Solution to BIS Corporation case

SALIENT POINTS OF THE CASE

 Bis Corporation is paint manufacturing company established in 1964, It has

now eight manufacturing plants and sell to 2000 retail stores.

 Distribution system is single tier where product is produced in plants, stored in 17 warehouse and then to retail outlets

 It has 12 shareholders and newly appointed CEO

 It produces and sells about 400 SKUs at similar price. Gross margin is 20%

 All the production and distribution strategies were formed 20 years ago and were never modified. So new CEO wanted the supply chain to be modified

 Reengineering of production, inventory and logistics functions should be done.

 CEO and share holders are not willing to construct new manufacturing plant.

Main problems faced by BIS Corporation:

 Single tier network which causes low truck utilization and high transport costs.

 No clarity that how inventory should be positioned 4000 SKUs.

 No clarity about which product /product family should be produced in which plant.

 Low customer service.

So the consultancy has suggested 2 tier systems with primary and secondary warehoses.It collected data for following:

- Demand for each product family

- Annual Production capacity at each plant

- Maximum capacity of warehouse

- Transportation costs

- Set up costs

- Potential locations

BIS has also done market survey and identified growth in its markets for each product family. Case Analysis: Production Strategy: - BIS can select among the following strategies: A. All products can be produced at every plant. Advantages: 1.It will reduce transportation cost. 2. High customer service level. Disadvantages: 1.High inventory level to be maintained. 2. High overhead cost. B.Two production units in one zone’s, high volume low cost products can be produced in each plant and low volume/demand can be produced at one production plant out of two in each zone. Advantages: 1.Reduction in inventory level. 2. Less overhead cost. Disadvantages: 1.Comparitively high transportation cost. 2. Lower customer service

Ware house and distribution strategy:- Fig- Assumed location of Production unit and W.H. (original)

Geog. Zone-4

Production unit-8

Primary WH-17

Statein USA-50

*Secondary WH-34

Retail zone-550

Total states in USA are 50 divided in to 4 zones. So each zone contains approximately 12 states. So we can assume that each zone of USA consists of 2 production units. Three zones contain 4 warehouses each and one with 5 so total 17 warehouses is distributed. So each production unit is connected to 2 warehouses and each WH serves three states. Each state contains about 11 retail zones. So one WH have to serve to about 33 retail zones. So it is difficult to serve all 3 states (33 retail zones) from only one WH with satisfactory level of customer service. Suggested strategy:

BIS Corporation can go for 2 -tier distribution network by establishing 34 secondary WH’s. Total 51 WH will be there. So on average each state will get one WH. All the present WH will serve as primary WH each for 2 secondary WH and the local retail zones. Advantage:

 High customer service level.

 Low transportation costs to customer.

Drawbacks:

 High inventory.

 High set up costs.

 High inbound transportation costs.

 High maintenance costs.

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