CHAPTER 13: LOGISTICS SYSTEMS CONTROLS
CHAPTER 13: LOGISTICS SYSTEMS CONTROLS
PART II
END-OF-CHAPTER QUESTIONS
CHAPTER 13: LOGISTICS SYSTEMS CONTROLS
1. Discuss how accountants and logisticians differ in terms of their approach to accounting controls.
Accountants measure inventory in terms of its dollar value, whereas logisticians measure inventory in terms of the number of stock-keeping units (SKUs). These different measurements can result in managerial disconnects; for example, if one has inventory of grain, its monetary value fluctuates based on the appropriate commodity exchange rates, even though the actual quantity and quality remain unchanged. In addition, in times of inflation, identical items added to inventory at different times means that each unit has a different cost, and even though inventory levels are not affected, it makes a difference whether an organization uses historic cost or current value as an indicator of the inventory’s total value.
2. What is activity-based costing (ABC)? What are the five steps of the ABC process?
Activity-based costing (ABC) attempts to trace an expense category to a particular cost object. With ABC, cost objects consume activities and activities consume resources. ABC consists of five steps:
· Identify activities
· Determine cost for each activity
· Determine cost drivers
· Collect activity data
· Calculate product cost
3. Define what is meant by productivity. Discuss how productivity can be improved.
At a basic level, productivity can be defined as the amount of output divided by the amount of input. An understanding of this relationship leads to the recognition that there are but three ways to improve productivity: 1) reduce the amount of input while holding output constant; 2) increase the amount of output while holding input constant; or 3) increase output while at the same time decreasing input.
4. What is short-interval scheduling?
Short-interval scheduling involves looking at each worker’s activity in small time segments. An amount of time is assigned to each unit of work, and then the individual’s work is scheduled in a manner that utilizes as much of each worker’s time as possible and maximizes output for each worker.
5. In what ways can unionized workforces be a challenge to improving productivity?
Union work rules are often very specific in the sense that job descriptions spell out in exacting detail the responsibilities associated with a particular job. Although detailed specifications help create additional jobs, the relative lack of worker flexibility can potentially hinder productivity by increasing inputs (e.g., additional workers, hence additional labor costs) while also decreasing output.
6. Why does driver supervision tend to be more difficult than supervision of warehouse workers?
For one, drivers are generally removed from immediate supervision by the nature of their jobs. Truck drivers can fall behind schedule or be delayed for a variety of reasons such as traffic conditions, a bottleneck at a loading dock, or perhaps too much time socializing with fellow drivers a particular truck stop. Initially, all a supervisor can do is accept the driver’s explanation of schedule glitches.
7. Discuss how driver productivity can be improved with global positioning systems and geographic information systems.
Global positioning systems (GPS) use satellites that allow companies to compute vehicle position, velocity, and time, whereas graphical information systems (GIS) allow companies to produce digital maps that can drill down to site-specific qualities such as bridge heights and customer locations. GPS and GIS are evolving towards a situation in which instant updates can be provided to GIS databases—data that can be leveraged to provide real-time route planning that can direct drivers away from accidents and other traffic bottlenecks.
8. Describe some ways in which transportation companies might reduce their fuel consumption.
Transportation companies are more closely examining their current operations in an effort to reduce fuel consumption, hence, fuel prices. These include reducing vehicle idling times, joining fuel purchasing networks, implementing route optimization systems, and implementing fuel purchase optimization systems.
9. Describe the three critical factors in managing returned goods.
One factor is why products are returned. Products are returned for a variety of reasons, such as the customer making an error in ordering, the shipper making an error in filling an order, and customers not being able to get what they bought to work. The second factor involves how to optimize returned goods management and one basic decision concerns the design of reverse goods—reverse logistics systems. The third factor in managing returned goods is whether they should be managed internally or outsourced to a third party. There are tradeoffs between internal management and outsourcing returned goods management.
10. What
The Food and Drug Administration is concerned with food, drugs, and cosmetics, while the Consumer Product Safety Commission focuses on banning the sale of products deemed hazardous, such as flammable fabrics. The National Highway Traffic Safety Administration is concerned with vehicles and their accessory parts; it does not actually engage in recalls but is responsible for causing the manufacturer to notify purchasers that a defect has been discovered. The Food Safety and Inspection Service of the U.S. Department of Agriculture inspects meat, poultry, and eggs and relies on voluntary recalls.
11. Discuss practice recalls (fire drills).
Well-managed firms have practice recalls to determine the speed, degree of coverage, and effectiveness they can effect. All actions that firms take to prepare for a hypothetical recall are important for two reasons. First, they allow for better performance when a real emergency arises. Second, in case the recall is not completely successful and lawsuits result, a portion of the firm’s defense might be the precautionary actions it had undertaken.
12. What are the reasons for why logisticians might be concerned with theft?
Even though insurance will reimburse an organization for the market value of the stolen items, the time and costs (e.g., documentation) associated with theft tend not to be covered by insurance. A second logistical concern is that theft results in the planned flow of goods being interrupted and can lead to stockouts in the distribution channel.
Theft can also factor into the facility location decision in the sense that many organizations will avoid locating their facilities in areas characterized by high crime rates. It is also possible for the stolen products to reappear in the market at a lower price to compete with products that have moved through traditional channels.
13. Explain how logistics managers can attempt to control pilferage.
Control begins with the hiring process and one of the best ways to manage pilferage is to avoid hiring people who are predisposed to steal, such as people with credit, alcohol, or drug problems. Some organizations utilize psychological tests as part of the hiring process in an effort to identify prospective employees who might pilfer.
Organizations can better control pilferage if they have clearly articulated and enforced pilferage-related policies. Experts recommend that the best pilferage policy should be based on zero tolerance because problems inevitably arise for those companies that tolerate a “small amount” of pilferage.
14. In what ways are goods moving in international commerce more vulnerable to theft than goods moving in domestic commerce?
Entire shiploads of cargo can “disappear.” Some vanish, only to appear under a new name and a new flag. Some are diverted to a different port, where the cargo is sold to the highest bidder. Piracy is also a threat, particularly in certain regions of the world—and today’s pirates use speedboats, cell phones, and automatic weapons.
15. Discuss three electronic devices that can be used to provide building-related security functions.
Closed-circuit television cameras can be used to view different areas of a particular facility. Unfortunately, organizations sometimes fail to activate or monitor their closed-circuit cameras, which defeats their purpose. A second type of electronic device is used to control access to particular facilities. An example is a magnetically encoded tag that each employee must insert into a sensing device that records the event and determines whether the door or gate should be unlocked. A third category of electronic devices is invisible photo-electronic beams and many types of listening devices that can record unauthorized movements.
16. How is vehicle security in the early twenty-first century a mixture of relatively low- and high-technology alternatives?
With respect to low-technology alternatives, numbers are painted on the top of truck trailers to make them easier to spot from the air if they are stolen. Some truck-leasing companies attempt to thwart truck theft by etching a vehicle identification number in up to 40 different locations on each vehicle. A somewhat more high-technology approach involves cameras and video screens. Some companies have equipped their tractors and trailers with multiple cameras that can provide nearly 360 degrees of coverage and real-time data to drivers.
Radio frequency identification (RFID) is emerging as a valuable technology for managing vehicle security; transponders (a small device that responds to radio signals from an outside source) can be placed on vehicles, and global positioning systems can be used to monitor the location of the transponder.
17. Describe the two issues that managers face with respect to computer and data security.
One issue involves developing business practices that reduce the likelihood of employees losing critical data files (e.g., what a company can do to decrease the chance of a laptop being lost or stolen), whereas the second seeks to protect the data files that are stored on, or can be accessed through the laptop (e.g., the use of firewalls and data encryption).
18. What are two examples of how the terrorist attacks of September 11, 2001 have affected the management of logistics systems?
The storage and transport of hazardous materials in today’s world is managed with an eye to potential terrorist considerations. Petroleum tank trucks and ocean tankers have the potential to be mobile bombs. Inbound containers are receiving much greater scrutiny than prior to September 11th and the result has been a series of legislative proposals in recent years focused on increasing the inspection of inbound containers.
19. What are some ways in which the Transportation Security Administration is attempting to improve the security of the
The Transportation Security Administration (TSA) is the agency that conducts passenger screenings at
20. Discuss the Customs Trade Partnership Against Terrorism (C-TPAT).
In C-TPAT,
PART III
EXAMINATION QUESTIONS
Multiple Choice Questions
1. ____ refers to measurement that ensures conformity with an organization’s policies, procedures, or standards.
a. Motivation
b. Management
c. Metrification
d. Control
e. None of the above
(d; p. 329)
2. ____ view control mechanisms in terms of monetary costs or value, whereas ____ view control mechanisms from either a monetary or nonmonetary perspective.
a. Accountants; financiers
b. Financiers; logisticians
c. Accountants; logisticians
d. Financiers; accountants
(c; p. 330)
3. ____ costs involve two steps: first, one must establish acceptable costs for each activity; and second, one must determine acceptable deviations from these costs.
a. Relevant
b. Controllable
c. Indirect
d. Standard
e. None of the above
(d; p. 331)
4. If the standard cost of handling one pallet is $2, and 5,000 pallets are handled in a given time period, then ____ should be budgeted for handling pallets.
a. $10,000
b. $7,500
c. $5,000
d. $2,500
e. Cannot be determined
(a; p. 331)
5. With ____, cost objects consume activities and activities consume resources.
a. financial accounting
b. activity-based costing
c. cost accounting
d. standard costing
(b; p. 331)
6. Which of the following is not a step associated with activity-based costing?
a. collect activity data
b. determine cost for each activity
c. identify activities
d. determine cost drivers
e. all are steps associated with activity-based costing
(e; p. 331)
7. What is the first step in the activity-based costing process?
a. collect activity data
b. identify activities
c. determine cost for each activity
d. determine cost drivers
(b; p. 331)
8. ____ refers to the amount of output divided by the amount of input.
a. Control
b. Monitoring
c. Productivity
d. Input-output analysis
(c; p. 332)
9. Which of the following is a way to improve to productivity?
a. increase the amount of input while holding output constant
b. decrease the amount of output while holding input constant
c. increase input while at the same time decreasing output
d. increase output while holding input constant
(d; pp. 332-333)
10. The two most frequent uses of labor in logistics are ____ and ____.
a. order management; warehousing
b. transportation; customer service
c. transportation; warehousing
d. order management; customer service
(c; p. 333)
11. Productivity improvement efforts in logistics are often directed towards ____.
a. reducing input while increasing output
b. reducing input while holding output constant
c. increasing output while holding input constant
d. increasing output by a greater percentage than inputs are increased
(c; p. 333)
12. Short-interval scheduling is a common technique used in logistics systems because it helps managers to:
a. analyze a worker’s activity in small time segments
b. make efficient use of scarce loading dock space
c. eliminate unproductive union work rules
d. minimize waste associated with shipping dunnage
(a; p. 333)
13. What is the most important purpose of warehouse work rules?
a. to control pilferage
b. to keep employees from engaging in unproductive and potentially destructive activities
c. to protect companies from union grievance procedures
d. to give managers control over warehouse workers
(b; p. 335)
14. Which of the following statements is false?
a. union work rules are often very specific
b. in warehousing, supervisors can be physically present to monitor work activities
c. contracts that are negotiated with unionized warehouse workers increasingly contain performance-related standards
d. to be effective, work rules must be enforced
e. all of the above are true
(e; p. 335)
15. A ____ is a device used to monitor and control the actions taken by a driver and his/her vehicle.
a. tachometer
b. tachograph
c. speedometer
d. regulator
(b; p. 337)
16. The two areas in logistics systems where most energy costs occur are ____ and ____.
a. customer service; warehousing
b. packaging; transportation
c. materials handling; packaging
d. warehousing; transportation
(d; p. 339)
17. With respect to the design of warehouses, one suggestion for energy savings is to make sure that dock doors are not placed on the ____ side of a building.
a. north
b. south
c. east
d. west
(a; p. 339)
18. Skylights and large windows that incorporate solar energy can reduce energy usage in a warehouse between ____ and ____%.
a. 15; 25
b. 30; 40
c. 40; 60
d. 50; 65
e. None of the above
(c; p. 339)
19. Transportation accounts for approximately ____ of all petroleum consumption in the
a. three-quarters
b. two-thirds
c. one-half
d. one-third
(b; p. 340)
20. Which of the following is not a fuel reduction option currently being pursued by motor carriers?
a. reducing vehicle idling times
b. implementing route optimization systems
c. joining fuel purchasing networks
d. removing paint from tractors and trailers
e. all of the above are options
(d; p. 340)
21. Which of the following is not one of the three critical factors associated with the process of managing returned goods?
a. why products are returned
b. how many products are returned
c. whether returned goods should be managed internally or outsourced to a third party
d. how to optimize returned goods management
(b; p. 341)
22. With respect to product recalls, which agency does not engage in recalls? Instead, they are responsible only for causing the manufacturer to notify purchasers that a defect has been discovered?
a. the Federal Trade Commission
b. the Food and Drug Administration
c. the Consumer Product Safety Commission
d. the National Highway Traffic Safety Administration
(d; p. 343)
23. Which
a. Federal Trade Commission
b. National Highway Traffic Safety Administration
c. Consumer Product Safety Commission
d. Food and Drug Administration
e. All these agencies have product recall authority
(a; p. 343)
24. All of the following are reasons why logisticians should be concerned about theft except:
a. stolen products may reappear to compete with other products
b. time and costs associated with theft aren’t always covered by insurance
c. some organizations will avoid locating their facilities in areas characterized by high crime rates
d. theft can lead to stockouts in the distribution channel
e. all of the above are reasons
(e; p. 345)
25. The materials stolen in ____ are usually for the employee’s own use.
a. theft
b. non-monetary compensation
c. pilferage
d. demurrage
(c; p. 345)
26. What is the primary difference between pilferage and theft?
a. there is no difference between the two
b. theft refers to stolen merchandise worth more than $500
c. pilferage refers to stolen merchandise worth more than $500
d. pilferage involves a firm’s own employees, while theft involves efforts from outsiders
e. none of the above
(d; pp. 344-345)
27. ____ involves chartering an aged ship that is loaded with goods worth more than the ship. After setting sail, it makes an unscheduled stop, sells off the cargo to the highest bidder and exchanges the regular crew for a scuttling crew.
a. Tramp shipping fraud
b. Rust bucket fraud
c. Despatch
d. Lower order fraud
(b; p. 345)
28. Which country experienced the most pirate attacks in 2005?
a.
b.
c.
d.
(c; p. 345)
29. What is viewed as a basic foundation for controlling theft?
a. technology
b. company policies
c. sufficient organizational resources
d. common sense
(d; p. 347)
30. Which of the following statements is false?
a. products at rest are particularly susceptible to theft
b. security experts suggest that closed-circuit television and alarms are highly effective in controlling pilferage
c. electronic devices can be used to provide building-related security functions
d. there is virtually no limit to the sophistication or cost of security devices that can be used for building security
e. all of the above are true
(b; pp. 347-349)
31. Truck leasing companies, in an effort to thwart truck theft, now etch vehicle identification numbers in up to ____ different locations on each vehicle.
a. 40
b. 30
c. 20
d. 10
(a; p. 349)
32. Transponders ____.
a. allow for prepayment of custom duties
b. permit electronic submittal of international documentation
c. can be valuable for managing vehicle security
d. plan the routes of forklift trucks
(c; p. 349)
33. Two of the most important
a. Department of Transportation
b. Federal Maritime Commission
c. Surface Transportation Board
d. Customs and Border Protection
(d; p. 351)
34. Which of the following is false?
a. the Transportation Security Administration conducts passenger screening at
b. the Transportation Worker Identification Credential is to contain both personal and biometric data
c. the Transportation Security Administration is involved in the Container Security Initiative
d. the Transportation Worker Identification Credential is not yet fully operational
e. all of the above are true
(c; pp. 351-352)
35. All of the following are potential benefits to the Customs Trade Partnership Against Terrorism except:
a. lower costs
b. fewer security inspections
c. reduction in cargo theft
d. faster processing time through Customs
e. all of the above are potential benefits
(a; p. 352)
True-False Questions
1. Control refers to measurement that ensures conformity with an organization’s policies, procedures, or standards. (True, p. 329)
2. One difference between accounting and logistics is that accountants count inventory in dollars whereas the logistics staff counts inventory in terms of stock-keeping units. (True; p. 330)
3. Standard costs are synonymous with average costs. (False; p. 331)
4. If the standard cost of handling a pallet is $1.25 and 400 pallets are handled in a particular time period, then $500 should be budgeted for handling pallets. (True; p. 331)
5. Fully allocated costing has become popular in logistics in recent years. (False; p. 331)
6. With activity-based costing, cost objects consume activities, and activities consume resources. (True; p. 331)
7. Determining a cost for each activity is the first step in activity-based costing. (False; p. 331)
8. Productivity can be defined as the amount of output divided by the amount of input. (True; p. 332)
9. Productivity efforts in logistics are often directed at increasing the amount of output while holding input constant. (True; p. 333)
10. Short-interval scheduling is a technique that maximizes the use of available dock space. (False; p. 333)
11. In an effort to improve worker performance, many supervisors use a three-part approach consisting of peer review, feedback, and positive reinforcement. (False; p. 335)
12. The most important function of work rules is to protect management from worker grievances. (False; p. 335)
13. Union work rules are often very specific in the sense that job descriptions spell out the responsibilities associated with a particular job. (True; p. 335 )
14. Contracts that are negotiated with unionized warehouse workers increasingly contain performance-related standards. (True; p. 335)
15. As a general rule, the same types of supervision can be used for both warehouse workers and truck drivers. (False; . 335)
16. The tachograph is a recording instrument that produces a continuous, timed record of the truck, its speed, and its engine speed. (True; p. 337)
17. Wireless communications, global positioning systems, and graphical information systems offer tremendous opportunities to improve driver productivity. (True; p. 338)
18. Warehousing and packaging are the two areas in logistics systems where most energy costs occur. (False; p. 339)
19. With respect to energy controls, warehousing design suggests that dock doors should not be placed on the west side of a building. (False; p. 339)
20. Roof color is often overlooked as an area for warehousing energy control. (True; p. 339)
21. Transportation accounts for about one-half of all petroleum consumption in the
22. A number of companies are likely to reconfigure their modal allocations given that $60 per barrel oil prices are projected to be the norm through 2012. (True; p. 340)
23. Many third-party logistics companies offer expertise in returned goods management. (False; p. 342)
24. Some types of product recalls are more serious than others. (True; p. 342)
25. The main objective of the Consumer Product Safety Commission is to ban the sale of products deemed hazardous. (True; p. 343)
26. It is a good idea for companies to have practice, or “fire drill,” recalls to determine their speed, degree of coverage, and effectiveness. (True; p. 344)
27. Product recalls may offer an excellent opportunity for service recovery. (True; p. 344)
28. As a general rule, logisticians should not be concerned about theft because many organizations carry insurance to compensate themselves in case of theft. (False; p. 345)
29. Pilferage refers to stolen goods valued at more than $1,000. (False; p. 345)
30. Experts recommend that the best pilferage policy should be based on zero tolerance. (True; p. 345)
31. Tramp shipping fraud involves chartering a ship with cargo worth more than the ship itself, diverting the cargo, and scuttling the ship. (False; p. 345)
32. Piracy is still a threat in some shipping lanes. (True; p. 345)
33. Goods at rest (e.g., sitting in warehouses) are more vulnerable to theft than goods in motion. (True; p. 346)
34. Security experts suggest that closed-circuit television and alarms are highly effective in controlling pilferage. (False; p. 348)
35. Vehicle security is a particularly acute issue in the trucking industry because theft involves 1) the vehicle itself and 2) the vehicle’s contents. (True; p.349 )
36. Transponders can be used to improve building security. (False; p. 349)
37. Information security is the most important technology issue that companies face today. (True; p. 349)
38. From a logistics perspective, the Transportation Security Administration and the Department of Transportation are two of the most important government entities that were incorporated into the Department of Homeland Security. (False; p. 351)
39. Customs and Border Protection is responsible for securing
40. Companies that participate in the Customs Trade Partnership Against Terrorism are exempt from all import tariffs and all import quotas. (False; p. 352)
PART IV
CASE SOLUTIONS
CASE 13-1: BRANT FREEZER COMPANY
Question 1: When comparing performance during the first five months of 2004 with performance in 2003, which warehouse shows the most improvement?
St. Louis is the only one showing any improvement, using cost per unit shipped as the performance criterion. The cost for the first five months of 2003 was $9.97 and for the first five months of 2004, it fell to $9.07.
Question 2: When comparing performance during the first five months of 2004 with performance in 2003, which warehouse shows the poorest change in performance?
The worst change is the company’s own warehouse (located in Fargo), where costs per unit shipped increased 31%. Among the public warehouses used, Denver was the worst in terms of cost per unit handled. It is also the most expensive public warehouse that Brant uses.
Question 3: When comparisons are made among all eight warehouses, which one do you think does the best job for the Brant Company? What criteria did you use? Why?
Using the cost per unit handled criterion, St. Louis does the best job, closely followed by Chicago.
Question 4: J.Q. is aggressive and is going to recommend that his father cancel the contract with one of the warehouses and give that business to a competing warehouse in the same city. J.Q. feels that when word of this gets around, the other warehouses they use will “shape up.” Which of the seven should J.Q. recommend be dropped? Why?
Denver has the lowest volume and highest unit costs among all the public warehouses used. In addition, it had been closed by a strike which must have inconvenienced the Brant Company. It may be that the warehouse workers’ unions are strong in the Denver area. J.Q. should probably check out rates and productivity measures of other Denver warehouses before deciding to drop its current warehouse there.
Question 5: The year 2004 is nearly half over. J.Q. is told to determine how much the firm is likely to spend for warehousing at each of the eight warehouses for the last six months of 2004. Do his work for him.
There is not enough information to do a very precise forecast. J.Q. assumes that the proportion of costs occurring during the first five months of 2003 should be in the same proportion in 2004.
(1) (2) (3) (4)
Warehouse location
% 2003 costs occurring in first five months
Actual costs for first five months of 2004 ($)
Projected total costs in 2004
($)
Projected costs in the last six months of 2004 ($)
Atlanta
22.88
40,228
175,822
116,204
Boston
44.00
29,416
66,885
32,085
Chicago
53.43
141,222
264,312
105,556
Denver
35.00
14,900
42,571
23,714
Fargo
54.00
9,605
17,787
7,012
Los Angeles
72.20
93,280
129,197
30,781
Portland
49.30
42,616
86,442
37,559
St. Louis
44.80
19,191
42,837
20,265
The projected costs in 2004 (column 3) are calculated by dividing the actual costs for the first five months of 2004 (column 2) by the percent of 2003 costs that occurred in the first five months (column 1). For example, Atlanta’s actual 2004 costs of $40,228 divided by 2003’s 22.88% yields projected 2004 costs of approximately $175,822.
The projected costs in the last six months of 2004 (column 4) are calculated by subtracting the actual costs for the first five months of 2004 (column 2) from 2004’s projected total costs (column 3). This gives us the projected costs for the last seven months of 2004. However, we are only interested in the last six months of 2004, so this number is multiplied by 6/7, or .857. Continuing with Atlanta, 2004’s projected total costs of $175,822 minus the first five months’ actual costs of $40,228 equals $135,394. Multiplying this by 6/7 yields projected six months’ costs of approximately $116,204.
Question 6: When comparing 2003 figures with the 2004 figures shown in Exhibit 13-A, the amount budgeted for each warehouse in 2004 was greater than actual 2003 costs. How much of the increase is caused by increased volume of business (units shipped) and how much by inflation?
There are several ways to approach this question. One involves calculating the volume difference and inflation difference for each warehouse, as follows:
Volume difference = 2003 unit costs x (2004 units shipped – 2003 units shipped)
Inflation difference = 2004 units shipped x (2004 unit costs – 2003 unit costs)
For example, Atlanta’s volume and inflation differences are:
Volume difference: $8.99 x (18,000 – 17,431) = $8.99 x 569 = $5,115
Inflation difference: 18,000 x ($9.97 - $8.99) = 18,000 x $.98 = $17,640
Question 7: Prepare the firm’s 2005 warehousing budget, showing for each warehouse the anticipated number of units to be shipped and the costs.
Again, this can be done in several ways. One is to assume that the 2004 to 2005 increases will be exactly the same amount as the 2003 to 2004 increases (with units shipped rounded to the nearest hundred, and costs rounded to the nearest $500). This would yield the following results:
Warehouse location
Differences in units shipped b/w 2003 and 2004
Units shipped
in 2004
Projected units shipped in 2005
Difference in warehouse costs b/w 2003 and 2004 ($)
Warehouse costs in 2004 ($)
Projected warehouse costs in 2005 ($)
Atlanta
600
18,000
18,600
21,000
178,000
199,000
Boston
300
7,200
7,500
9,500
73,000
82,500
Chicago
1,900
30,000
31,900
38,500
285,000
323,500
Denver
100
3,100
3,200
3,000
31,000
34,000
Fargo
0
2,000
2,000
500
17,000
17,500
Los Angeles
500
17,000
17,500
24,000
176,000
200,000
Portland
700
9,000
9,700
12,000
85,000
97,000
St. Louis
2,100
8,000
10,100
4,000
56,000
60,000
Another method would use percentage changes.
Question 8: While attending classes at the university, J.Q. had learned of logistics partnerships. Should Brant Freezer Company attempt to enter into a partnership relationship with these warehouses? If so, what approach should it use?
Assuming that a partnership approach was to be used, Brant would have to think of some sort of sharing of potential risks and profits. Offhand, the case does not provide much information to go on, other than cost containment or reduction is an issue.
CASE 13-2: RED SPOT MARKETS COMPANY
Question 1: How should Fosdick respond to the immediate situation?
Fosdick is on the spot and must respond immediately. Probably the best thing for him to do is refuse the sandwich, indicate his surprise at—and clear disapproval of—the pilferage, and continue on his way to the restaurant.
Question 2: What controls, of the types discussed in this chapter, might have been used by Red Spot Markets to reduce or eliminate the problems discussed in the case?
Closer controls on worker productivity and on pilferage would have helped.
Question 3: What longer-range steps should Fosdick take to control the operations of the Providence distribution center?
He should implement a management style whereby he, rather than Bigelow, determines the pace of the warehouse work. However, this is much easier said than done, particularly because of Bigelow’s almost overpowering influence.
Question 4: What longer-range steps should Fosdick take to improve the Providence distribution center’s productivity?
Fosdick should first consult with Easter to determine whether the company is going to keep or dump Bigelow. Bigelow appears to hold the key to the warehouse workforce’s productivity and few schemes to increase output will succeed without his blessings. Fosdick and Easter might also attempt to incorporate productivity measures into the distribution center’s next labor contract.
Question 5: What longer-range steps can Fosdick take to reduce the distribution center’s high rate of shrinkage?
Again, after consulting with Easter, a decision must be reached as to how quickly and how forcefully the company is going to end the “free” lunch program, because that appears to be a main cause of the shrinkage. Fosdick and Easter might also incorporate a shrinkage target into the next labor contract and perhaps link performance bonuses to this target.
Question 6: Assume that Fosdick decides that the practice of free lunches from the open cases of goods must be stopped. Develop and present arguments he should give in a meeting with a union shop steward.
He might say that the practice is a form of stealing and clearly unacceptable to the company. If there are behavior clauses in the union contract, Fosdick might invoke them. He could emphasize that the pilferage has made Providence a high cost warehouse and if these high costs are not improved within a certain time frame, then the facility could be shut down.
Question 7: (This is a continuation of question 6.) Assume, instead, that you are the union shop steward. Develop and present your argument that the free lunches represent a long-standing employee benefit enjoyed by the distribution center’s employees, and that management’s attempt to stop them is a breach of an unwritten contract and will be resisted.
You might argue that management has known about the practice for a long time and, by not eliminating it, has tacitly accepted it. You could also argue that the practice is not much different from management’s use of company phones and company cars for personal activities.
Question 8: Much of the situation described in the case seems to revolve around the personality of T.D. Bigelow. How should he be treated? Why?
This question may generate a wide variety of responses and the discussion can become quite intense. Some students may argue that Bigelow should be fired. Others may argue that he should seek assistance for his apparent substance abuse problem, possibly through an Employee Assistance Program (if Red Spot has such a program). Still others may argue for a “divide and conquer” approach in the sense that Bigelow, despite his inability to count and spotty attendance, should be made some type of supervisor because of his ability to get the warehouse employees to work. Such an approach could turn Bigelow into an “enemy” of the hourly workers, in that he would no longer be one of them.
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