Ladner Building Products Case Summary

Ladner Building Products

Issues. Gordon Stephens, logistics analyst for Ladner Building Products (Ladner), a building materials distributor, has to prepare for the next two weeks a report analysing the company's logistic practices for Doug Turner, vice president, logistics and materials management. Moreover, the report had to present recommendations for Doug that would reduce costs, improve company performance, or accomplish both simultaneously. The main immediate issue that Gordon has to deal with is the high cost that Ladner has in the distribution end of the business. Doug has identified some of the potential causes for Gordon already: too many small orders, too much flexibility to the sales people but Gordon knew that his analysis and
recommendations needs to be integrated with the other activities in the company such as marketing and sales, regional operations and purchasing. While having to address these immediate issues and suggested causes, Gordon has to look at the ‘big picture" and analyze in full the company's supply chain management. It appears that the basic issue might be the lack of a systematic and consistent approach across all regions to managing the entire flow of customers, information, materials, and services.
Decision Parameters.
The competitive environment of the building materials distribution industry was strong and margins were low. The industry comprised in a wide variety of products grouped in three main product segments: commodities, industrial, and allied products. Although the general economic climate had been strong in Canada, the company had generated losses in each of its last four years. Most firms competed at the regional level, and the market was fragmented both geographically and by product lines. Ladner was one of the few national firms with an estimated market share of four to five percent, and this seems to be their competitive advantage. In this context, a high level of efficiency of the supply chain management seems to be the critical success factor for Ladner, that would help them reduce the supply and distribution costs and allow them to gain market share and become
profitable.
Analysis.
Ladner offered a high number of products, over 15,000 all across Canada. However, only three percent of the SKUs were common across all five regions adding even more variability to the complexity of product offerings that the company is facing. In terms of sourcing, Ladner's shareholder was the largest supplier, but Ladner had to manage another 500 more suppliers across Canada. In terms of distribution, Ladner had 15 distribution centers located across Canada but did not have its own truck fleet and outsourced their freight system to three regional carriers. The relative small numbers of suppliers for the distribution system is an advantage for the company because it helps reduce the costs associated with the supplier maintenance and reduce the risk of dealing with only one supplier. Although Ladner was a national distributor with high volume and high variety of products, its customer had high involvement in its operations, mainly because the sales people were having too much flexibility. Analyzing the parameters presented above I can identify that the basic issue is the lack of a systematic and consistent approach across all regions to managing the entire flow of customers, information, materials, and services and the cause is Ladner's decentralized organization structure.
Alternatives. (1) Decentralized Distribution System and Operations. Benefits: proximity to suppliers, customer satisfaction (proximity to market/customers) and risk diversification. Draw backs:
Hard to manage in an economy of scale model, inconsistency and too much flexibility for sales people, high cost associated with managing multiple suppliers and many small orders.
(2) Centralized Distribution System and Operations. Benefits: Fits the economy of scale approach that seems to characterize Ladner operations, use national carriers to reduce cost managing suppliers and get better deals with them based on higher volume, reduce the number of employers. Draw backs: Less flexibility for their customers and sales people, higher risk associated with the service suppliers.
(3) A combination of the above. Maintain the actual decentralized distribution system, i.e. multiple distribution centers, but "centralize" the operation process: to be followed by each region and each department: sales and marketing, operations and purchasing. This approach would allow Ladner to maintain some of the flexibility in terms of product variety and customer special requests (economy of scale) and also increase the volume of sales at a lower cost (economy of scale).
Recommendation. In conclusion, I recommend analyzing in more detail alternative (3) and create a mid-tem plan for implementation. Also reducing the sales people flexibility, would reduce the number of costly rebates. After all Ladner is not a Home Depot store. The sales staff should be evaluated on the basis of product gross margin adding the costs of handling, storage and transportation. This approach would make them to sale better deals in terms of distribution. Centralizing the operations process would help Ladner to collect additional information from each region and create a common approach to the distribution system.