Changes to Operations

Nolan Stevenson

LSCM 3960

Case 10.1

1.  Changes to operations will create changes in customer satisfaction.  Out of the three current options Option 2 will lead to the highest level of services.  Option 1 in upgrading the current distribution center will aid in the shipments to retailers still faces the biggest issue of only one location.  This causes consumers at the furthest distances to not see the upgrades to their full extent.  Repercussions of this are extended customer shipping times to the costal areas of the US.  Option 3 while the easiest option to implement as the problem is removed from Himmer completely adds a new potential for customer dissatisfaction.  Using a third party could lead to orders being misplaced.  Additional communications and hands touching product leads to more problems.  Along with this is the customers added need to communicate with two parties about the whereabouts of their product.  Option 2 is the best for meeting customer service needs.  Smaller shipments become more reasonable as distances are cut.  This is also true for individual orders and shipping as distance and shipment times are lowered.  
2. Cost is a major player for expansions and meeting customer needs.  Option 2 is the most expensive as it triples overhead, and the upfront cost of building two new centers is immense.  Option 1 is also expensive in the need to update the current distribution center.  With this comes the unknown if shipment times can still be met due to the distance to some of the retailers they provide.  This option however is most likely the best in reference to cost.  Option 3 has the most variance with no data on how it impacts the overall profits.  No internal adjustments must be made leading it to be the most cost efficient in the short term.  However, the continuous costs will cut in to profits potentially leading to a costlier solution over the long term.  
3. Cost tradeoffs will come in multiple factors the primary ones being shipping and overhead.  The costs of upgrading or adding additional facilities is offset with the lowered shipping costs and potentially warehousing.  Overhead is another in the number of employees and physical equipment comparatively between the options.
4. Option 2 offers the best future.  While perhaps one of the costliest in the short term the reduction in shipping and increase in customer satisfaction are present.  The addition of 2 more distribution centers allows for further growth without the growing pains.  This could lead to expansion into Canada or Mexico for retailers.  Upfront the costs are great but as far as future health for the company this presents the most stable answer.