Reference no: EM132298005

XYZ is a Canadian company that sells high-end, specialty tools made to withstand the rigours of everyday use by tradespeople. XYZ has been in business for 15 years and enjoys strong brand recognition and support from the trades. Their head office and main distribution center are located in Calgary, AB. What sets XYZ apart from their competitors is their commitment to innovation. Over the years XYZ invested heavily in research and development (R&D) capabilities and secured a number of patents on the design and features of their tools. XYZ is also known for a very high quality of its products. XYZ tools carry a “Made in Germany” label and come with a 25-year guarantee. XYZ uses a franchise retail model with 120 locations across Western Canada and Ontario. XYZ provides its franchisees with sales forecasts specific for each location, arranges for transportation, invest in marketing and advertising of their products, and provides a number of other services required to run a successful retail chain. In addition to their retail locations, XYZ entered into several partnerships with large industrial firms whom they exclusively supply with their tools. These commercial customers enjoy volume discounts and high level of customer service provided by dedicated account managers. Most recently, XYZ started offering their products online for purchase by individual customers. XYZ offers to ship its tools free of charge to the customer home or a job site. Same day shipping is guaranteed on e-commerce orders placed before noon. This service is currently available to customers located within 60 miles of XYZ retail locations as the orders are filled from store inventory. XYZ current supply chain operates as follows: The German manufacturer ships in FCL to Canada using the incoterms DAT Halifax. XYZ has a cross-dock facility in Halifax (operated by a small local 3PL) where the ocean containers are unloaded and orders are processed for distribution. Shipments destined for Western Canada are loaded onto 53” rail containers while orders for Ontario stores are shipped by truck. Upon arriving at XYZ distribution center in Calgary the rail containers are de-stuffed and inventory is either put away into storage or cross-docked again to be shipped to stores on outbound trucks. The distribution center is capable of processing e-commerce orders from customers, however, the management feels it is still cheaper to ship from stores versus a centralized location. XYZ manages its transportation in-house and has agreements with a number of service providers to ensure its transportation needs are met. Given the success of its brand and growing demand for its tools, XYZ wants to expand its product line to other provinces, and potentially the USA. To support this expansion a number of challenges need to be addressed. XYZ hired you to assess the situation, consider alternatives and provide a recommendation on the following:

1. All XYZ competitors are sourcing their tools from lower-cost countries. XYZ is considering importing from other countries. Given the current setup of XYZ’s network, what are some benefits and concerns of a change in sourcing? What criteria may be used to evaluate these new vendors?

2. Customers are increasingly demanding shorter lead times and exceptional service. Given the different customer segments XYZ serves (individual consumers, commercial users and franchisees), should XYZ create one single service model or practice segmentation? Explain each model and justify your recommendation in detail.