Supply Chain Management in Canada Case Study

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Strategic Supply Chain Management: Case Study

I. Executive Summary

Strategic supply chain management consists of strategic, tactical and operational levels, wherein general planning, short-term process decision-making, and day-to-day operations are planned and executed. This case study examines the supply chain issues of Krebbler-McCray Home Products and provides recommendations together with an integration implementation and monitoring plan to address both the long and short term issues presented in the case. The report is organized in the following sections: Issues Identification, Environmental Analysis, Root Cause Analysis, Alternatives and Options, Recommendations, Implementation, and Monitor and Control. It covers the strategy and market position of the company, the supply chain decisions that have to be made, evaluation criteria, possible alternatives, quantitative and non-quantitative analysis, how the best strategy can be implemented, and how the company be know whether the strategy has been successful.

The main points of this summary are the following:

1. The issues identified consist of

a. the company’s revenue coming almost exclusively from Canadian consumers, where competition is fierce;

b. operating expenses increasing as a result of no integration of operations following the merger of Krebbler and McCray;

c. There is considerable unnecessary overlap in the distribution system, which should be streamlined;

d. Krebbler’s quality does not lead to positive net revenues; McCray’s faster delivery and sales record does—but at a cost of a lower quality ranking

e. The big 5-year contract worth $30 to $36 million needs to be signed. It requires low-cost ready to assemble furniture like that which McCray can produce using its new CAD software. It will mean, however, reducing the footprint of Krebbler’s.

2. Environmental analysis reveals that margins are being squeezed by the low costs of competition from China, the customer base has shifted to bulk buyers from custom design buyers, and competition in premium product comes from Germany and Italy.

3. The strategic issues to be addressed are: 1) integration of the two businesses so as to reduce costs; 2) whose approach to retain and whose to drop—Krebbler’s or McCray’s, and 3) how to restructure operations so as to penetrate new markets and improve revenues, while cutting costs. Both financial and quality considerations have to be made.

4. The recommendations for the company are as follows: 1) the company must integrate distribution centers; it is currently operating two centers that have overlapping service channels—one of them can be closed to save costs; 2) the company must reserve the Krebbler approach for custom design clients and use the McCray approach for bulk buyers; 3) the company should expand into U.S. markets now that trade war with China has developed and in the U.S. there will be an opening to penetrate the market and fill a gap left by China’s absence.[footnoteRef:2] [2: Robert Channick, “Fallout from China Trade War,” Chicago Tribune, 2019. https://www.chicagotribune.com/business/ct-biz-china-tariffs-illinois-impact-20190510-story.html]

5. The decision to reduce Krebbler operations should be made so as to compete with low-cost competitors; however, the company’s reputation for quality should be reserved for custom design consumers. Expansion into the U.S. should be made by meeting retailer demand now that high tariffs are being placed against Chinese imports in the U.S. The large $30 million contract must be signed and tactical operations must be made to work to accommodate this new demand.

II. Issue(s) Identification

The strategy and market position of the company is to offer premium household wooden furniture to consumers in Canada, U.S., Japan and China. The vast majority of sales revenue comes from the domestic market (95.5%). 2.5% of sales in the U.S. and 1% of sales in Japan make up the rest of the company’s revenue sources.[footnoteRef:3] Essentially, outside of Canada, the company has made no inroads of any substantial impact in foreign markets. [3: Krebbler Furniture Case Study, Supply Chain Management Association, 12.]

The market for household furniture in Canada is extremely competitive. The founder Michael Krebbler took the company public five years ago so as to obtain capital for expansion as well as to give himself an exit strategy for his retirement. Because of the competitive nature of the market, however, the company has been struggling just to survive.[footnoteRef:4] By selling the company to McCray, Krebbler entered into retirement. However, the two businesses never fully integrated and at present are still operating as two separate businesses though they are owned by one owner.[footnoteRef:5] [4: Krebbler Furniture Case Study, Supply Chain Management Association, 3.] [5: Krebbler Furniture Case Study, Supply Chain Management Association, 8.]

Operating expenses have increased drastically since the sale of Krebbler’s to McCray. Two years prior they 7.23 million CAD compared to current expenses of 10.94 million.

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The main recent for this increase is the lack of integration between the two businesses, which means that Krebbler-McCray is essentially running two supply chains simultaneously. By integrating the two it could substantially reduce operating expenses and return to a positive net earnings—currently -3.25 million CAD as compared to a positive 1.187 million prior to the companies’ merger.[footnoteRef:6] The difference in income between before and after the merger can be seen in the income statement in the Appendix. [6: Krebbler Furniture Case Study, Supply Chain Management Association, 12.]

There is also considerable overlap in the distribution systems of the two businesses. The McCray Plant and Distribution Center crisscrosses with the Krebbler Plant and Distribution Center, as can be seen in Appendix B. Both businesses use national retail chains to move their products, and there is overlap here as well.[footnoteRef:7] In terms of delivery rate, McCray bests Krebbler by 25% and delivers in half the time (3 weeks vs. 6 weeks). In terms of quality and customer satisfaction, Krebbler bests McCray by 1.5 stars in the Furniture Quality Index (4.5 vs. 3.0). Krebbler’s extra time to delivery correlates with a higher quality ranking. However, its extra care also increases its overhead (for example, to construct a dining room hutch, labor at Krebbler costs $408 vs $135 at McCray;…

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…the company a reputation of being a provider of quality goods at a low-cost rate.

a. Pros: This fully eliminates any company bloat and cuts upwards of $6 million annually from operational costs, which firmly puts the company in the black and will allow for a positive cash flow for a consistent number of years. It will put demand on the supply chain management team to develop increased tactical designs for shipping and to establish strong logistical relationships so that products are moving consistently and at a rate proportional to the production of goods so that DCs are not oversupplied.

b. Cons: It will essentially eliminate the Krebbler staff unless they are willing to transfer to any new facility opened in the U.S. for logistical purposes. The problem here is that the staff will likely need re-training in order to update them on the best practices for achieving tactical goals.

VI. Implementation

The implementation of the top recommendations could be achieved by designating the 20% east plant space of McCray’s plant for all custom designed orders and using the Krebbler plant to increase output for the purposes of fulfilling the $30 million contract. The plant would need to be retrofitted with CAD to maintain best practices and this would require an elimination of or retraining of staff to meet the market demands. This could be implemented over the course of a year so that the company is ready to meet the needs of the new customer client. Further closures and expansions would depend upon how well the company is able to make inroads into the U.S. market, which from a strategic standpoint should not be difficult because of the tariff situation between the U.S. and China.

The implementation of these decisions should be made in a transparent manner so that no staff or stakeholders are shocked or surprised. The process should be explained to all in a manner that uses both transformative leadership and transformational leadership skills so as to ensure that the vision of the company is reasonably and logically explained and that all stakeholders are treated fairly and appropriately. Without this kind of leadership, the company may face serious resistance from stakeholders that could undermine the momentum and competitive advantage the company currently holds thanks to the quality factor that the Krebbler brand brings to the company’s reputation in the market.

VII. Monitor and Control

Monitoring and controlling the situation should be commenced using Six Sigma, which allows for the company to focus on ensuring quality, improving employee morale, and eliminating unnecessary costs from the production of goods for the market. Six Sigma shows where cuts can be made to improve the bottom line, and controlling for any issues will depend upon making internal reviews and audits quarterly. Reducing operational costs will depend not just upon eliminating any operational bloat but also upon enhancing employee morale and maintaining efficient productions and performance. With CAD, productivity can be programmed, but with custom design….....

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