Question

Penner Medical Products

On Monday, April 14, Neil Bennett, Warehouse Manager at Penner Medical Products (Penner) in Rockford Illinois, was concerned about rising costs and delays associated with shipments arriving from an important Canadian supplier, Stinson Distribution Company. Ken McCallum, General Manager of Penner has asked Bennett to review and analysis the situation and report back to him with recommendations by the end of the week. Penner Medical Products Penner was a family owned business which was a medical supplies distributor and retailer supplying small and medium-sized medical practices for more than 75 years. Penner employed 120 people and currently had sales of forty million dollars. Penner’s management expected a 10% increase in sales over the next five years. Penner sold a wide range of products to its customers, such as blood pressure gauges, tongue depressors, scalpels and specialized furniture. Customers could purchase products from the five Penner retail locations which were located within 200 kilometres of Rockford or order directly from the warehouse. Penner took orders through customer service by telephone or through its website. Retirements of key family members had resulted in the hiring of several professional managers to run the company, Ken McCallum was hired as General Manager just over a year ago and after analyzing the business was anxious to exploit opportunities to improve the profitability of Penner Medical Products. Penner operates a 30,000 square foot warehouse which carried inventory valued at over 2.5 million dollars. The warehouse was staffed by a manger, two receivers, two stock pickers and two shippers and two drivers for local deliveries to customers. One of the stock pickers was also occasionally asked to drive the company’s larger (two ton) delivery truck, which was their largest delivery vehicle. Workers in the warehouse, excluding the manager were paid an average of 15.00 per hour. Penner believed that its internal workers were a great asset as was witnessed by the progression of Neil Bennett from stock picker to Warehouse Manager due to his dedication and efforts Stinson Distribution Company Stinson Distribution Company was a medium-sized company in Woodbridge, Ontario Canada who was an important supplier to Penner. Stinson and Penner had a long-term relationship with Stinson supplying them with a wide range of specialized equipment for medical offices. Stinson’s high quality products were a favorite of Penner customers and Stinson was the sole supplier for these products to Penner. Penner was experiencing rising costs and missed delivery dates from Stinson along with incomplete orders which were resulting in customer complaints and lost sales. As well, transportation cost were well over budget and Penner’s senior management expressed concern over what they considered excessive inventory levels. Inventory holding costs were identified by the controller to Bennett as being 15%. Stinson did not deliver directly to Penner, rather Penner sent their 2 ton truck from Rockford, Illinois to Windsor, Ontario a 9 to 10 hour trip of 400 miles to pick-up materials that Stinson delivered to a receiving point in Windsor, which was being rented by Penner at a cost of 1,000.00 per month to hold and prepare shipments from Stinson to cross the border. The truck was empty from Rockford to Windsor, but on the return was fully loaded with containing approximately 20,000.00 worth of goods. The truck was sent twice per week. The Penner controller provided Neil Bennett with some operating costs for his analysis. The controller indicated that the cost of operating the two-ton truck was 55.00 per hour which included fuel, insurance and administrative overhead. Bennett also observed that fuel costs had increased dramatically lately. Bennett had tried to share the trips to Windsor, Ontario with other local businesses in an attempt to cut down transportation costs, but these efforts had been sporadic. Another factor that had to be considered was the increased security at the border- crossing since the tragedy of 9/11 (September 2011) which were resulting in delays crossing the border at Detroit in both directions. This delay extended the shipping times and increased the cost to Penner. Border delays were highly variable and ranged from 30 minutes to several hours. Furthermore incomplete paperwork could add to these problems, since customs officials on both sides of the border had become very thorough when reviewing documentation. Bennett estimated that approximately 25% of the goods ordered from Stinson were delayed as a result of paperwork problems. Bennett also was concerned with the delays and utilization of the two-ton truck as it was in demand locally to deliver materials to Penner’s customers. Not having it available for two days per week, or perhaps more made scheduling deliveries increasingly difficult for Bennett. He had recently resorted to using small parcel delivery service like United Parcel Services (UPS) to handle rush orders from Stinson Distribution Company, which came at an appreciable cost premium. Bennett did observe that “At least UPS never messes up and the paperwork gets the product here on time”. Evaluating Opportunities Neil Bennett recognized that the upcoming meeting with Ken McCallum was still five days away, but he wanted to get started on the problem immediately as McCallum had indicated that “This problem was costing Penner a lot of money every day it allowed to continue. I want a plan in place by the end of the week that will convince me that you are going to fix the problem quickly.”

QUESTION

In a formal case analysis report format, develop the plan that is being asked for by Neil Bennett.

Answer 1

Q) In a formal case analysis report format, develop the plan that is being asked for by Neil Bennett.

Ans- Various plan that being asked as the problem was costing Penner a lot of money :-

a) To review and analysis the situation and report with recommendations for Ken McCallum.

b) Excessive inventory levels.

c) The sudden increase in fuel costs.

d) The increase security at the border- crossing which results in delay in crossing the border at Detroit in both directions and increased the cost to Penner.