Thursday, July 14, 2011

Contemporary Logistics by Murphy and Wood - Chapter 1

Answers to End of Chapter Questions
Chapter 1: Logistics and the Supply Chain

 1. Did it surprise you that logistics can be such an important component in a country’s economic system? Why or why not?
The answer to this question likely depends on a student’s prior exposure to logistics. A “typical” student in an undergraduate basic logistics course likely has had limited exposure to and knowledge about logistics and thus would likely be unaware as to logistics’ impact on a country’s economic system. As such, she/he might be pleasantly surprised to learn that logistics often accounts for at least 10% of a country’s GDP and also is important for economic growth and development.
2.      Distinguish between possession, form, time, and place utility.
Possession utility refers to the value or usefulness that comes from a customer being able to take possession of a product and can be influenced by the relevant payment terms. Form utility refers to a product’s being in a form that (1) can be used by the customer and (2) is of value to the customer. Time utility refers to having products available when they are needed by customers while place utility refers to having products available where they are needed by customers.
3.      How does logistics contribute to time and place utility?
Logistics contributes to time utility by recognizing that different products have different sensitivities to time. For example, a three-day late delivery of bananas likely has more serious consequences than a three-day late delivery of a box of pencils. As for place utility, logistics facilitates products being moved from points of lesser value to points of greater value.
4.      How can a particular logistics system be effective but not efficient?
Effectiveness can be thought of as “how well a company does what they say they’re going to do;” efficiency focuses on how well (or poorly) company resources are used to achieve what a company promises they can do. There are a multitude of examples that would illustrate an effective, but not efficient, logistics system. For example, some companies routinely use premium and/or expedited transportation—which increase transportation costs—to meet customer delivery requirements. As such, the company could be considered effective (meeting delivery deadlines) but perhaps not efficient (increased transportation costs).

5.      Explain the significance of the fact that the purpose of logistics is to meet customer requirements.
One reason for this significance is that meeting customer requirements means that companies must know—rather than assume—customer needs and wants. This knowledge is facilitated by communication between companies and their customers. Even today some companies are hesitant to communicate with customers. In addition, meeting customer requirements means that a “one size fits all” approach to logistics will result in some customers being overserved and others being underserved. As a result, companies should consider a “tailored logistics” approach, where groups of customers with similar logistical needs and wants are provided with the appropriate logistical services.
6.      Explain how an understanding of logistics management could be relevant to your favorite charitable organization.
There are any number of examples that can be used. Consider the Asian tsunami of late 2004.  In a relatively short time, a variety of humanitarian organizations, with the help of private sector companies, were able to get relief supplies as well as food and medicine into the region and distribute them to the affected population.
7.      Discuss three reasons for why logistics has become more important since 1980.
One reason for the increased importance of logistics involves a reduction in economic regulation. This allowed individual carriers flexibility in terms of pricing and service and provided them with an opportunity to break away from a “one size fits all” approach. Second, changes in consumer behavior, such as an increasing number of market segments, necessitate flexible rather than rigid logistics systems. Third, technological advances have allowed logisticians to make faster, more informed, and more accurate decisions. The chapter also discusses the growing power of retailers and globalization of trade as reasons for the increased importance of logistics.

8.      Which reason for the increased importance of logistics do you believe is most important? Why?
There is no single answer here. Students can offer compelling support for any one of the five reasons—a reduction in economic regulation; changes in consumer behavior; technological advances; growing power of retailers; globalization of trade—presented in the chapter. For example, a reduction in economic regulation has allowed carriers to offer different pricing-service options to different customers, which is important because different customers are trying to achieve different objectives with their logistical systems.
9.      What are some practical implications of the idea that one logistics system does not fit all companies?
The idea that one logistics system does not fit all companies is derived from the fact that logistical goals and objectives should be compatible with the overall goals and objectives of a particular company. One basic implication is that different companies should have different logistical strategies and tactics—and these strategies and tactics should reflect a company’s goals and objectives. As such, a company focusing on cost containment should have different logistics strategies and tactics than a company focusing on superior customer service. For instance, a company concerned with cost containment might purchase an extremely large quantity in order to receive cost savings. This decision impacts warehousing and transportation in the sense that the company will likely need a great deal of storage space and will likely utilize volume-oriented transportation providers. Additional implications can be offered.
10.  Distinguish between inbound logistics, materials management, and physical distribution.
Inbound logistics refers to the movement and storage of materials into a firm; materials management refers to the movement and storage of materials and components within a firm; physical distribution refers to the storage of finished product and movement to the customer.
11.  What is the systems approach to problem solving? How is this concept applicable to logistics management?
The systems approach to problem solving suggests that a company’s objectives can be realized by recognizing the mutual interdependence of the major functional areas such as marketing, production, finance, and logistics. As such, decisions made by one functional area can have important implications for the other functional areas. With respect to logistics, the systems approach suggests that one should recognize the mutual interdependence of the various activities that constitute the logistics function. Thus, a transportation decision may impact inventory, warehousing, and packaging, among others.
12.  Explain what is meant by the total cost approach to logistics.
The total cost approach to logistics is built on the premise that all relevant activities in moving and storing products should be considered as a whole (i.e., their total cost) and not individually. Use of the total cost approach requires an understanding of cost tradeoffs. In other words, changes to one logistics activity cause some costs to increase and others to decrease. The key to the total cost approach is that all relevant cost items are considered simultaneously when making a decision. The objective is to find the approach with the lowest total cost that supports the organization’s customer service requirements.
13.  Define what is meant by a cost trade-off. Do you believe that this concept is workable? Why or why not?
A cost trade-off acknowledges that changing patterns or activities of distribution will result in some costs increasing and other costs decreasing. The net effect, however, should be an overall cost decrease for providing a given level of customer service.
The remainder of the question asks the student for her/his opinion about the workability of this concept. Although nearly any answer is acceptable, those students who believe that cost trade-offs are unworkable might have difficulty with many of the concepts presented throughout the text.
14.  What are several areas in which finance and logistics might interface?
The finance department is often in charge of capital budgeting decisions that would affect logistics, such as materials handling and packaging equipment. Another potential area of finance/logistics interface is with respect to inventory. Key issues include inventory valuation, inventory float, and the fact that finance tends to view inventory from a dollar perspective while logistics tends to be more concerned with the number of units of inventory.
15.  Briefly discuss each of the four basic aspects of the marketing mix and how each interfaces with the logistics function. In your opinion, which component of the marketing mix represents the most important interface with logistics? Why?
The four basic aspects of the marketing mix are place, price, product, and promotion. With respect to place, a key concern is to provide a certain product at the right time, in the right quantities, and in an undamaged condition. A key component of the pricing decision involves transportation cost factors. Although marketers tend to prefer delivered pricing systems, such systems create logistical challenges in the sense that the seller becomes responsible for product distribution. Product decisions have been complicated in recent years by a marked increase in product offerings.  Although these increased offerings allow for greater customer choice, they create logistical challenges in terms of identification, storage, and tracking. Finally, promotion requires close coordination between marketing and logistics particularly when “specials” are utilized. Failure to have sufficient product availability to support these specials can be especially detrimental to customer goodwill.
The remainder of the question asks for students to choose, and support, the most important interface with logistics. Any of the four components is acceptable.
16.  Why do marketers tend to prefer FOB destination pricing rather than FOB origin pricing?
There are several reasons why marketers like FOB destination pricing. First, it enables a company to expand the geographic area to which its product is sold because distant customers in a region do not pay the full costs of transportation. Second, because each buyer has the same landed cost, it is easier for a company to apply a uniform retail price on a regional or national basis. Third, because the seller controls the logistics network, it can function in a manner that is most beneficial to the seller’s overall objectives.
17.  What are several ways in which logistics and production might interface?
One important interface involves the length of production runs. Production often favors longer production runs in order to achieve lower production costs per unit. However, this generates large amounts of inventory—generally the responsibility of logistics. Another interface might occur with respect to the postponement concept in the sense that some value-added activities that were traditionally performed at the production plant are now performed in warehousing facilities. These facilities will need new types of equipment and may need to be configured differently in order to allow the value-added activities to take place.
18.  Briefly discuss the ownership, negotiations, financing, promotion, and logistics channel.
The ownership channel covers movement of the title to the goods; the goods themselves might not be physically present or even exist.  The negotiations channel is the one in which buy and sell agreements are reached and can include telephone, email, and electronic data interchange, among others.  The financing channel handles payment for goods and the company’s credit, while the promotions channel is concerned with promoting a new or an existing product.  Finally, the logistics channel handles the physical flow of the product.
19.  Discuss five activities that might be part of a company’s logistics department.
The chapter presents, and describes, 14 separate activities that might be part of a company’s logistics department. Any five of the 14 are acceptable to be discussed by the students.
20.  Logistics managers must be both generalists and specialists. Why is this true? Does this help to explain why there tends to be an imbalance in the supply of, and demand for, logistics managers?
Logisticians need to be generalists in order to understand the relationship between logistics and other corporate functions, both within and outside the firm. Logisticians also need to be specialists to understand the relationships between various logistics activities, as well as having some technical knowledge of the various activities. This combination of generalist and specialist likely provides a partial explanation for the imbalance in the supply of, and demand for, logisticians in the sense that not everyone is capable of balancing generalist and specialist requirements.

Multiple Choice Questions
1.      Logistics as a percentage of U.S. Gross Domestic Product is approximately (within 2%):
a.       5%
b.      10%
c.       15%
d.      20%
e.       none of the above
(b; p. 3)
2.      Logistics clearly contributes to ___________ and ___________ utility.
a.       time; place
b.      form; time
c.       place; form
d.      possession; time
e.       none of the above
(a; p. 4)
3.      ___________ utility refers to the value or usefulness that comes from a customer being able to take possession of a product.
a.       Time
b.      Place
c.       Form
d.      Possession
(d; p. 4)
4.      ___________ utility refers to having products available where they are needed by customers.
a.       Possession
b.      Time
c.       Place
d.      Form
(c; p. 5)

5.      All of the following terms have been used to refer to business logistics except:
a.       business logistics
b.      industrial distribution
c.       logistics management
d.      physical distribution
e.       all of the above are correct
(e; p. 5)
6.      “How well a company does what it says it’s going to do” represents ___________.
a.       efficiency
b.      productivity
c.       leading edge logistics
d.      effectiveness
(d; p. 6)
7.      Every customer getting the same type and levels of logistics service refers to ___________.
a.       tailored logistics
b.      mass logistics
c.       effectiveness
d.      efficiency
(b; p. 7)
8.      Which of the following is not a reason for the increased importance of logistics?
a.       growing power of manufacturers
b.      reduction in economic regulation
c.       globalization of trade
d.      technological advances
e.       all of the above are reasons
(a; pp. 7–10)
9.      The ___________ concept suggests that there are an ever-increasing number of market segments with distinct preferences.
a.       rhochrematics
b.      relationship marketing
c.       market demassification
d.      niche marketing
(c; p. 8)
10.  ___________ are characterized by large market share and low prices.
a.       Category killers
b.      Mass merchandisers
c.       Power retailers
d.      Do-it-yourself (DIY) retailers
(c; p. 10)
11.  The ___________ approach indicates that a company’s objectives can be realized by recognizing the mutual interdependence of major functional areas.
a.       supply chain
b.      systems
c.       interfunctionality
d.      total cost
(b; p. 10)
12.  The movement and storage of materials into a firm refers to:
a.       physical distribution
b.      materials management
c.       materials handling
d.      inbound logistics
(d; p. 11)
13.  The movement and storage of materials within a firm refers to:
a.       physical distribution
b.      inbound logistics
c.       materials management
d.      procurement
(c; p. 13)
14.  Logistics managers use the ___________ approach to coordinate inbound logistics, materials management, and physical distribution in a cost efficient manner.
a.       total cost
b.      supply chain
c.       mass logistics
d.      interfunctional
(a; p. 13)
15.  A cost trade-off is a situation where:
a.       all costs react according to their individual degrees of inflation in the economy
b.      all costs are reflected as a percentage variation from standard costs
c.       some costs increase, some decrease, and the net effect is that total costs decrease
d.      some costs are eliminated by efficient management controls
(c; p. 13)
16.  The cash flow associated with holding inventory is known as inventory ___________.
a.       turnover
b.      valuation
c.       stock
d.      float
(d; p. 14)
17.   The four basic components of the marketing mix include all of the following except:
a.       price
b.      production
c.       product
d.      place
(b; p. 14)
18.  __________ refers to one location where customers can purchase products from two or more brand-name retailers.
a.       Intensive distribution
b.      Co-branding
c.       Co-generation
d.      Selective distribution
(b; p. 15)
19.  Landed costs refer to:
a.       a product that is shipped via surface transport
b.      a product that is quoted cash on delivery (COD)
c.       a prepaid shipment
d.      a price that includes both the cost of the product plus transportation to the buyer
(d; p. 15)
20.  Phantom freight refers to:
a.       paying more for transportation than the actual cost
b.      late shipments
c.       shipments accepted by non-certified carriers
d.      freight that “disappears” in transit
(a; p. 16)
21.  Freight absorption refers to:
a.       a special rate to cover increasing fuel costs
b.      rates that are higher than other carriers charge
c.       the ability of cardboard to absorb moisture
d.      transportation payments lower than the actual costs incurred to ship the product
(d; p. 16)
22.  In FOB origin pricing, all of the following are true except:
       a.  prices quoted do no include transportation to the consignee
       b.  marketers can adopt uniform prices on a regional or national basis
       c.  consignees must arrange for the transportation of the purchased product
       d.  the seller always receives the same net from each sale
       (b; pp. 15-16)
23. ___________ refers to a situation where the applicable charges are paid at the time a shipment is tendered to a carrier.
a.       Freight prepaid
b.      Freight absorption
c.       Phantom freight
d.      FOB origin
(a; p. 16)
24.   __________ refers to charges being paid at the time of shipment delivery.
a.       Freight absorption
b.      Freight yield
c.       Freight collect
d.      FOB destination
(c; p. 16)
25.  The most common interface between production and logistics generally involves:
a.       the use of plastic versus wood pallets
b.      the mode of transportation
c.       shipment pricing
d.      the length of production runs
(d; p. 18)
26.  ___________ refers to the delay of value-added activities such as assembly, production, and packaging to the latest possible time.
a.       Building blocks
b.      Deferral
c.       Demurrage
d.      Postponement
(d; p. 19)
27.  Which of the following is not part of the marketing channel?
a.       the logistics channel
b.      the negotiations channel
c.       the promotion channel
d.      the finance channel
e.       all are part of the marketing channel
(e; p. 19)
28.  The ownership channel consists of all parties except:
a.       customers
b.      manufacturers
c.       wholesalers
d.      retailers
(a; p. 19)
29.  The ____________ channel handles the physical flow of product.
a.       ownership
b.      negotiations
c.       logistics
d.      promotions
(c; p. 19)
30.  Which channel covers the movement of title to the goods?
a.       promotions
b.      logistics
c.       finance
d.      ownership
(d; p. 20)
31.  ____________ is bringing together similar stocks from different sources.
a.       Accumulating
b.      Assorting
c.       Auditing
d.      Allocating
(a; p. 21)
32.  ____________ refers to breaking a homogenous supply into smaller lots.
a.       Sorting out
b.      Allocating
c.       Accumulating
d.      Assorting
(b; p. 21)
33.  Channel intermediaries:
a.       assume temporary ownership of the goods
b.      fill niches
c.       disappear as the market becomes organized
d.      tend to lack focus
(b; p. 21)
34.  The most common logistical intermediary is a:
a.       cargo surveyor
b.      freight forwarder
c.       freight broker
d.      bank (finance company)
(b; p. 22)
35.  The most costly logistics activity in many firms is ____________.
a.       industrial packaging
b.      warehousing management
c.       order management
d.      transportation management
(d; p. 24)

True-False Questions
1.      Absolute and relative logistics costs in relation to Gross Domestic Product vary from country to country. (True; p. 3)
2.      Logistics clearly contributes to time and form utility. (False; p. 4)
3.      The current definition of logistics, as promulgated by the Council of Supply Chain Management Professionals, suggests that logistics is part of the supply chain process. (True; p. 6)
4.      Logistics is only concerned with forward flows, that is, those directed towards the point of consumption.  (False; p. 6)
5.      The purpose of logistics is to maximize customer service. (False; p. 7)
6.      In mass logistics, groups of customers with similar logistical needs and wants are provided with logistics services appropriate to those wants and needs.  (False; p. 7)
7.      Logistical principles apply only to for-profit organizations. (False; p. 7)
8.      Market demassification suggests that an ever-increasing number of market segments has distinct preferences. (True; p. 8)
9.      The Internet has done little to improve logistical effectiveness and efficiency. (False; p. 9)
10.  Superior logistics is an essential component of corporate strategies for many power retailers. (True; p.10)
11.  Inbound logistics refers to the movement and storage of materials into a firm. (True; p. 11)
12.  Physical distribution is synonymous with materials management. (False; p. 13)
13.  Interfunctional logistics attempts to coordinate inbound logistics, materials manage­ment, and physical distribution in a cost efficient manner that supports an organization’s customer service objectives. (False; p. 13)
14.  The key to the total cost approach is that all relevant cost items are considered simultaneously when making a decision. (True; p. 13)
15.  The key aspect of the total cost approach is to maximize customer satisfaction.  (False; p. 13 )
16.  The finance department tends to measure inventory in terms of units while logistics tends to measure inventory in terms of its cost / value.  (False; p. 14 )
17.  Logistics offers many companies an important route for creating marketing superiority. (True; p.14)
18.  Co-branding is a retailing strategy that is associated with place decisions. (True; p. 15)
19.  Landed costs refer to the price of a product at the source.  (False; p. 15)
20.  As a general rule, marketers prefer FOB origin pricing rather than FOB destination pricing. (False; p. 16)
21.  Phantom freight and freight absorption are associated with FOB origin pricing. (False; p. 16)
22.  Stockouts refer to a situation where a company is out of an item at the same time that there is demand for that item. (True; p. 18)
23.  Long production runs sometimes result in excessive inventory of products with limited demand for them. (True; p. 18)
24.  Postponement is the delay of value-added activities such as assembly, production, and packaging to the latest possible time.  (True; p. 19)
25.  Most decisions made within channels are for repeat purchases. (True; p. 20)
26.  The negotiations channel is the one where buy and sell agreements are reached. (True; p. 20)
27.  The financing channel handles a company’s credit and payment for goods.  (True; p.20 )
28.  There is no linkage between the promotions and logistics channel. (False; p. 21)
29.  The most significant contribution that the logistics channel makes to the overall channel process is the sorting function. (True; p. 21)
30.  The sorting function has four steps. (True; p. 21)
31.  The sorting function takes place between retailers and the consumer. (False; p. 21)
32.  The retailer is the most important channel intermediary in the ownership channel.  (False; p. 21)
33.  Intermediaries assume ownership of goods while they’re in the marketing channel. (False; p. 21)
34.  A broker is a type of intermediary often associated with the negotiations channel. (True; p. 24)
35.  Advertising agencies are a channel intermediary that might be found in the promotions channel. (True; p. 22)
36.  Export management companies are the most common intermediary in the logistics channel. (False; p. 22)
37.  Inventory management represents the most costly logistics activity in many organizations.  (False; p. 27)
38.  Returned products represent one type of activity in the logistical channel. (True; p. 24)
39.  It is better for a logistics manager to be a generalist rather than a specialist. (False; p. 25)
40.  There are relatively few opportunities for employment in the logistics sector. (False; p. 25)

Cases are included at the end of each chapter. They vary in length, difficulty, and type of problem addressed, and some students may find them to be difficult. All of these cases have been pre-tested in one or more classes. The answers given here are based on what were considered to be “complete” (although not exhaustively thorough) student responses.
Instructors should develop their own techniques for using the cases. Many can serve as the basis for detailed and lengthy classroom discussions. Many of the cases can be used for examination purposes, although many of the questions have more than one single correct answer.
Previous adopters of our text have wondered about an “ideal” length for written answers to the various case questions. We hesitate to offer such guidance in part because the “ideal” length depends on a variety of factors. For example, if the written answers are a type of “extra credit” that can be earned, then shorter answers are likely preferable to longer ones. Alternatively, if the cases are used for examination purposes, then longer answers might be preferable to shorter ones.
Several of the cases can be analyzed using commonly-used software packages such as Excel and we suggest that instructors familiarize themselves with the software and its application to the relevant case—PRIOR to assigning the case. Such instructor preparation is important and necessary because today’s college student is far more computer literate than in the past.
Cases must be carefully read because key facts may be hidden. Instructors should clearly indicate how much additional data, not in the text of the original case, could be incorporated into each case analysis and its answers. For instance, a student who has worked in a warehouse may attempt to reference her or his own experiences in related situations.
Answers for each question are included in this section of the manual. It is indicated here alternative answers are acceptable.  Finally, a few discussion points the instructor might raise are included for some cases.

Question 1: Assume that you are Frank Johnson’s assistant, and he asks you to look into various scheduling problems that might occur. List and discuss them.
First, extra time will be needed to put the dishes in the packages. How will this affect production schedules? How must production and delivery be altered to ensure that all geographic markets, including Hawaii (if it is to be included in the TV campaign), receive the same dish items in the same week? In addition, will packages have special printing that tell what type of dish they contain? If so, there will be problems coordinating the same dishes with the same packages.
Question 2: What packaging problems, if any, might there be?
Will one package hold all five dishes, or will some require a unique package size (which will rule out the proposal)? What external changes in printing on the package will be needed? Will the packages safely transport the dishes? Will the changed weight of packages have an impact on handling, or on transportation costs?
Question 3: Many firms selling consumer goods are concerned with problems of product liability. Does the dish offer present any such problems? If so, what are they? Can they be accommodated?
First, breakage. Who reimburses the customer, who pays for soap, and who discovers broken glassware inside? If there are delivery snags or supply problems, what responsibility is there to provide consumers with dishes they could not obtain during the promotion? Does the firm’s product liability insurance cover problems that may occur from the dinnerware promotion?
Question 4: Should the exterior of the Sudsy Soap package be altered to show what dish it contains? If so, who should pay for the extra costs?
The package should be altered externally to remind the customer of the promotion and indicate that there is a free item inside. Because the dish-maker gets free advertising from the soap packages, they should pay part of the costs. The splitting of these costs is subject to negotiation and would depend upon the overall agreement between the two firms.
Question 5: Assume that you are another one of Johnson’s assistants and your principal responsibility is managing the inventories of all the firm’s inputs, finished products, and outbound inventories. What additional work will the dish proposal cause for you?
There might be a rise in sales, an increased need for all inputs into production, as well as need for higher capacity and inventories. There would need to be an estimate of the possible sales increase, demands imposed by new delivery requirements, and the change in package size and weight. In addition, incoming dishes would need to be monitored, as would specially-printed packages and outgoing packaged soap (classified by the type of dish inside). After the promotion, by how much, and for how long, will soap sales decline?
Question 6: You are Mr. Beever. Your staff has given many objections to the dish tie-in proposal, but you believe that much of the problem is your staff’s reluctance to try anything innovative. Draft a letter to the company that—although not accepting their proposal—attempts to clarify points that may be subject to misinterpretation and also takes into account some of your staff’s legitimate concerns.
Some of the points the letter would cover include:
a)      If we cannot fulfill delivery on schedule to all markets, to have the dishes in the right place when your TV campaign breaks, are we liable to you? To the customer?
b)      What if the dishes break in route from you to us?
c)      What quality assurance of your dinnerware product can you provide?
d)     If, for some reason, a customer cannot find pieces for an entire place setting, will you supply them missing pieces? At what cost? We don’t want any backlash against our company and soap product.
e)      Who pays the freight and insurance charges to get the dishes to our factory?
f)       Who pays for our increased packaging and handling costs?
g)      Who pays for the increased costs caused by complications added to our scheduling of outbound shipments?
h)      What is the content of the TV campaign? What shows will it appear on? How much mention will be made of our product? How, if at all, will our soap packages be shown on TV?
i)        Who will pay for the redesign of our packages?
j)        Will there be import duties on the dinnerware? Will we be reimbursed for paying them?
k)      Will you assume any liability in case we are sued because of something resulting from this promotion?
Several instructors use this case early in the course, and then as part of the final examination.

Question 1: List and discuss the advantages and disadvantages of purchasing a two-wheeled trailer for each store to use for delivering Super Gyms.
Because the stores are in a number of states, one would have to check the motor vehicle and insurance requirements of each state. An advantage is that deliveries would be under the control of each store. A disadvantage may be labor costs, especially if two workers are needed to make the delivery. Also, once at the site, the store’s employees might be asked to assist in the assembly of the gym.
Question 2: List and discuss the advantages and disadvantages of having local trucking companies deliver the Super Gym from the retail stores to the customers.
There are probably no disadvantages to using a local trucking company to make the delivery. A decision would have to be made how to handle the trucking firm’s charges.
Question 3: List and discuss the advantages and disadvantages of stocking Super Gyms at the distribution centers and then having the truck that make deliveries from the distribution center to the retail stores and also make deliveries of Super Gyms to individual customers.
The problem here focuses on the size of equipment; the large tractor-trailer combinations are not suited to making home deliveries. The actual costs to KiddieLand of using trucks this way might be very high. There might be some savings in inventory costs by stocking the gyms at the distribution center rather than at each retail store.
Question 4: List and discuss the advantages and disadvantages of charging the customer for home delivery if they are unable to carry the Super Gym home.
Perhaps the one advantage to charging for home delivery is that KiddieLand recoups the associated costs. However, because charged home delivery will add to the customer’s total purchase price, there could be a reduction in demand or this could generate customer dissatisfaction.
Question 5: Which alternative would you prefer? Why?
The student can choose any alternative. However, the text of the case seems to prefer the use of a local trucking company and charging the customer for home delivery.
Question 6: Draft a brief statement (catalog copy) to be inserted in the firm’s spring/summer brochure that clearly explains to the potential customers the policy that is recommended in question 5.
The brochure is intended for use in all stores, so whatever copy is prepared must be widely applicable. A sentence might read: “The Super Gym comes unassembled and is packed in three boxes: one weighing ____ pounds, is ____ inches by ____ inches by ____ inches; the second weighs ____ pounds, is ____ inches by ____ inches by ____ inches; and the third weighs ____ pounds, and is ____ inches by ____ inches by ____ inches. Assembly requires the following tools: ____; ____; ____; and ____.”
Question 7: In the first meeting Toth asked about SUVs but there was no further mention of them. How would you follow up on his query?
 Anyone in the group could answer that sport utility vehicles have more carrying capacity than autos and many also have trailer-hitches. SUVs are sufficiently popular—particularly in the United States—that almost every buyer of the Super Gym equipment would either have a SUV, or be able to borrow one.

1 comment:

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