CASE STUDY

Naperville Hardware Distribution

Matt Weber and Quinn Domyancic, CEO and COO respectively ofNaperville Hardware Distributors (NHD), were frustrated with theirfourth quarter financial results. At the beginning of the quarterthey had been enthusiastic about the profit picture for thecompany. The economy had been in an economic slump for severalyears, but the first quarter results of this year had shown apositive upturn in sales. The second and third quarter results wereeven better. Matt and Quinn had been almost exuberant even thoughprofits had not shown much improvement. They both felt the profitsin the fourth quarter would improve significantly because they hadcarryover expenses from the previous period, which they coveredwith revenue generated during the second and third quarters. Whiletheir net profits had again improved in the fourth quarter, theresults were not what they expected.

NHD purchased the various hardware and plumbing products thatthey distributed from several manufactures located in Indiana,Illinois, and Wisconsin. They purchased in truckload quantities andhad the items moved to a warehouse facility that they maintained inNaperville. They also operated a store that was contiguous to thewarehouse plumbing contractors as well as some retail customers whodid their own remodeling and repairs. NHD would make deliveries tocustomers in the greater Chicago area, especially builders andplumbing contractors.

Matt and Quinn asked their CFO, Carl Weber, do a “deep dive” ontheir costs for the last three years. Carl also did somebenchmarking for them. Carl came to the conclusion that NHD wasspending too much money on transportation and related distributionservice. NHD was currently utilizing a third party logisticsservices company, LMZ for transportation (inbound and outbound).Carl recommended that they “in-source” all the transportationservices.

Matt and Zach were surprised by Carl’s conclusion about theoutsourcing of their transportation services because they had beendealing with LMZ for about 10 years. Private transportation serviceand order fulfillment were not among their core competencies. Theyhad some reservations. Carl pointed out that they had options thatthey could consider including leasing equipment and drivers.

CASE QUESTION

1. Matt and Quinn have hired you as a summer intern to evaluatetheir options and requested you to write a short report presentingthe opportunities and challenges they would face in pursing Carl’srecommendation. They also asked you to make your own recommendationbased upon your analysis