Loctite Case Study

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So in order to benefit the customer, It is quite alright if the company follows a JIT delivery system, so that even in the off chance of the customer receiving equipments a bit late, they will enjoy good quality and Loctite could save much on returns and replacements.

- How can the inventory turns for the equipment business be increased at Loctite's Louisville distribution center? Comment on the purchasing strategy shown in Exhibit 8. If you were responsible for purchasing, what would you do to improve it?

The inventory turns could be increased by making use of the one day delivery scheme as already indicated in the case document. It would encourage the customers to buy the equipments and also decrease the inventory cost incurred by Loctite at the DC.

A section of the inventory can be allotted for equipments as orders increase. Online orders could be placed directly with Loctite and the DC ships the product in a day, this would be the optimal course to increase the inventory turns at the DC.

It would also help to make the packaging foolproof, a good start would be live data encoding of equipment in packaging and the stored station. At each stage the barcode should be scanned and data directly uploaded to a Data warehouse on the cloud or server. This would make identifying lost packages or eliminate misidentity in packaging.

To answer the first question more specifically for items that have been in the inventory for long time, I used the last paragraph of the case study as reference.

- standard equipments that are stagnant in the inventory could be returned to the supplier to be used as parts for other orders, and a restocking charge could be collected

- Promote equipment in ongoing meets with the sales force

- If the equipment is obsolete, donate to academic institutions, as holding the equipment would definitely elevate holding costs

- Offer discounts(like a clearance sale) and market it to customers using the sales team.

- Inspecting the buying strategy for possible changes, As it has generally has a huge effect on inventory downstream.

To answer the second question, with reference to exhibit 8

The first thing I would change is buying to 40% expected annual demand, as this will increase inventory holding costs, affecting the inventory turns at the Lousville distribution center. Instead the company can buy to satisfy the expected demand in the first 6 or 3 months,so even if the parts go unsold, the inventory holding cost would be lesser than before.

Bottomline: Buying for 60% of the first quarter demand, make continuous forecast through out this first quarter and set up keep marketing the equipments in industry circles to ensure atleast some percentage of the demand. Then order once 10 weeks in advance of the time the product is needed. The main focus should be to verify atleast 30% of the demand to be true instead of an expectation. This could be done by selling partners for items that are not doing so well and by providing a loyalty bonus to adhesive users who haven’t yet shifted to Loctite equipments.

- Construct a table that identifies key participants in Loctite's equipment supply chain (suppliers, Loctite, distributors) For each entity identify the value that the participant delivers to Loctite customers.

Participant

Value added

Suppliers

- on time delivery to DCs or factory

- equipment reliability

- Spare parts for easy repair.

Loctite

- Tech support

- Quality maintenance

- customer service

- Dispatching orders in time

- Custom design for fit of use

Distributor

- Product showcase

- One day shipment in most cases to customers

- Holding inventory

- Consumer marketing (advertisement)

- Source for demand calculation(to facilitate production and on time delivery to future customers)

- Equipment rental service is a key element of Loctite's effort to sell equipment. Customers can rent equipment prior to purchasing it to ensure that it meets their needs. If the customer purchases the equipment, rental fees are applied to the cost of the equipment. Some sales representatives prefered simply to loan equipment to targeted customers at no fee. They felt that 'loaners' increased the number of customers who would try the equipment , facilitated the adhesive sale and increased number of units sold. The downside of the loaner program was the large cost of a zero revenue program. In response to the sales representatives who preferred loaners, the Lean Team adjusted the rental prices of equipment items . What do you think is the best approach? How can this idea best be confirmed?

It is best to adjust the rental pricing of the equipment. Although offering the product as a free rental increases the adhesive sales it doesn’t not add value to the equipment line. The cost of manufacture of the equipment will not be recovered immediately and important capital invested on the equipment will not be returned. This will hamper the development goals of the Equipment approach.

For example, lets take the popular food ordering service, “Seamless”, It unwaveringly provides a 10% discount to new users, Imagine if it offers the first meal free of charge, It would have a devastating effect on the company’s profits. Although it gets a market, there is no guarantee that the customer will move onto a different service.

In a similar fashion, even if Loctite continues with this rentfree equipment give away, it is not going to make the customer want to buy it. If something is forcibly advertised, it turns into negative publicity. It can best be confirmed by using the customer data to whom the rent free equipment was given. A study on how many of these customers actually bought these equipments would be very useful to go forward or curtail the free rental program.