Answer Happy

Pain Away CorporationGordon Sumner, chief executive officer of Pain Away Corporation(PAC), is feelingstressed out. The producer of transcutaneous electrical nervestimulation (TENS) unit, abattery-operated device that people use to treat pain, is facedwith a new opportunity butSumner is not sure how to approach it. The Food and DrugAdministration has changedthe rules and low current TENS units can be sold directly toconsumers, starting in threemonths. Previously, they required a medical prescription forshort-term use and could berented from medical device companies.The market potential is huge thanks to the aging U.S. population.PAC could sell throughnational drugstore chains, pharmacies, and Amazon, but Sumner hassome reservations.His past experience as chief supply chain officer for a power toolsmanufacturer has himremembering all the fulfillment issues when dealing with largeretailers. He recalls retailerswanting small, frequent shipments to a larger number of locationswith faster and fasterservice, advanced shipping notification, and RFID tags on allproducts for inventory visibility.Of course, the retailers want to buy products at a wholesale priceand sell them at ahealthy mark up.Sumner wants to avoid those headaches and protect PAC’s profitmargins. He believesthe consumer market will best be served through an e-Commercedirect sales model. PACwill require an easy-to-use consumer Web site, a strong marketingcampaign, and excellentfulfillment capabilities if he is to compete effectively with theglobal TENS manufacturersthat will flock to Amazon for rapid market access.PAC has started production of three consumer TENS models at thecompany’s factoryoutside Louisville, Kentucky. The inventory is being held in thePAC distribution center(DC) next to the factory, awaiting their release date. The DCcurrently fills orders for medicaldevice companies and Sumner thinks that consumer orders could alsobe fulfilled therewith a bit of effort.Sumner calls a meeting with his supply chain leadership team aboutpursuing thee-Commercemethod and to get their recommendations regarding fulfillment. Allare inagreement that direct-to-consumer is the way to go. After somebrainstorming, the teamidentified three reasonable options to serve the U.S. market:Option 1—Upgrade the existing PAC DC in Kentucky to handle bothconsumer ordersand medical device company orders.Option 2—Expand the PAC fulfillment network. Establish regional DCsin Reno, Nevadaand Columbus, Ohio to complement the existing Kentucky DC.Option 3—Outsource fulfillment to a capable 3PL company. This wouldallow PAC tofocus on production, demand planning, and marketing.
Sumner’s next step is to fully evaluate the three options andchoose a path forward beforehis upcoming meeting with PAC’s board of directors. They will asktough questions andSumner must be confident in his recommendation.
hapter 10Case Questions1. Compare and contrast the three options from the perspective ofcustomer service.Which do you believe will provide the best level of service?Why?2. Compare and contrast the three options from the perspective ofcost. Which one doyou believe will provide the most economical solution for PAC?Why?3. What types of functional and cost trade-offs will Sumner need toanalyze?4. Which distribution option do you feel gives PAC the bestopportunity for futuresuccess?Why?5. How should PAC leverage automation for its consumer fulfillmentprocesses?Sumner’s next step is to fully evaluate the three options andchoose a path forward beforehis upcoming meeting with PAC’s board of directors. They will asktough questions andSumner must be confident in his recommendation.