Jme’s Blog

My marks: 1(a) 8/10, (b) 9/10, (c) 10/15; 2(a)11/15, (b)11/15; 3(a) 8/10, (b) 15/20

Question 1 (a)Outline the historical development of the SAB Distribution.   Established in 1949 in Harrisburg, Pennsylvania, SAB Distribution was set up by 3 WWII veterans, who served as the supply officer in the US Army. Skip, Al and Bob continued their college programs after the war and worked for local companies for several years. They decided to venture into business as they felt that their naval experience as supply officer along with their business administrative degrees from Penn State was a strategic advantages to developing food wholesaling company.   Harrisburg is in the heart of the state as well as the state capital. The Pennsylvania Railroad provide transportation service and the developing highway network boded well for improvements in the transportation access to the many communities within a hundred- mile radius.   They focused initially on non-perishable foods but expanded in the 1960s and 1970s into perishable and non-food to compete with other wholesalers and large retailers. SAB incorporated in 1978 because no heir or heiress wanted to inherit the family business.   Pete Swan joined the company in 1960 and when the founders are read to retired in 1983, Pete was promoted to CEO at SAB, at that time SAB Distribution is estimated to worth $180 million with its own large warehouse in Camp Hill, Pennsylvania and market area stretched to across Pennsylvania into parts of Delaware, New Jersey, Ohio and New York.   SAB gross sales levelled off during the last half of 1980s as the costs had risen and negatively impacted the profit margin. As majority of the company share was held by the founders’ family members, they are not happy with their dividend.   Pete retired in 1995 and Sue Purdum took over and managed to improve the profitability of SAB in her first 5 years by focussing on efficiency in the warehouses, improved order to fulfilment to customers and established partnership with motor carriers with major hub terminals in Harrisburg area. She also invested in technology aggressively such as EDI to interface with major vendors.     (b) Discuss the challenges facing the SAB Distribution since 1980s.               Since 1980s, SAB Distribution had faced numerous challenges such as the increase of cost and the decrease in their margin profits. The manufacturers and the large retailers were also squeezing the distributors and wholesalers. The increase of competitors and the competitive measures had impacted badly on the profit of SAB Distribution and increases the cost of distributing such as material handling cost, order fulfilment cost, warehousing cost and others. The first CEO of SAB Distribution, Pete Swan had felt the pressure from the founders’ family members and left the company. The successor, Sue Purdum took in all the challenges and made few measures to decrease the cost at the same time increase the profit. However, if she tries to cut cost in one specific area, other area will increase their cost. For example, if she tries to increase the number of warehouses so that the goods are nearer to the market and able to reach to more potential customers, the transportation cost would be increase too. SAB Distribution also faced the possibility of Milroy Distribution to buy SAB Distribution.     (c) Account for the reasons for the emergence of these challenges.               SAB Distribution is a family business started by the three founders and had lasted for years since 1949. All these years, SAB Distribution had proceed using their own traditional methods disregarding the new development in their surrounding and the way of their competitors runs the business and takes no initiative to improve and move forward instead of freeze in time. SAB Distribution should change simultaneously as the business environment changed. The other reason is the deficiency of the warehouses. The deficiency of the warehouses had increased the cost as the space in the warehouses cost money. Simultaneous the risk cost as well as cost of material handling rises too. These factors had causes increase of expenditure of SAB Distribution and negatively impacted the profit margin. Besides that, order fulfilment also contributes to the emergence of the challenges faced by SAB Distribution. Order fulfilment is essential to keep the customers happy with the services provided by the SAB Distribution. With the right order of fulfilment, the cost of order processing can be minimised. As the demand had increased over time, it is important to be able to supply the total amount of the goods demanded to the market. This increases the cost of transportation to SAB Distribution. SAB Distribution needs to distribute their goods to all parts of Pennsylvania to meet the demand.     Question 2 (a) What are the measures taken by the SAB Distribution to improve its profitability?               As Sue Purdum takes charge on SAB Distribution, several measures had been taken to increase the profit of SAB Distribution as well as reducing the cost incurred by SAB Distribution. Ms Sue focused on increasing the efficiency of warehousing. Warehousing plays an important role in minimising cost. Well lay- out warehouses ensures prompt and minimum handling. This reduces the cost of material handling, cost of warehousing as well as the cost of inventory risk cost.               Next, Ms Sue also makes amend in method of ordering. Instead of using the traditional ways, involving chains of writing orders and re-keying data, Ms Sue invested into using technology, Electronic Data Interface (EDI). In long run, EDI has saved up more and various costs had been reduced.  Although EDI technology is expensive, however, in long run, the cost of technology is traded off by the cost or order processing as well as cost of phone calls asking various information regarding the goods that can be easily tracked and access through EDI. This has tremendously affected the effectiveness of warehousing.               Other than that, Ms Sue also resolved to do partnership with a transport company. In such partnership, both company gained equal advantages, win-win situation. If SAB Distribution expands its distribution to other places, the transport company also expanded to its route network to meet its requirement.   Ms Sue also seeks for her executive committees in order to find a resolve to the SAB Distribution current situation. This matter was not taken lightly as there is other distribution company would like to bought over SAB Distribution and other family member of the founders would like to take opportunity on this situation.               Ms Sue also expanded its customer’s base and transfer dead stock from one place to stock with value in other place. If a certain goods abundant in one place, is dead stock and out of date with on value, but when brought to other place that is scarce, the value of goods is increased. This is according to the demand of the customers at that particular. Different place has their own different demand for certain goods.   (b) Why do you think that these measures did not effectively contain the rising cost and growing competition?               Ms Sue Purdum has taken numerous measures but in vain. To my humble opinion, this maybe caused by the warehouse, connected to the location of the warehouses. There is possibility that the warehouses is too far from the market and not able to reach to more potential customers. This cost loss of sales and increased the cost of transportation. Other than that, this may also caused by misused of spaces in warehouses. This has cost the cost of storage increased as the space in the warehouses had its value.               Besides that, this may also cost by key errors while key-in data into the firm database. This cost over ordering and out of stock that caused extensive material handling and loss of sales. This may also result to dead stock and stock with no value.   Next, this may also caused by lack of promotional and advertising act in order to promote the goods. This arise the lack of awareness among the consumers. Consumers are more reluctant to buy unrecognisable brand name compare to other goods. This concludes that, advertising and promotion are able to reach to more potential consumers and increase the sales as well as promote the goods.   One other important criterion is the quality of the manufactured products. It is important to distribute goods with quality as nowadays, the consumers are more aware of the goods offered in the market as well as its quality. Quality goods are able to alter and manipulate the sales. Quality goods are able to sell in better price compare with lower quality goods.   Question 3 (a). Give reasons why Central Transport Inc, must collaborate with SAB Distribution.               One of the main reasons is SAB Distribution is Central Transport Inc established customers. They had been doing business along together for numerous years and had taken care of one and another. Central Transport Inc is also the main core carriers to SAB Distribution.               Besides that, Central Transport Inc and SAB Distribution have grown together over the years. They both brought prosperity to each other in a win-win situation. For example, as SAB Distribution expanded its customer base through out Pennsylvania and neighbouring states, Central Transport Inc has expanded their route network to meet its requirements.               The founder of Central Transport Inc is also an old good friend of the founders of SAB Distribution. The collaboration between these two firms maybe because for old time sake. While that personal relationship has changed with the changes in both organisations, Central Transport Inc has maintained a partnership approach with SAB Distribution.   (b) In what way can Central Transport Inc, effectively help SAB Distribution improve its service.               SAB Distribution has to reduce its cost-of-sales and/or improve their level of customer service to add more value to their customers. Central Transport Inc can help improving SAB Distribution by deliver customer orders in a timely and reliable manner.               Besides that, Central Transport Inc can also practice economies of scale by delivering goods in bulk. This will minimise the cost endured by Central Transport Inc and able to give more discount to SAB Distribution. Central Transport Inc can also try to find the shortest route form one point to another so that, the cost of transportation can be reduced.               Central Transport Inc can also practice the Just-In-Time (JIT) concept whereby, delivering goods just in time for replenishment, neither too soon or too late. This will able to save up the cost of warehousing whereby the goods do not constitute a lot of space in the warehouse.               Besides that, Central Transport Inc should make use of technology, such as EDI in order to increase the efficiency of warehousing and minimising cost of order processing. EDI offers information visibility to everyone and allow transfer of information faster. By using EDI technology, SAB Distribution and Central Transport Inc are able to give feedbacks in real time.               Central Transport Inc can also give after sales services such as discount to SAB Distribution. This would help SAB Distribution to minimise their cost. When the cost is reduced, the gross profit would be increase tremendously. This would also improve the customer service provided by Central Transport Inc. therefore, more potential buyers are able to reach when more satisfactory customers on Central Transport Inc customer’s services.