McLeod Motors LTD

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McLeod Motors Ltd

Case Study


McLeod Motors Ltd factory in Chilliwack, British Columbia makes over 40 models of electric motors ranging from one quarter to 10 horsepower. The company has a number of customers in the original equipment manufacturer (OEM) market, which used the motors as components in larger products, and also in the replacement market. Naturally, McLeod's product mix changed over time as its OEM customers phased products in and out and made annual supply decisions. Recently the company has started facing problems in inventory management since it standardized end shields considering that it would cut both the manufacturing costs and inventories. But the results have been
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Although current interest in supply-chain management overlooks certain transportation/distribution issues, substantial savings are realizable by carefully incorporating a shipment strategy with the stock replenishment decisions for VMI systems. This impact is particularly tangible when the shipment strategy calls for a consolidation program where several smaller deliveries are dispatched as a single load, realizing scale economies inherent in transportation. Formally, shipment consolidation refers to the active intervention by management to combine many small shipments/ orders so that a larger, hence more economical, load can be dispatched on the same vehicle (Brennan 1981, Hall 1987, Higginson and Bookbinder 1995). The main motivation behind a consolidation program is to take advantage of the decreased per unit freight costs due to economies of scale associated with transportation.


In the production and distribution of goods, inventory is the currency of service. An increase in service can virtually always be achieved through an increase in safety stocks, so a supplier inevitably faces a trade-off between service levels and inventory costs. This and related tradeoffs are discussed at least qualitatively in most operations management textbooks in some of the managerial literature, and in the research literature. It raises the question of just how much service inventory can buy; i.e., what is the marginal cost of a service improvement,
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