有没有牛人帮我分析分析这个supply chain的case啊。谢谢啦。很长。。

bess1989lee

AARCO, Inc.

Current Situation:

Carol Quinn,VP of Operations, is hoping her new Supply Chain Manager can help find ways to reduce logistic expenses at Aarco.Just a month earlier Carol’s Purchasing Manager, Paul Thorpe, had tendered his resignation.Thorpe had been a long term employee with substantial experience (over 35 years).So much experience, in fact, that Thorpe had become a bit of a prima donna with a crusty personality.He felt personally attacked when management suggested he pursue any course of direction different from his own.A few months ago three of Aarco’s key suppliers of steel fittings had approached Thorpe seeking a price increase.Thorpe, having worked with all three suppliers for many years and was friendly with all three salesmen had tentatively agreed to the price increase.Carol Quinn informed Thorpe that with the current economy a price increase this year was out of the question and to tell the suppliers there would be no price increase.Not only would there not be a price increase but that Thorpe had to find ways reduce costs.Not one to be told what to do, Thorpe took a retirement package from the company and resigned in a huff and could be heard saying as he walked out, “if you think you can do better than go ahead and do it”.Carol is now counting on her new Manager to try and generate some much needed savings.



Background:

Founded in 1900 in Syracuse, NY, Aarco made its reputation manufacturing a premier line of heavy duty and explosion-proof electrical products.Aarco, Inc. is a division ofconglomerate C&S Industries.Aarco was the world’s largest manufacturer of industrial electrical products for hazardous environments with sales of nearly $2.5 billion.Products include a range of industrial lighting products, conduits, heavy duty circuit breaker and electrical control stations, outlet boxes, fittings and even heavy duty flash lights costing as much as $300 apiece.All products are designed for use in industries where the probability of an explosion is high or where conditions, either man-made or natural, are quite adverse. Aarco products are considered to be the best on the market.The primary customer base includes the oil and gas industry, the chemical industry, mining operations, airports, and governments.

Although Syracuse was a key manufacturing location, Aarco shipped all of its finished goods to Roanoke, Virginia where Aarco had their national distribution center.In fact, all manufactured goods from all of Aarco’s plants were shipped to the distribution center in Roanoke.When a customer placed an order with Aarco virtually all customer orders were shipped from Roanoke distribution center.Actual customer orders are entered by Customer Service in Syracuse, NY.These orders are then transmitted nightly to the warehouse management system in Roanoke, VA.The Roanoke warehouse management system receives the orders from Customer Service each night and plans the workload in the distribution center for the upcoming day.Orders that are transmitted overnight are picked beginning at 7 a.m. the next day and shipped later that same day.
Aarco sells all its products FOB Shipping Point, Prepaid.Orders to the large corporate clients are shipped direct but by far the majority of Aarco sales go through a large distributor network.Distributors then sell to the final customer.The majority of Aarco products ship LTL at Class 85 but there are quite a few products ship at class 77.5 and some even at class 70.



In the United States, California receives the greatest number of LTL shipments.Last year Aarco shipped 4,000 LTL shipments to distributors in California at a total annual freight cost of $2,200,000 with a total annual weight of 1,800,000 pounds. ¹For Aarco, this made California the destination state with the greatest number of LTL shipments.This volume was expected to remain the same this year.The transit time for an LTL shipment from Roanoke, Va to California is approximately 6 business days but there could be considerable variability with this transit time. Often the transit time exceeded 6 business days.



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¹Assume ACME uses 250 business days per year (5days per week) or 50 weeks per year



To manufacture these fittings Aarco purchases raw materials and semi-finished components from a variety of suppliers.2500 miles away are two key suppliers for Aarco,Digby Gaskets, located in West Covina, CA, and about 5 miles away, Baldwin Castings located in Montebello, CA.Both supplied Aarco with finished components that went directly into finished goods inventory at Roanoke, Virginia and was later sold to customers.Last year Aarco purchased about $10 million from Baldwin and $7.5 Million from Digby.To keep inventory low and to improve the flow of materials Thorpe had previously requested both suppliers to make daily LTL shipments to the Aarco distribution center in Roanoke.Baldwin ships about 2,000 pounds per day and Digby ships about 1,400 pounds per day.



Chester Connectors is a third supplier located in Oklahoma City, OK and supplies many of the internal connections used inside the steel fittings such as wires, gaskets, etc.Like Baldwin and Digby their product also went directly to inventory.Though not as significant a supplier as Baldwin and Digby, Chester supplies about 1,000 lbs of connectors daily to Aarco at an annual purchase expenditure of $4 Million.Just in case there are any disruptions in supply from Baldwin & Digby and Chester Thorpe directed his staff to kept an average of 5 weeks of inventory on hand in Roanoke from each of these three suppliers.The annual holding cost used by Aarco about 24%.



Aarco, Inc

Aarco is a large shipper, both inbound and outbound.They purchase other materials from suppliers around the country and sell to customers all over the United States.Even though the majority of Aarco’s shipments were LTL there were still a nice volume of full truckloads.Enough so that Aarco had negotiated a truckload rate with a national carrier of 4.10 per mile for driver teams. ²Aarco did not operate any of their own trucks.All transportation was hired.Occasionally Aarco would utilize the services of a 3PL to act as a “Lumper”.On those occasions the 3PL would charge by the hundred weight³

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²$4.10 per mile was for a one way trip for a driver team. Driver teams can cover 1000 miles per day.A 5% discount can typically be obtained for rounds trips.The TL rate does not include any additional fees such as fuel surcharges or stop off fees.Typically the fee for a stop off is $200 per stop.

³Lumpers could be hired for $10 per cwt

The Purchasing department had been managed by Paul Thorpe for about 30 years.Though Thorpe had responsibility for both inbound and outbound transportation Thorpe never wanted to be bothered with inbound transportation (i.e. material coming from suppliers).He felt inbound transportation was just a necessary evil of having to procure the material needed to keep the factory running. As such, Aarco purchased most of their raw materials and semi-finished/finished components FOB Shipping Point, Prepaid.Thorpe had previously estimated that about a 4% of the purchase price of these components is probably freight cost while about 96% was actual material cost.Thorpe was more interested in outbound transportation.Generally speaking, Aarco freight is very desirable from a carrier’s point of view.It is dense and not easily damaged.As a result, Thorpe was often able to negotiate outbound LTL rates well below the national average.For outbound shipments, transportation as a percent of sales was about 2.5%.



Inter-Company Shipments

Aarco also operated several other manufacturing locations in the United States. These locations can be seen in Table 1 below.Table 1 shows the average weekly volume and distances between Aarco manufacturing facilities and the Roanoke DC.All of these shipments are made via truckload carriers using a single driver.⁴Occasionally Aarco would utilize the services of a 3PL

[td=138]

350,000 lbs

[/td][td=81]

519

[/td]

AarcoManufacturing Locations	Average Weekly Volume	Mileage
Syracuse, NY
Montebello, CA	17,000 lbs	2,430
Windsor, CT	17,000 lbs	564
Brunswick, ME	25,000 lbs	787

Table 1. Weekly volume and distance from aarco plants to the Roanoke DC (computed as annual volume divided by 50 weeks per year.Even though the weekly weights might only be 20 or 25 thousand pounds they were still shipped as a full truckload via a TL carrier.Meaning, Aarco was paying for a full truckload whether it was full or not.A single driver can drive approximately 550 miles in a day.

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⁴$3.20 per mile was for a one way trip for a single driver.A 5% discount can typically be obtained for rounds trips.The TL rate does not include any additional fees such as fuel surcharges or stop off fees.

Events leading to Thorpe’s resignation



Earlier this year Baldwin, Chester & Digby all approached Aarco with price increases.Thorpe, who has been friends with all three Sales Managers over the years, had considered giving them their price increase, citing increasing costs.Thorpe had already given them one increase earlier in the year.



Thorpe’s manager, Carol Quinn, has been complaining that the purchase price variance for these three suppliers is already trending unfavorable, meaning, the price for these fittings is already costing more than what the accounting department had set the standard price at.Carol told Thorpe that the economy is very tight and that Aarco can’t afford a price increase of any kind.She says to Thorpe that she is not intimidated by his knowledge of the business.There is no place for renegade managers.He has to control his budget.Thorpe, not to be intimidated himself, decides he is not going to be told what to do at this point in his career so he decides to take a retirement package and resigns.





See Exhibit 1 for LTL costs Within the state of California



Exhibit 1

LTL Costs Within the state California.

Min$110.00

0-499$40.75

500 – 999$38.00

1000 – 1999$35.00

2000 – 4999$32.80

5000 – 9999$31.50

10000 – TL$28.00

























Your task:

Carol has hired you as a consultant to help her reduce costs thereby contributing to the bottom line of Aarco.If you do a good job maybe she will hire you full time to fill Thorpe’s vacant position.You need to conduct an analysis of the current situation, identify opportunities and make a convincing argument to Carol why she should adopt your recommendations.



1).You should provide a quantitative analysis of the current environment.In other words, what is Aarco spending today?What does the current environment look like?Identify anything you see as good and anything you see as not so good and why?

2).What opportunities if any can you find?What would you recommend

3).What will it cost Aarco if they implement your recommendations?

4).The difference between the current environment and your proposed recommendations is your savings.Costs and savings should always be presented on an annual basis.



Remember, you cannot make a recommendation to do something without supporting it.If you make a recommendation to your manager, the first word you are going to hear is WHY?What this translates to is, your analysis must contain numbers supporting your recommendation with facts and figures.



Begin your analysis with a concise Problem Statement:The Problem statement should be no more than a couple of sentences in length.It should not include any potential causes or any potential solutions.The problem statement just states the immediate “pain” that is being felt.It’s a brief statement of what isgoing on in the current situation?



Hint 1:I suggest drawing a picture of what is currently taking place.Give yourself a visual then cost out what is currently taking place.Then, draw another picture incorporating your ideas and cost out this picture.The difference between the two would be your savings.



Hint 2:Since there are many figures in this case consider how you would organize your paper for someone else who might read your paper.Not just me but your manager or others.For example, I might make liberal use of tables to organize facts/figures/costs and recommendations.Your paper should contain both text and tables.If you make a recommendation to your boss the very first thing you will be asked is why?You need to tell your boss “why” with fact & figures.You have to prove it.



Hint 3:Practice getting to the point.Explain yourself clearly but concisely.



Hint 4:All good business reports have a summary.If your report has a lot of figures then summarize those as well in a easy to read format.