Case Study: Brunswick Distribution Inc.

Foundations of Operations Management

Professor Neil Bishop

Jennifer Fellinger
Morris Kelly
Timothy Kitching
Lindsay Star
Ali Yassin

5.1 Situational Analysis

James Brunswick had been employed at a major freight company out in Chicago. His experience
mainly came from that senior logistics position that he held within that leading distribution firm,
and clearly it was all he needed to form a company such as Brunswick Distribution Inc. Although
he was not alone in any of this, Frank Pulaski, Vice President of Operations, and Lew Jackson,
Vice President of Logistics, were right by his side the entire time, since college, to be exact.
James Brunswick acquired the idea for Brunswick Distribution Inc., so with Frank, and Lew, in a
shed at his grandmothers residence, plus a single loan from the bank, they changed their lives
forever.

Brunswick Distribution Inc. or BRUNSWICK DISTRIBUTION INC., utilizes more than just a
network of manufacturers to implement resale strategies, getting products from manufacturers to
retailers on time, and efficiently. Simply put, they are classified as single distributors. Their
customer base spans from all over their local environment. With a focus on quality and
productivity, in and around the city known as one of the agriculture capitals of the world,
Moline, Illinois has approximately 43,259 residents current to 2012 statistics.

Even without a strategic game plan, they were dedicated to making this company work, so at
first, they purchased two used vans for deliveries. Once business began to increase, and they
completed their first relocation, the coverage of BRUNSWICK DISTRIBUTION INC.
increased, their development remained solid, and it was then they received an offer to distribute
high-end kitchen appliances for Kitchen-Aid, even signing the contract in 1992. A milestone, to
say the least, as it would promote exposure they needed, giving them the opportunity to penetrate
a wider range of potential consumers. The location of Kitchen-Aid was 35 miles outside Moline,
giving them a strategic proximity advantage to their location.

By the end of 2000, BRUNSWICK DISTRIBUTION INC. had almost tripled in capacity within
their new building, with an increase of 20,000 square feet. They were increasing as the firms
around them were failing, shutting down regularly. The expansion of their facility could have
been too soon though, if they had taken into consideration the market decrease surrounding them,
the focus should have been on an inventory system, as the end result of their choice only put
them in a difficult situation. On the other hand, the capital used for the lease on the building
could have essentially been used for investing in the future, in which case no financial strain
would have been acquired, eliminating all financial strain is necessary for efficient operations.
This is not the only mistakes that were made. Some had the possibility of becoming detrimental,
and others werent so harsh.

Dropping low-end items, to focus solely on high-end inventory; income is almost always
beneficial, even if it wasnt much.

Other retailers may inquire about their products direct from manufacturers or another distribution
company if BRUNSWICK DISTRIBUTION INC. loses competitive edge with their financial
resources.

With two distribution channels, and only two, a new strategy would be the intelligent option.

Direct competition decreased over the past five years, and while Brunswick assumed the market
was going to bounce back, yet it still never has.

The orders are inconsistent with the market nowadays, as it does not pertain to the data in the
past. Although, this ever-changing market means their dependence on previous historys data and
its reliability is objectionable.

Manufacturer requires the customers orders in advance, yet with the way the clients place their
orders, expecting an approximate 60-90 day, and up to 120 days in advance, is too much.
BRUNSWICK DISTRIBUTION INC. is obligated to absorb/pick up the slack of the cost.

In the past, BRUNSWICK DISTRIBUTION INC. maintained a safety stock of 12 weeks of

inventory with a Q system and min/max levels at week 6 and 8; although, generally the target
turnover of inventory should be roughly between 8 and 10 weeks. As a result, their strategy
concerning inventory turnover must be enhanced to fit accurate and efficient standards, and
quickly, as they are losing opportunities at an intense rate.

This unnecessary strain on BRUNSWICK DISTRIBUTION INC.s financials has been

consistently overbearing, commonly demand payment differently, leaving anything else that is
required to be acquired through alternative methods; however, due to their situation, any quote
will be a higher payment on anything they borrow. A possible solution is to figure a common
date between the retailers and manufacturers
o Manufacturers: BRUNSWICK DISTRIBUTION INC. have 30-60 days to
pay.
o Retailers: Payment is due within 45-50 days.

The 15 day gap between each cut off time exists, leaving it to BRUNSWICK DISTRIBUTION
INC. to exhaust their only option of the credit facility.

The budget must be a more cost-efficient structure, which is concentrated on the manufacturers
and the retailers, keeping BRUNSWICK DISTRIBUTION INC. in the middle as the direct link.
A happy medium must be found that doesnt require BRUNSWICK DISTRIBUTION INC. to
pick up the slack as it is an immense burden, and massive requirement on their financials. Unless
they find a stakeholder or other means they will wind up in the same situation as their
competition.

5.2 Problem Statement

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What can James Brunswick, CEO of Brunswick Distribution Inc. do to increase the net earnings
of his company which have been declining over the past three years despite the increase in sales
during the past four years?

5.3 Financial Analysis

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Brunswick Distribution Inc. (BRUNSWICK DISTRIBUTION INC.) finding itself with rising
sales revenue averaging 8% average annual increase but declining Net Income over the
preceding three years must decide between an overhaul of their existing operation by bringing in
new equipment and operating techniques or expanding into a new facility offering greater
opportunities for increased sales. When reaching a decision James Brunswick must take a
number of factors into consideration, not only are the financial metrics important the current
state of the marketplace must be evaluated and BRUNSWICK DISTRIBUTION INC.s place
within that market. With regional competitors going out of business BRUNSWICK
DISTRIBUTION INC. has experienced a bump in sales but James Brunswick realizes this is
temporary and would likely view these companies closing as a warning of sorts to be
conservative in his plans for BRUNSWICK DISTRIBUTION INC. Well aware of the financial
position of his company Brunswick must consider that laying out large amounts of cash does
come with risk, especially when these funds are borrowed. The following charts and statements
will show the possibilities and implications of the final decision Brunswick will ultimately make.

DuPont Analysis
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Fig 5.3.1

ROE
ROA
NPM
TATO

Current

New
Infrastructure

Change

Basic
AR/AS

Change

3.7%
3.2%
1.8%
109.6%

2.8%
2.4%
2.3%
63.7%

Down
Down
UP
Down

7.0%
4.9%
3.3%
87.9%

UP
UP
UP
Down

Fully
Integrated
AR/AS
4.4%
3.4%
2.2%
94.1%

Change

UP
UP
UP
Down

ROE (Return on Equity)

Used to measure the profitability of company when compared to the investment into the
company.
When looking at the outcomes after all inputs have been made in regards to operations of
BRUNSWICK DISTRIBUTION INC., ROE analysis (fig. 5.3.1) shows that the Basic AR/AS
would provide the greatest increase in ROE while the new Infrastructure would see a decline in
ROE at least in the short term. With a growing company it would be assumed that a higher ROE
is preferable.
ROA (Return on Assets)
This metric is used to show the profitability of a company in relation to its assets or how well the
company the company uses its assets to generate income.
Using this metric we see that the New Infrastructure brings down the ratio meaning that the
BRUNSWICK DISTRIBUTION INC. would see a reduction in their return on investment (this
would likely change over the long term) while an increase is shown with both the Basic AR/AS
(3.4%) and Fully Integrated AR/AS (4.9%) with the Fully Integrated having a higher increase.
NPM (Net Profit Margin)
This metric is used to show how much of sales dollars a firm retains.
This metric is one that BRUNSWICK DISTRIBUTION INC. will need to address as it is one of
key issues that James Brunswick is concerned with. With all options Net Profit Margin see
increases, with the Fully Integrated AR/AS with the greatest gain at 3.3% with the Basic AR/AS
at 2.2% and the New Infrastructure at 2.3%. With this information it is important to also state
that an increase in NPM is not always an indicator of increased net income. Net Income will be
addressed later in this report.

TATO (Total Asset Turnover)

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This metric is used to display the total sales generated per dollar of assets. A firm such as
BRUNSWICK DISTRIBUTION INC. that carries high end, high margin products a lower asset
turnover can be expected.
When looking at the asset turnover changes when implementing each of the options an across the
board drop in ratio is observed, with the New Infrastructure leading the pack dropping from
109.6% to 63.7% followed by the Fully Integrated AR/AS (109.6%-87.9%) and the Basic AR/AS
(109.6%-94.1%) This metric will be important to consider once again as it would measure the
growth of revenue and sales.

Operational Measures
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Fig. 5.3.2
Current

Current
Ratio
Inventory
Turns
WC to
Sales
Fixed
Asset
Turnover

Change

Basic
AR/AS

Change

2.6

New
Infrastructur
e
3.88

Change

UP

Fully
Integrate
d AR/AS
2.63

UP

2.68

3.2

3.3

UP

3.1

DOWN

3.1

DOWN

31.6%

65.5%

UP

31.6%

DOWN

30.9%

DOWN

56.3%

103.6%

UP

78.1%

UP

105.5%

UP

UP

Current Ratio
Is a metric that measures a company's ability to pay short-term obligations.
This metric is an important aspect of the decision making process, with regional competitors
closing up shop and concerns regarding BRUNSWICK DISTRIBUTION INC is often cash poor
positioning. All of the options that are being considered require an increase in debt that would
likely require an increase in sales or reduction in expenses to accommodate. With all options it
shows that an increase can be met (fig 5.3.2) with the New Infrastructure increasing the assets of
the company and increasing the new cash coming in, the greatest increase is seen here with a
new ratio of 3.88.

Inventory Turns
This metric is used to show the number of times turns per year.
James Brunswick expresses a desire to have an inventory turn ideally at 8 with a target of 10.
Currently the company is seeing a turnover of 3.2 turns. A low ratio that the company is
experiencing is indicative of excess inventory brought on by low sales. When analysing the
changes in each option only the new infrastructure provides an increase although marginal and
not to the degree that Brunswick desires. It appears that despite a projected increase in sales at
the new facility the increase in cost of goods sold plays a significant factor. Both AR/AS options
see a reduction in inventory turns to 3.1, this would be likely caused again by the increase in cost
of goods.

WC to Sales (Working Capital to Sales)

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This metric shows how efficiently a company uses it working capital to generate sales.
Using this metric BRUNSWICK DISTRIBUTION INC. sees only the New Infrastructure
yielding positive results with Working Capital increasing to 65.5% compared to the 30.9% and
31.6% for the Fully Integrated AR/AS and Basic AR/AS respectively.

Fixed Asset Turnover

This metric is used to show how well investments into the companies fixed assets translate into
increases in net sales by comparing net Plant, Property and Equipment to the costs of goods sold.
With a large outlay of funds to finance any of the options a higher turnover on the investment of
equipment and facility are a large consideration. With all options producing positive results The
Fully Integrated AR/AS offers an increase to 105.5% with the new infrastructure increasing to
103.6% and the Basic AR/AS increasing to 87.1%.

The Income Statement

Net Income
Change

Current
projection
588,000

New
Infrastructure
826,000
238,000

Basic AR/AS
714,000
126,000

Fully Integrated
AR/AS
1,071,000
483,000

When addressing BRUNSWICK DISTRIBUTION INC.s needs Net Income is the bottom line.
Regardless of all other matters a net income is the end goal. By inputting the data into Exhibit 2
calculator the results show that the Fully Integrated system provides the highest net income
increase.
Summary
As stated above the ultimate goal for the firm is increasing the net income of the business, also
taken into consideration when deciding which direction to move an analysis of the markets
climate as well as an analysis of the businesses positioning financially and within the market.
Although the New Infrastructure option presented by Frank Pulaski presents some definite
benefits the risk of taking on a financial commitment that the new infrastructure presents (12
million dollars and 20 years.) could leave BRUNSWICK DISTRIBUTION INC. in a situation
that is too cash poor to function in the event a change in the market occurs. By taking a route
that streamlines the existing business model BRUNSWICK DISTRIBUTION INC. is positioning
themselves to be more efficient and with the potential to expand at a later date if the opportunity
arises.

5.3.1 Environmental Scanning Analysis

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Strengths, Weaknesses, Opportunity, Threats (S.W.O.T)

A S.W.O.T analysis is a point form compilation of strengths, weaknesses, opportunities and
threats facing an organization. A SWOT analysis is used to help an organization understand
itself.
A S.W.O.T analysis helps an organization develop a vision and strategy for future development.
A SWOT analysis looks at internal and external factors and provides information on
organizations strengths and weaknesses in relation to opportunity and threats.
Strengths:

Four Years good growth (internal)

Determination (internal)
Experience (internal)
Agreement with Kitchen Aid (external)
Increased size of Facility (30,000 ) (internal)
Sixty mile delivery radius (internal)
Well-kept financials (internal)
Stable Government (external)
Understands their core competency (internal)

Weakness:

Small fleet of delivery trucks (internal)

Rampant uncontrolled growth (internal)
Old fashioned ordering methods (internal)
Loan payments (internal)
Debt collection (internal)
Manufacturers lead time required (60 120) Days (external)
Lack of finances (internal)

Opportunity:

Competitors closing
Room for growth
Update ordering system (Interbased)
Areas to add value
More low end (high volume)
Offer early payment discounts
Reduce stock Introduce JIT
Reduce turn over time
Mid-West looking for alternatives (New customers)
Financing available from Chicago (11%)
New technology
Internet based business potential
Establish a competitive advantage
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Threats:

New competition
Net earnings decline
Inventory demand change
Loss of existing clients
Payments from clients
Exhausted finances
Retailers ordering direct
Change in market
Change in economy

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PEST Analysis
Pest analysis is concerned with the external influences on business, the acronyms stands for the
Political, Economic, Social, and Technological, issues that could affect the restructuring and
streamlining of Brunswick Distribution Inc.
Political
Federal, State policies towards small business could impact BRUNSWICK
DISTRIBUTION INC. strategic plans growth positively or negatively in terms of
incentives or exemptions in taxation.
Municipal By laws regarding the property tax, and zoning could affect BRUNSWICK
DISTRIBUTION INC. plan to expand their business.
Employment/unemployment laws and how it affects companys hiring/firing policies and
procedures.
Competition regulation and how it helps or hinders BRUNSWICK DISTRIBUTION
INC. competitive edge in technology
Environmental Law and how it impacts companys profitability i.e. Carbon tax.
Economics:

Economic growth helps BRUNSWICK DISTRIBUTION INC. expand their business and
make dent into new territory to increase their profitability.
Economic recession will affect BRUNSWICK DISTRIBUTION INC. in an
unpredictable ways as business slows down impacts their bottom line.
Tax relief or exemptions will help BRUNSWICK DISTRIBUTION INC. during the
tough times as it makes up the lost businesss income.

Social:
Social responsibility improves companys images by involving local community
activities i.e. sporting events and cultural festivals.
Consumer attitude and opinions will help BRUNSWICK DISTRIBUTION INC. improve
customer service skills and increase profitability.
Advertising and publicity will open BRUNSWICK DISTRIBUTION INC. new market
and position BRUNSWICK DISTRIBUTION INC. better place for future expansion.
Technological:
Investment in Information Technology will enhance BRUNSWICK DISTRIBUTION
INC. capability in distribution to have competitive edge against their competitors.
Integrated order fulfilment system will speed up companys communication system so
they can improve their order cycle, delivery time, and cut cost.
Technological obsolescence i.e. the need of upgrading systems to keep up with changes to
optimise processes efficiency and reduce turn over time.

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5.3 Qualitative Analysis

What are the affects that either option will have on the firm in the long run?
Which option is seemingly better for the firm?
While Lew has proposed he thinks streamlining the system is a better option, Franks suggestion
is to invest in a new infrastructure.
Current Breakdown
Inventory
The system is not automated to take orders, and as the current time it only works through
two channels: phone and fax. They need to upgrade their system so that they are readily
available when the time comes to deal with a larger scale of demand.
Some points are as follows:
Uncertainty regarding future sales.
Dependable delivery/short delivery time
Not enough space with low grade inventory planning they have now, need better
inventory system in their warehouse.
Diversity in products
High inventory as last minute modifications due to retailers orders.
Currently BDI is seeing an inventory turnover rate of 3.2 turns. With the option to
implement a new infrastructure derives a low inventory ratio of 3.1 turns, it seems the other
option is a better solution, yet an even lower ratio is produced when the calculations for the
implementation of a new inventory system is complete.
Drivers Facilities
When a customer creates an order, Brunswick then purchases the products from the
manufacturers, storing them in their own warehouse. This system was working fine when BDI
was only dealing with low end products; however, theyve recently blossomed into dealing with
only high end products. Currently he is trying to decide whether a larger warehouse is more
beneficial, in comparison to an updated inventory system.
With an entirely new facility, this can create more space for expansion, and still implement the
newer system, with a possibility to use more than two channels of communication, such as an
internet-based ordering system.
Sourcing
Nothing is outsourced.
Transportation
From the warehouse to the retailer, BDI as the distributor is responsible for that shipment.
So what happens if neither the manufacturers, nor the retailers, want to be the one to handle
the shipments? It is just another situation that falls in Brunswicks lap.
Information
The information they have is limited, these information problems tend to lead to situations
and have a negative effect on BDI. These problems can lead to delays in delivery as well As
various penalties, for if their historical data is this unreliable as the market continues to shift
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so many ways since BDI opened, they will never be able to correctly forecast what may or
may not happen. Relying on past data to predict future sales tends to lose its credibility
because this market is never the same.
Basic level - Full implementation
Lews Plan
$8.8 million for fully integrated system
Operating and training costs of $0.8 million
per year
Saving them in shipping and in labor,
approximately $2,505,120
This option also increase liabilities, and
adds more stress if theres still a lack of
space in warehouse.

Both basic and full systems would actually

end up decreasing net income
approximately 4-7 million dollars for BDI.

Franks Plan
$2 million property
$10 million for plant and equipment
Savings of $5,100,000 end result would end
up increase profits each year, yet cost BDI
approximately $13,716,340
This option is better for BDI in the longr
run and nothing would need to be done in
the future, because they would be prepared
for high demand, increase in capacity
requirements and such.
This choice will decrease net income as
well by approximately $8 million, due to
more cost of goods sold, which is not even
a bad thing.

Each Alternatives Issues

Lew Jackson and a Better Inventory System
Frank Pulaski and a New Infrastructure
New inventory system is mandatory. New facility will yield an increase to 65.5%
Unnecessary items must be managed, the
working capital, compared to 30.9% and
Un-organization=Negativity
31.6% in previous situations.

Deliveries at the current time, are not being As for transporting the goods, truck availability
handled in an orderly fashion, yet with better
based upon location of new facility, give
system, they can potentially decrease
feedback to client on their own delivery times,
delivery time from 5 days, down to 2 days.
with the option to view the schedule,
minimizing risk of complaints.

Materials and inventory cost would increase Maintain an integrated facility with more space
by 6%.
than what they need right now, but this will be
better for the future.
What if sales increase, and demand increase? Are they going to attempt to maintain a small
warehouse or just have to relocate in the future? With the opportunity to centrally locate
themselves, as well as move to a superior, as well as an improved facility, isnt that the more
productive option, one including future planning as well?

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5.4 Alternatives

Maintain current operational structure.

James Brunswick could opt to make no changes to the distribution company and its operational
structure.
Advantages:
Current structure is known and no further training required.
The company could be able to keep all their employees.
No further debt could be accumulated by expanding to a larger warehouse.
Disadvantages:
The company could continue to see a decrease in net earnings.
If the recession continues the company may see a decline in sales.
By remaining idle in making decisions the door may be left open for competitors
to move into their market

Use Frank Pulaskis recommendation to serve more customers

Frank Pulaskis recommendation is invest in a new infrastructure. He wants to expand the

company by building larger storage facilities. Larger facilities would enable the company to
increase annual sales which should result in higher net earnings.
Advantages:
The company could increase sales and potentially net earnings.
The company could become a leader in the distribution business.
The company could become a global contender in the distribution business.
Disadvantages:
The expansion to larger warehouses could strain the companys financial budget.
If operating costs are not maintained the company could lose money on a larger
scale.
If the recession continues the company could face bankruptcy if they are not able
to ride it out.
3

Use Lewis Jacksons recommendation to use a cost efficient distribution system

Lewis Jacksons recommendation is to streamline the order fulfillment system. He wants to

utilize a cost efficient distribution system. He wants to improve with the inventory control
department to keep only products that are needed and dispose of those that are not needed. By
doing so the existing customers will be better and more efficiently served.
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Advantages:
The company will remain a stable distributor in the distribution business.
The company will maintain the respect they have of their existing customers.
Operating costs should decrease if tighter control is implemented with the
inventory control department.
Disadvantages:
The company may not be able to compete with larger companies.
The company may not be able to survive the recession with only a smaller number
of retailers to sell to.
The initial cost to implement the system could strain the company financially.

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5.5 Recommendations and Action Plan

Our recommendation is to choose Alternative 3:
Lewis Jacksons recommendation is to streamline the order fulfillment system. He wants to
utilize a cost efficient distribution system. He wants to improve with the inventory control
department to keep only products that are needed and dispose of those that are not needed.
By doing so the existing customers will be better and more efficiently served.
Lewis Jackson wants to implement a fully integrated center with automated systems, improved
handling equipment, information technology which is specifically designed for the distribution
business. The new system would equip the company with an automatic storage and retrieval
system. All these improvements could be done using the existing warehouse facilities which
would eliminate the cost of a new warehouse.
The initial cost of the fully integrated system would be 8 million dollars but the company would
amortize this over a five-year period. This would eliminate a large investment up front and not
put a financial strain on the company. The operating costs would be $.0.8 million dollars yearly
and this cost would be considered fixed expenses. This system would have a large cost savings
for the company.
A fully integrated system would save the company 16 percent in direct shipping and labor
expenses. All savings the company makes would be divided equally between shipping and labor
expenses. The company could opt to finance this over a five-year debt plan at a rate of 10
percent.
This option works because there are large savings to be made from more efficient handling of
orders and improved warehouse communication. There would also be a savings on shipping
costs. This option is also a safer choice because of initial cost layout. During a recession this is
an important factor.
Action Plan
Research AS/RS
options

1 Week

1 Month

6 Month

1 Year 2 Year

4
Year

AS/RS decision
and order

Arrange financing

Delivery and
installation of
equipment

3 Month

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5
Year

Training and
implementation
Evaluation of
process

X
X

Debt retired

X
X

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5.7 Concluding Comments

Brunswick Distribution Inc. and its founder James Brunswick are facing an issue of declining net
income despite rising sales coupled with changes in the market place including competition
closing their doors and consumers changing their buying methods. With competition closing
their doors and changing buying methods James Brunswick must take care in making the final
decision on which avenue to proceed, would expansion lead to potential failure, would the status
quo be the best measure or would stream lining lead to better operations? With market
uncertainty it would be advantageous to simply make the company run smoother and more
efficient. By expanding the business Brunswick faces the possibility of taking on too much debt
and ultimately have the business fail due to lack of cash flow, with the status quo a continuation
of shrinking net income could cause the business to fail. A streamlined, although does require a
financial commitment, offers an opportunity for Brunswick Distribution Inc. to reduce costs
while becoming a more efficient operation while still leaving the option for expansion at a later
date. The former Prime Minister of India Jawharlal Nehru once stated Obviously, the highest
type of efficiency is that which can utilize existing material to the best advantage. Using that
logic it would be in the best interests of Brunswick Distribution Inc. to use their existing facility
and improve on this already successful business. With an efficient system there is to stop
Brunswick Distribution Inc. from being a greater success.

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