Business Case Study Question

Compact Bicycle Company

You are an independent supply chain consultant that has recently been hired by Eddie Miller, the Director of Operations for Compact Bike Company (CBC). You have been hired to assist in evaluating their current supply chain and making recommendations on a specific set of challenges and opportunities CBC is experiencing.

CBC is a Canadian owned and operated manufacturer of folding bicycles. The bicycles are marketed specifically to space conscious individuals who will pay a premium for a bicycle that stores in a more compact area than that of traditional bicycles. Typical customers include hi-rise condominium owners, boat owners, and trailer-home owners.

CBC has been in business since 1996 and has only ever sold to the Canadian marketplace. This year, CBC estimates they will surpass their highest ever year in terms of units sold and is now reaching the assembly capacity of their current space located in Gatineau Quebec. When the firm first opened, they manufactured the frame bodies and hinges, outsourcing for parts such as gears, brakes, seats, and wheels. Today the company only assembles parts purchased from different suppliers and no longer manufactures the frames. This has benefited their ability to use the latest types of frame materials and parts to stay current with the face-paced industry and consumer demands.

CBC manufactures only one premium model consisting of an all-aluminum frame, 20 inch wheels, ergonomic seat, 7 speed twister-shift gearing, and a single spring suspension. CBC has sourced what it considers to be the best available components, making their bicycle one that does not compromise on quality. Each bicycle frame is painted in their trademark pearl orange colour. The bicycle enjoys a bit of notoriety in the folding bicycle industry for its signature colour, premium parts, and commitment to a single, non-customizable model of bicycle. In the late 90’s, CBC began marketing their bicycle simply as the model year versus and actual model name or number and this tradition has also kept up in lieu of creating model numbers.

Sales are done entirely through a network of small boutique high end bicycle shops across Canada. This strategy fits well with CBC’s limited assembly capacity and keeps the organizational identity of a small, premium, niche brand that CBC is looking to maintain. Because of this distribution network, CBC typically only ships to major cities that would have boutique bicycle shops.

The entire operation is run from their Gatineau Quebec facility where the CEO, Juanita Bartlett is very active in all facets of the business. Their organization is minimalistic with a Chief Financial Officer, Director of Operations, Director of Marketing, and Director of IT making up the entire senior staff. Today there are 61 total staff members all working out of the Gatineau Quebec facility. Next to the CEO, Eddie Miller, the Director of Operations has the largest function at the firm with most of the firm’s employees reporting directly to him including product engineering, the assembly teams, and supply chain.

Eddie has been challenged by Juanita to find cost savings or service improvements in CBC’s supply chain. Competition is increasing and although CBC’s bicycle is known for their build quality and customers are willing to pay a premium for the bicycle, other manufacturers are creeping into the premium category and this places risk on future demand. As a strategy, Juanita has asked Eddie to investigate any opportunities that may exist that will not compromise the quality of their product or delivery service. Although Eddie has overseen supply chain functions for years, he admittedly is not very familiar with the industry and has only vague ideas of where CBC could potentially find savings or service improvements.

Within the supply chain team there are four individuals that manage the transportation suppliers, tender loads to carriers for transportation, manage supply contracts for the assembled parts providers, and manage the space within their 200,000 square foot facility in Gatineau. Although CBC does provide service to all provinces, they have yet to establish any sales in the three territories. CBC has hired a third party distribution centre (DC) in Regina SK to serve locations in British Columbia, Alberta, Saskatchewan, and Manitoba. From Gatineau, CBC services the other provinces (Ontario and East) directly using LTL service.

The bicycles are packaged in a protective sleeve then placed in an unmarked corrugate carton for shipping. Each carton measures 85 cm in length, 35 cm in width, and 60 cm in height. Each finished carton weighs 15 kg (which includes the weight of the bicycle, storage bag and external carton). Bicycles are palletized on standard 48 x 40 wooden pallet (weighing 30 lbs.) and shrink wrapped prior to shipping. Units may be stacked three high for transportation or storage. The engineering team does not recommend double stacking of pallets.

Currently, CBC uses a single carrier for their shipments to the Regina DC and is charged $4.00 per mile plus a 25% fuel surcharge. Outbound from the Regina DC to actual retail stores is done by LTL carriers, managed by the Regina DC and charged directly to the receiving store.

Demand for CBC’s bicycles does fluctuate significantly with the weather patterns. Some western cities enjoy a more consistent level of demand due to their climate and conversely some cities that experience longer winters have tended to have a larger gap between their peak and off peak months. The Director of Marketing has setup a release schedule for the new units each year to coincide with the spring demand increase in March. There is a targeted marketing push in October, November and December for the holiday season and then in January and February to sell the remaining units from the previous model year. The Director of Marketing has provided the following forecast for the next year.

Boutique Store Locations

When a truckload is received, the Regina DC requires one day to unload and place the units into storage and then commits to having any units picked the same day they are required to ship to any location.

Transportation from the Gatineau QC location to the Regina DC is $4.00 per mile plus a 25% fuel surcharge (at the current rate of fuel) for Truckload service. The transit time from Gatineau to Regina for Truckload service is four days. The Regina DC is currently only accepting full loads however they are willing to take lower quantities if required. The Regina DC charges a flat rate of $31.50 for storage and handling per unit per month. Orders placed from stores served by the Regina DC are shipped via LTL from the Regina DC warehouse by the same national LTL carrier for shipments originating in Gatineau QC All TL and LTL loads must be palletized for shipping. Eddie was able to obtain the LTL rates that are currently being used (see Appendix A LTL Rates & Transit Time). The current LTL fuel surcharge is 19%.

Some boutique stores have indicated challenges in taking large volumes of bicycles because of the storage space requirements however the higher volume stores have taken larger quantities in the past. CBC established a freight policy a number of years ago that requires a minimum order quantity to be one pallet. Provided a store orders at least one pallet of bicycles, CBC will pay the LTL transportation cost. Very rarely do stores order less than the minimum order quantity. This policy applies to all stores, including those served by the Regina DC. Stores have their own replenishment technique for ordering. Most wait until they have two or three units left in stock prior to order a new pallet from CBC.

TS Challenges:

You are to prepare a formal written report that will focus on the following four areas of concern. You have been hired to specifically address these challenges and should focus on these issues and opportunities. The report should contain an executive summary that highlights your recommendations, a formal written report body and any supportive appendices that are required. The format of your response is detailed in the Business Case Study section of your course site.

1. Eddie has been curious about shipping directly to the Central and Eastern Canadian locations using a multi-drop TL service (milk run) versus LTL. Specifically, Eddie would like you to review the opportunity to consolidate loads and convert these to TL service. The TL carrier that currently provides service to the Regina DC has indicated a willingness to do this but will charge an additional $150 per stop. The TL carrier has informed you that the $4.00 per mile rate would apply to any routes above 1,500 miles. TL shipments below 1,500 miles would be charged $5.00 per mile. The TL carrier calculates transit time simply by applying one day for each 500 mile increment. Your analysis should provide a recommendation using both qualitative and quantitative factors on the potential to convert the Central and Eastern Canadian cities from LTL shipments to TL. The Central and Eastern stores have indicated a willingness to convert to a more fixed delivery schedule as it may give them the opportunity to order in different quantities than whole pallets.

2. Some Boutique retailers have been requesting that CBC provide an expedited shipping option for customers to receive their unit directly from CBC when a stockout occurs at the boutique store. This request is coming direct to Juanita who is also keen to consider the option as a potential bridge to opening their own electronic retailing business. You are being asked to provide insight into how couriers would charge for this service, the benefits and detriments of this type of service and any factors that should be considered by CBC before agreeing to do so. A member of Eddie’s transportation team has already received pricing and dimensional weight conditions from an air courier and you have been asked to use this as a part of your analysis (see Appendix B Courier Rates and Conditions).

3. A Canadian Load Broker has approached Eddie on several occasions offering to provide 10% savings on their TL rates and 15% savings on their LTL rates. The Broker would arrange all of the outbound loads from Gatineau from their office in Mississauga. Eddie would like you to provide insight into the benefits and detriments of Load Brokers and a recommendation on whether or not to make this change. They are not experiencing any issues with the TL carrier to Regina but have from time to time experienced some delays with their LTL carrier.

4. The trademark pearl orange paint is sourced from a specialty paint manufacturer in Regina SK. As CBC is currently shipping TL quantity to the Regina DC, you and Eddie discussed the potential to create a round trip where an outbound truck would take finished product from Gatineau QC to Regina, then load the monthly TL shipment of paint from the Regina SK supplier and return back to Gatineau QC. The TL carrier would reduce their rate by 25% and the paint supplier would provide a worthwhile reduction in their price as well. Eddie understand that shipping paint is more complicated because of the dangerous goods legislation and would like you to investigate and report on roles and responsibilities of the paint supplier, TL carrier, and CBC understanding that CBC may undertake arrangement of the shipping with the TL carrier as described above. Your findings need to specifically identify the responsibilities of each of the three parties to assist CBC in determining if change in shipping should occur. You do not need to focus on the cost savings in transportation or the suppliers price for this challenge.

Appendix A: LTL Rates & Transit Time

Appendix B: Courier Freight Rates & Conditions (Airfreight)