Network Instruments Inc.: The Warehousing Dilemma

Network Instruments Inc.: The Warehousing Dilemma

It was 9 pm GMT, yet Michael Russell (Michael), VP, Supply Chain, Network Instruments Inc. (NI) was in office. It was a chilly January 2010 night. Michael, was staring at the London Bridge from his office window and was thinking about the presentation, which he was to make to the CEO and CFO the next morning. The last year had not been a good one for the Supply Chain function. Though there was no unmet demand, the inventory and transportation costs had gone up. One of the contract  manufacturers could not supply the goods due to political disturbances and hence Michael had to source from a substitute contract manufacturer at a higher cost.

NI is a leading networking solution provider with flagship products like Routers RX III, Routers SX III, Switches and Video Conferencing Unit. Worldwide, it has a turnover of $20 billion and enjoys a market share of 70%. The supply chain entities consist of the company itself, Contract Manufacturers, Third Party Logistics Providers, Distributors and Customers. The Company does the design while the contract manufacturers manufacture the finished goods. The transportation from contract  manufacturers to the company owned warehouse and from the company-owned warehouse to the customer is handled by third party logistics provider. The customs clearance and in-country selling is done by the distributors..............

Michael has the following questions to answer:

I. Should Michael open a new warehouse at London and close the one in Amsterdam? Should he open the London warehouse and operate both Amsterdam and London? Should he continue as is? He has the option of either selling the Amsterdam warehouse for €10000 or rent it for €2000 per month.

II. What should be Michael’s mix of Contract manufacturers? How much should he source from each contract manufacturer? Should he consider the fourth manufacture and drop one? Should he continue with all four manufacturers?

III....................

Exhibits

Exhibit I: Capacity and Risk Factor (as of December 2009)

Exhibit II: Lead Time and Variable Transportation Costs for Leg 1

Exhibit III: Currency Exchange Rate

Exhibit IV: Lead Time and Variable Transportation Costs (same for all Units) for Leg 2

Exhibit V: Ordering Cost for Company when the order is Placed to Contract Manufacturer

Exhibit VI: Variable Storage Costs for Each Product per Unit for ECW and LW (estimated)

Exhibit VII: Price and Market Share (in 2009)

Exhibit VIII: Monthly Closing Inventory (2009)

Exhibit IX: Monthly Sales figure (2009)

Exhibit X: Split of Orders from Each Market in Europe (2009) (in %)

Exhibit XI: Manufacturing Costs (2009)

Network Instruments Inc.: The Warehousing Dilemma

Synopsis

This caselet is a classic example of how to setup an optimized end-to-end supply chain. The very complex nature of the hi-tech industry poses further challenge to the cost elements involved in the supply chain. The case gives an overall perspective of Leg 1 and Leg 2 logistics and the complexities involved as the number of stakeholders increase in the supply chain.

The caselet has a number of exhibits which details out the lead time, sales figures and the various cost elements in the supply chain. The idea is to frame a supply chain model using excel and work out the various combinations of suppliers, factories, warehouses and transportation modes. The risk factor and what if scenario analysis, is the key to this modelling.

Prerequisite Conceptual Understanding

A working knowledge along with the business implications of the following concepts would enable an effective discussion leading to more practical solutions than a mere intellectual exercise.

• • An understanding of end to end Supply Chain
• • An understanding of the cost elements involved in a supply chain
• • An understanding of the importance of What-If-Modelling in Supply Chain
• • An understanding of risk assessment in supply chain

Expected Learning Outcomes

• • Understand the stakeholders in the supply chain for a hi-tech company
• • Appreciate the various types of warehouse and transportation involved in an end to end supply chain
• • Understand the significance of supply chain What-if-Scenario Analysis
• • Modeling the supply chain in an excel spreadsheet
• • Appreciate the significance of forecasting and inventory management

Case Positioning and Setting

This caselet can be used in either MBA or Executive MBA or Executive Development Programs, for the following modules/topics in the Supply Chain Management course:

• • Forecasting
• • Warehouse Management
• • Inventory Management

Assignment Questions

The caselet seeks answers to the following questions:

I. Should Michael open a new warehouse at London and close the one in Amsterdam? Should he open the London warehouse and operate both Amsterdam and London? Should he continue as is? He has the option of either selling the Amsterdam warehouse for €10000 Euro or rent it for €2000 Euro per month.
II. What should be Michael’s mix of Contract manufacturers? How much should he source from each contract manufacturer? Should he consider the fourth manufacture and drop one? Should he continue with all four manufacturers?
III. ............................