site, a strong marketing campaign, and excellent fulfillment capabilities if he is to compete effectively with the global TENS manufacturers that will flock to Amazon for rapid market access.PAC has started production of three consumer TENS models at the company's factory outside Louisville, Kentucky. The inventory is being held in the PAC distribution center (DC) next to the factory, awaiting their release date. The DC currently fills orders for medi-cal device companies and Sumner thinks that consumer orders could also be fulfilled there with a bit of effort.Sumner calls a meeting with his supply chain leadership team about pursuing the e- Commerce method and to get their recommendations regarding fulfillment. All are in agreement that direct-to-consumer is the way to go. After some brainstorming, the team identified three reasonable options to serve the U.S. market:Option 1—Upgrade the existing PAC DC in Kentucky to handle both consumer orders and medical device company orders.Option 2—Expand the PAC fulfillment network. Establish regional DCs in Reno, Nevada and Columbus, Ohio to complement the existing Kentucky DC.Option 3—Outsource fulfillment to a capable 3PL company. This would allow PAC to focus on production, demand planning, and marketing.Sumner's next step is to fully evaluate the three options and choose a path forward before his upcoming meeting with PAC's board of directors. They will ask tough questions and Sumner must be confident in his recommendation.

1.   Compare and contrast the three options from the perspective of cost. Which one do you believe will provide the most economical solution for PAC? Why?

2.   What types of functional and cost trade-offs will Sumner need to analyze?

3.   Which distribution option do you feel gives PAC the best opportunity for future success? Why?

4.   How should PAC leverage automation for its consumer fulfillment processes?

 

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Answer:

1)With respect to point of view of client support, the three choices are more noteworthy contrasted with those given by PAC (Pain Away Corporation).

Choice 1 gives the alternative to more noteworthy treatment of various shipments and they have better speed and effectiveness to give the best help with fewer imperfections. Alternative 2 will add numerous quantities of dissemination focuses to keep the items closer to their client, still, there will be a few districts that are not near, causing the delay. Between choice 1 and alternative 2, the organization is upgrading in this manner to deal with the speed. While Option 3, they are rethinking, consequently the expense relies upon the provider of these administrations with shipment request size, transportation, and speed of the request satisfaction. As I would see it Option 3 will be the best arrangement, since they offer the 3PL to cover the satisfaction cycle and conveyances while PAC centers around their quality and assembling with appropriate arranging and you will utilize another person's organization for dissemination who is more fit for doing house to house conveyances and cost of conveyance

2. From the point of view of cost, I might want to recommend Sumner think about the accompanying three sensible alternatives. Every one of these choices includes inescapable expenses, yet among the three alternatives, choice 3 is the expense-proficient one for Pain Away Corporation until they have reached and extended to new regions for new appropriation places. Here are the differentiation and examination:

For choice 1, it will have a moderate expense increment forthright as PAC will put resources into request to secure new innovations, which may incorporate PCs, machines, and so on Besides that, preparation costs and operational expenses additionally should be considered. This will be helpful to PAC regarding pace and effectiveness. However, it would influence the costs with respect to the client's side since conveyance costs will increment. In doing as such, PAC would have some support and extra preparing costs for their new hardware that they have procured.

For choice 2, it will require a greater interest in the provisions of money related to a new foundation and the new innovation that they will utilize. This should be paid over the long haul since it will in all probability be financed. Work costs will increment also on the grounds that they will have representatives doing likewise assignments at three distinct areas. There will be a great deal lower capability of lost deals and transportation costs as they will actually want to spread their channels to different areas. In spite of the fact that they will likewise have higher stock and warehousing costs because of this outstretch of assets. This should help over the long haul however requires significant costs now.

For choice 3, it is the most straightforward among all regarding costs since whatever the 3PL charges you for a shipment, the enterprise can pass it to the client. There are no prompt capital ventures and activity expenses can really descend if producing is quite lean. For little average-sized requests, this alternative would be the most intelligent for cost. In any case, with regards to bigger orders, the outsider choice will fire piling up a huge cost with regards to warehousing cost.

3. In choosing which alternative to go with Sumner has numerous practical and cost compromises to dissect.

In one alternative Sumner is providing numerous orders and more modest shipments from a similar overhauled conveyance focus area and improving stockroom area also. This utility is pretty much as likely as not to be the most ideal choice since it will require more going around to deal with all various orders with a similar one area simply a more improved framework. The overhauls will be helpful and there won't be a crazy measure of expenses in improving like the other 2 choices yet transportation costs will be exorbitant relying upon zones expected to serve and the measure of more modest orders expected to satisfy on the off chance that they are everywhere. In the subsequent choice usefulness will improve since they are adding the conveyance places to areas that likely have an appeal for clients just as upgrading these operational cycles. The costs will be higher on the grounds that adding more appropriation areas will have more representatives and the stock to fill them yet the stock is currently scattered between the various areas instead of simply being situated at the single circulation community so there will not be an over the top measure of stock being added only somewhat more. The cost would be more in this choice than Option 1 however more useful than alternative 1.

With choice 3 Sumner will be surrendering all purposes of the satisfaction to the outsider coordinations so it is reliant upon them to take care of requests regarding rate, effectiveness, and all together size shipments that the client needs so usefulness depends just on the outsider coordinations organization. Yet in addition, in this alternative, it takes into consideration enterprises to fixate just on the quality, requests arranging, and stock administration so the two can improve with one another on the off chance that they are both taking care of their responsibilities effectively.

4. As I would see it, choice 3 will consistently be a decent choice and decision for PAC until they have reached and extended to new territories for new dispersion places, on the grounds that their office isn't sufficient to help their creation and inventory network measures. There is something more for PAC to stress over and can have a lower stock in their present dispersion community and accordingly lower stock expenses too. With partnership's development, the warehousing costs will soar after expanded volume. Later on, PAC can try to make numerous mechanized circulation communities.