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National Appliance Inc CASE STUDY
National Appliance Inc case study Bob Reard, Director of corporate transportation for National Appliance, Inc., has just hung up the phone after a lengthy discussion with Susan Jameson, vice president of logistics.
National Appliance Inc has just acquired an appliance distributor located in Paris, and the logistics department has two months to develop an operating process to support this European distributor with National Appliance Inc products. The shipments to Paris will begin in approximately five months, and Mr. Reard is to prepare a transportation operating plan for these shipments.
National Appliance Inc is a medium-size U.S. manufacturer of refrigerators and electric ranges. During the past fifteen years, National Appliance Inc has increased its share of the refrigerator and electric range market from less than 2 percent to 20 percent.
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Part of the reason for this tremendous growth is that National Appliance Inc offers high-quality products at low prices. In addition, National Appliance Inc has vertically integrated both its supply and marketing channels. National believes that quality products result from actually owning and managing key component vendors and that quality marketing and sales efforts result from directly managing distributors and retail appliance outlets.
It surprised Mr. Reard to learn that National Appliance Inc had purchased control of a European alliance distributor. There had been many rumors about expansion into the European market, but Mr. Reard had felt that National Appliance Inc would merely develop a contractual relationship with a distributor in Europe, not purchase a distributor.
Purchasing the Paris distributor is the first major international business venture for National Appliance Inc in its thirty-five-year history. During the late 1990’s the company had unsuccessfully attempted to market refrigerators in both Canada and Mexico. Mr. Reard had personally managed the truck shipments to both countries.
Consequently Mr. Reard and his staff have very limited international experience. They do, however, possess considerable expertise in domestic transportation, having successfully controlled both transportation costs and services during the company’s rapid growth in the past fifteen years.
Given the emphasis on quality products and service, top management has mandated consistent, low lead times. National Appliance Inc delivers domestic distributor orders in less than five days from the order date; the company allows no exceptions to this service policy.
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Truck transportation, including a private fleet, is the primary mode the company uses for both inbound and outbound shipments. Spare parts are normally shipped by ground express, but the company uses air express when the distributor or dealer needs a special part immediately. Ms. Jameson has established a logistics quality control program that measures carrier performance and has used Mr. Reard’s managerial skills to assure acceptable performance from National Appliance Inc carriers.
Having had little experience in international transportation, Mr. Reard feels a bit out of his element in developing an international transporation plan. Ms. Jameson has assured him that transportation is transportation and that the only difference between international and domestic transportation is distance.
Distance is going to be a major factor, since National Appliance Inc has plants located in Memphis, Minneapolis, and Omaha. This long distance from the European market will contribute to two basic problems; high transport costs and long lead times. Moving the products from the plants to the Atlantic or Gulf ports will require some form of ground transporation. Ocean carrier shipment will be long, and Mr. Reard will have to arrange to move the product from the French entry port to Paris. Mr. Reard is sure that he can hire an international transportation manager, but he will have to pay a high salary.
With the logistics planning meeting set for the next morning at 8:00 a.m., Mr. Reard prepares the following transporation plan for Ms. Jameson:
- Finished product from all three plants will be shipped by truck to NY/New Jersey ports.
- Water transportation will be used from New York/NJ to LeHavre, France.
- Trucks will transport the products from LeHavre to the Paris distributor.
- From Paris, the distributor will arrange transportation to the ultimate customer.
- An international transportation manager will be hired.
Mr. Reard estimates that the total transit time required for this move will be approximately four weeks.
National Appliance Inc, Case study Questions:
For this case, you must do the following:
a) Type up the answer to the question below, using supporting materials from text, class, news, research citations, etc.
- Develop an alternative international plan to present to Ms. Jameson, and provide justification sufficient to support its adoption. (include the strengths and weaknesses of your plan)
b) You must include one visual diagram, and include one justification for your strategy (strength or weakness). (For example, if driver issues might be a problem with your solution, you can tell why this isn’t a problem, based on the corporate strategy)
c) Include an overall conclusion of the case analysis.
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MODEL ANSWER
National Appliances Inc Case study
The current international plan made by Mr. Reard has some strengths and weaknesses but needs much improvement. Mr. Reard plans on transporting all finished products from three different locations to one main port through trucks. He also plans on using water transportation to deliver the products to the France harbor where they will be then transported to Paris through trucks. Due to his lack of experience in international transportation, Mr. Reard plans on hiring an international transport manager which will be quite hefty.
The main problems are a long lead time and high transportation cost from the USA to France. An alternative plan can be formulated in order to eliminate the weaknesses in Mr. Reards’ plan as well as eliminating the problems that are predicted. A new and better plan will be formulated in order to minimize on the scale of the current problems.
There will be a need for a central hub, where all products from Memphis, Minneapolis, and Omaha will be stored awaiting shipping and distribution. This will inevitably reduce transportation cost from all three locations to the harbor. A central hub will offer a service window defined by delivery frequency and response time to order (Rodrigue 2006).
According to (Carnarius 2018), longer journeys through rail can be cost effective as compared to road. This is because it is having reliable transit times and schedules and also fast and cost-effective. Moreover, one train can carry goods equivalent to 400 trucks hence more products can be transported to the port at once (Carnarius 2018).
Considering the amount of products to be transported, other modes of transport, like air, are considered economically unviable. Transporting cargo through the ocean is cost effective but at the same time disadvantageous due to long lead times (Carnarius 2018). Even though the four weeks of the time the water transportation is longer than the usual domestic time, it will reduce the cost for the company significantly.
Mr. Reard and his staff have helped in increasing the sales of National appliances from two percent to twenty percent in the last fifteen years. They possess considerable expertise in domestic transportation, having successfully controlled both transportation costs and services during the company’s rapid growth in the past fifteen years. Considering his experience, Mr. reard is capable of overseeing the whole project and will assure an acceptable performance from National appliances. Moreover, hiring a long-term employee will be expensive for the company. An alternative would be to consult an expert initially for setting up international operations. They will help the company overcome challenges and also increase revenue (Business News Daily 2021).
Using the new formulated plan will not only be cost effective but also reduce the long lead time. The company will have a smooth entrance into the global market and will inevitably see a high profit. A visualization of the new plan is presented in figure 1. The plan that would otherwise be presented to Ms. Jameson will be as follows:
- A central hub will be created between the three locations where all products will be transported from for New York/ new jersey in order to reduce transportation cost.
- In order to minimize on transportation cost, the products will be taken to the New York/new jersey ports through rail transportation.
- From the USA ports, the products will be transported through water to the LeHarve harbor in France.
- An international transport manager will not be hired, instead Mr. Reard will be overseeing the whole project.
References
Business news daily (2021). What is a business consultant. Retrieved from https://www.businessnewsdaily.com/4610-business-consultant.html
Carnarius J. (2018). Modes of Transportation explained: Which type of cargo and freight transportation is the best?Retrieved from https://forto.com/en/blog/modes-transportation-explained-best/
Rodrigue J. P. (2006). The geography of transport systems: logistics and freight distribution. Retrieved from https://transportgeography.org/contents/chapter7/logistics-freight-distribution/
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