NZ All Natural Ice Cream (NAN) began in 1984 as a small shop in Christchurch, which is the largest city in the South Island of New Zealand. With NAN specializing in producing ice cream with all natural ingredients without any artificial colors or flavors, it is highly regarded by the public concerned about health, and NAN’s sales volume has increased significantly over the years. NAN continues to diversify its product range to include nondairy, low-fat sorbets; low-fat frozen yogurts; and premium ice cream with a wide range of flavors. In 2010, it dominated the whole New Zealand premium grocery ice cream category with 7 out of 10 top-selling SKUs. It has more than 100 employees, and its products have been exported to more than 30 countries.
Since Auckland, which is in the North Island of New Zealand, is geographically closer to the primary fresh milk and cream supply of the Waikato (heartland of various free-range dairy farms), NAN decides to set up its own production plants in Auckland to keep production near the supply of raw materials so that the manufacturing process could be smoother and more secured. Currently, three plants and five distribution centers are dispersed over the country. The plants generally manufacture the base products, and the distribution centers produce hundreds of end products that fit customer specifications. To further expand its domestic market, NAN considered providing consignment inventory to its North Island’s customers and implementing this strategy throughout the country if it proved effective. NAN would keep the ice cream products required by each customer in the North Island on consignment at the customers’ sites. Customers would sell the ice cream as demanded, and NAN would replenish regularly to ensure sufficient product supply. According to previous sales data, the consumption of ice cream by customers tended to be stable. NAN owned the consignment inventories and got paid when the ice cream was consumed.
NAN assigned all its inland replenishment function to a 3PL company named SuperTruck through open bidding. SuperTruck is famous for its fast response and prompt delivery through expertise in fleet management. All of its trucks have refrigerated units built either directly on the frame or transported by trailer and are powered by diesel-operated generators. SuperTruck has to fulfill every order NAN places within 24 hours or reimburse NAN for all damages in case of a failure to do so. Each truck has a capacity of 40,000 liters, and SuperTruck has been contracted to charge a fixed flat rate given the origin and destination regardless of the quantity loaded. NAN usually sends full truckloads (TL) to each customer to replenish its consignment inventory.
Katy Leung has recently been employed by NAN as North Island regional supply chain manager to oversee logistics operations in the region. Katy is responsible for inventory as well as transportation costs and decides to review the current operations for possible cost savings. In particular, Katy wonders if NAN should include multiple shipments for different customers on a single truckload. Table 11-5 shows the customer profile in Wellington—one of the distribution centers.
SuperTruck charges $400 for each truckload from the Wellington DC to each customer based on NAN’s policy to send a full truckload as needed. In response to Katy’s recent enquiry, SuperTruck indicated that it would charge $350 per truck plus $50 for each drop-off location. That is, if a truck made only one delivery as existing practice, the total charge would
be $350 1 $50 = $400. However, if it had to make three extra deliveries (total of 4 locations), the total charge would then be $350 1 $200 = $550.
Each liter of ice cream product in consignment costs NAN $1, while the holding cost is maintained at 25 percent. Consider the different distribution possibilities in the Wellington example and recommend the best option. This will help shape the future marketing and distribution strategy that NAN plans to roll out throughout all of New Zealand.
Source: Chopra Sunil, Meindl Peter (2014), Supply Chain Management: Strategy, Planning, and Operation, Pearson; 6th edition.
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