Chapter 13, Problem 3.1CQ

Grill Rite is an old-line company that started out making wooden matches. As that business waned, the company entered the electric barbecue grill market, with five models of grills it sells nationally. For many years the company maintained a single warehouse from which it supplied its distributors.

The plant where the company produces barbecue sets is located in a small town, and many workers have been with the company for many years. During the transition from wooden matches to barbecue grills, many employees gave up their weekends to help with changing over the plant and learning the new skills they would need, without pay. In fact, Mac Wilson, the company president, can reel off a string of such instances of worker loyalty. He has vowed to never lay off any workers, and to maintain a full employment, steady rate of output. "Yes, I know demand for these babies (barbecue grills) is seasonal, but the inventory boys will just have to deal with it. On an annual basis, our output matches sales."

Inventory is handled by a system of four warehouses. There is a central warehouse located near the plant that supplies some customers directly, and the three regional warehouses.

The vice president for sales, Julie Berry, is becoming increasingly frustrated with the inventory system that she says "is antiquated and unresponsive." She points to increasing complaints from regional sales managers about poor customer service, saying customer orders go unfilled or are late, apparently due to shortages at the regional warehouse. Regional warehouse managers, stung by complaints from sales managers, have responded by increasing their order sizes from the main warehouse, and maintaining larger amounts of safety stock. This has resulted in increased inventory holding costs, but it hasn't eliminated the problem. Complaints are still coming in from salespeople about shortages and lost sales. According to managers of the regional warehouses, their orders to the main warehouse aren't being shipped, or when they are, they are smaller quantities than requested. The manager of the main warehouse, Jimmy Joe ("JJ") Sorely, says his policy is to give preference to "filling direct orders from actual customers, rather than warehouse orders that might simply reflect warehouses trying to replenish their safety stock. And besides, I never know when I'll get hit with an order from one of the regional warehouses. I guess they think we've got an unlimited supply." Then he adds, "I thought when we added the warehouses, we could just divide our inventory among the warehouses, and everything would be okay."

When informed of the "actual customers" remark, a regional warehouse manager exclaimed, "We're their biggest customer!"

Julie Berry also mentioned that on more than one occasion she has found that items that were out of stock at one regional warehouse were in ample supply in at least one other regional warehouse.

Take the position of a consultant called in by president Mac Wilson. What recommendations can you make to alleviate the problems the company is encountering?