Part 1 – All for Life Inc. (AFLI) Background Fifteen years ago,…
Question Answered step-by-step Part 1 – All for Life Inc. (AFLI) Background Fifteen years ago,… Part 1 – All for Life Inc. (AFLI) Background Fifteen years ago, Joel Sampson was a talented amateur golfer. He was good enough to earn a scholarship to attend a top university. By his second year at school, he was already the best player on the team. With individual and team championships at the national level, Joel’s future looked bright. A career as a professional golfer was a realistic possibility after completion of his degree in industrial engineering. Unfortunately, while on a skiing trip during his final semester, a serious accident changed Joel’s life and, indeed, his career. During the many months of grueling rehabilitation to strengthen and regain flexibility in his damaged back, Joel became frustrated with the absence of quality exercise machines that could help with his recovery. Yes, there were barbells, weights, and a few basic fitness machines; however, there were no machines sophisticated enough to improve his strength without risking further injury. Joel came to two conclusions: first, his professional golf career was over before it started; and two, he knew he could build a better fitness machine. The idea that would grow into All for Life Inc. (AFLI) was born. Company BackgroundInitially, AFLI operated from a small metalworking shop in the west end of Toronto (Mississauga). Joel designed and built the hand?fabricated fitness machines. His business partner, Raj Patel, was a registered physiotherapist. Raj provided expertise in human physiology and injury prevention. Raj kept his physiotherapy practice active and helped AFLI on a part-time basis. Joel signed on as a sales agent for a line of nutritional supplements which he sold to gyms and fitness facilities. This helped pay the bills as AFLI failed to generate significant sales during the first few years. AFLI’s big break came in the summer of 2009. At a charity golf tournament, Brett had the good luck of sharing his golf cart with the owner of a nationwide chain of fitness studios. By the end of the tournament, Joel had an appointment to demo his fitness equipment to the owner and his director of procurement. By year-end, AFLI had received its first significant order for fitness machines. Since then AFLI has grown into a diversified fitness company selling sophisticated exercise machines (evolved from its original product); small fitness accessories (yoga mats, stretching devices, weights, stability balls, etc.); DVDs and training manuals, certification of personal trainers, and fitness educators on the proper use of the AFLI equipment and a robust e-commerce platform for the “home gym” market. Annual sales reached almost $5 M in 2015. The company remains private with Joel Sampson as the sole shareholder. Raj Patel left the business in 2017. Although the split was amicable, it was clear that Raj was unhappy with Joel’s singular focus on making AFLI successful, and further, Joel’s need for control over all aspects of business operation was an irritant. Products and ChannelsAFLI has four major product categories:1. Premium Fitness Machines: A line of products evolved from the AFLI’s original design, these machines are sold under the Flexstrong brand name. Prices range from $3,000 for the introductory model to over $7,000 for the fully equipped “industrial strength” model aimed at high-use locations (fitness studios, hotel gyms, etc.). Various accessories and attachments are available for these products to expand the range of exercises that can be performed.2. Flexstrong Trainer Certification: An ongoing training and education service for fitness instructors, personal trainers, and gym staff to ensure proper use of the fitness machines. Recipients of the training are able to use the Flexstrong Certified logo.3. Small Fitness Accessories: A broad line of small fitness accessories sold under the All for Life brand name. The product line?up fluctuates depending on the latest trends for home and studio fitness; for example, t?shirts, yoga mats, stretching devices, stability balls, nutritional supplements, etc.4. Fitness Education (DVDs, Fitness Videos, Training Manuals): Aimed at the home user (not the professional trainer), AFLI sells a range of professionally produced video products and instructional manuals. AFLI has just begun to experiment with delivery via iTunes and other online marketplaces. These products are also branded All for Life. AFLI employs a multi?channel sales strategy:1. Direct?to?Consumer: AFLI sells its All for Life small fitness accessories and fitness education products direct to consumers via its own website e?commerce platform and a 1?800 number. Of the Flexstrong product line, only the introductory model is available through this direct-to-consumer channel.2. Indirect via Retail Partners: AFLI also sells its small fitness accessories and fitness educational products through several retail partners, both mass merchants and online sellers. Retail partners include HBC (The Bay), Walmart, Canadian Tire, and Amazon. AFLI does not offer Flexstrong machines via these retail partners. It views Flexstrong as its premium, professional brand; All for Life is its consumer brand.3. Professional Trade: AFLI sells Flexstrong machines and trainer certification directly to the operators of fitness studios and gyms. This market also includes condo developers and luxury hotel chains. While North America is the predominant market, AFLI’s sells globally via all three channels. To reach the professional market for the Flexstrong line outside of North America, AFLI uses sales agents in selectedEuropean and South American countries. It sees Asia, South America, and the Middle East as prospects for future expansion. Supply Chain OperationsThe Flexstrong line of fitness machines is manufactured in?house by AFLI at its own 10,000 square feet facilities located in Mississauga. The manufacturing process consists of cutting and bending metal, machining, welding, painting, and final assembly. The raw materials (metal, hardware, foam, fabrics, etc.) are not highly specialized and can be sourced from quality suppliers within Canada and the US. In fact, many of these suppliers are located within Ontario. AFLI maintains a very small stock of completed Flexstrong fitness machines primarily for rush orders from its larger commercial customers. Generally, AFLI operates on a make?to?order basis, building the machines once a firm order is received from a customer. The lead time to complete an order depends on the backlog of orders; it can be as quick as 1 week, or as long as 4 weeks. AFLI keeps a ready supply of raw materials and components to avoid production delays due to material shortages. During slower periods, AFLI uses excess manufacturing capacity to produce its Flexstrong accessories to stock. On average, the accessory stock is two months’ supply. AFLI does not manufacture its small fitness accessories; instead, it specifies its requirements and procures these products from many different vendors, including Canadian and off?shore suppliers. In recent years in order to maintain margins, AFLI has tended to seek out “low cost” suppliers in China, India, Bangladesh, and the Philippines.Fitness videos are produced using the services of various film production companies in Toronto. Pressing (manufacture) of the DVDs is outsourced to a global supplier whose headquarters are in Toronto but whose manufacturing facility is located in the southern US. The finished DVDs are shipped in bulk to AFLI’s distribution center.For inbound shipments from overseas vendors, AFLI uses an experienced freight forwarder. The same freight forwarder is used for any complex outbound international shipments. For North American LTL shipments, AFLI contracts directly with carriers. Outbound package deliveries, domestic or international, are handled by couriers.Across the street from the manufacturing shop, AFLI leases at a 10,000 ft2 distribution center in a multitenant industrial strip mall. The building has a 24-foot clear ceiling height, two shipping/receiving docks, and easy access for 53-foot tractor/trailer combinations.The AFLI head office functions (administration, sales, and marketing, product development, executives) are located in an office area adjacent to the warehouse facility. The 2,000 ft2 office area also houses AFLI’s supply chain functions (purchasing, transportation, and management), along with the team running the website and the 1?800 number. AFLI in total has 20,000 sq. ft (essentially 10, 000 sq. feet warehouse with head office and across the street 10,000 sq. ft. the manufacturing location. Organization Structure and CultureAFLI is a medium?sized, privately-owned company. The founder, Joel Sampson, is active in the day-to-day business. Staff levels are kept lean with the expectation that employees work hard, adjust to changing job requirements, and have a “can-do” attitude. In return, AFLI encourages physical fitness and an active “sporty” lifestyle. A fully-equipped fitness studio is located in the head office basement.Employees are able to purchase All for Life and Flexstrong products at a significant discount. AFLI offers a profit-sharing incentive plan for employees at all levels in the organization. New employees either integrate into the AFLI culture and become committed to the company’s goals, or they don’t fit and elect to leave. Joel Sampson is known as a demanding boss with high expectations, but he is also warm and generous. He arrives early and leaves late, and can be found roaming the shop floor, wandering throughout the DC, or in the fitness studio. Wherever he goes, he is always talking with employees (knows them all) and customers about the company and the products. For many, Joel Sampson represents the company and the brand: Joel is All For Life! All for Life Inc. organization Joel Sampson – Founder and CEOMatt Wilson – CFOMay Wu – Senior VP Supply ChainBob Bell – Director of PurchasingSteve Fuentes – Manager of Production-OperationsRashid Khan – Manager of Operations Note to StudentsThis introductory information will serve as a basis for several group cases, each of which will examine a different challenge facing All for Life Inc. This case is based on a real company. For confidentiality, names and some data have been changed. The All for Life and Flexstrong brand names are fictitious. All for Life Inc. Part 1 – MHE Procurement Group Assignment # 1 Rashid Khan glanced at his phone again in irritation. The meeting was supposed to start 10 minutes ago and Anton Nelson was late, again. Anton was recently hired by Bob Bell as a forecasting and inventory management specialist. But given his previous experience as an assistant buyer, Anton was also helping out on the procurement projects when the complexity of the purchase was small, or when Bob was too busy. Just as Rashid was about to call Bob, Anton strolled into the meeting room, clutching a coffee. “hey Rashid, how’s it going?” “You are 15 minutes late!” Oh, sorry had to stop at Tim’s for a coffee, late last night I stayed up and watched the Maple Leafs, Leafs were playing on the west coast and I guess I lost track of time and stayed up too late watching the game, by the way, we won 3-2 in overtime. Rashid stared at Anton and said nothing. Instead, he made a mental note: Anton was still on probation. Bob would be gathering feedback from the Supply Chain team on Anton’s performance in order to confirm his employment or if the feedback was negative part ways. Anton had yet to grasp that being smart is not enough: success requires other things. “Are you ready or do you have an important tweet to issue? Enquired Rashid. The sarcasm sailed past Anton. “Nope. R-Man ready to roll” “Mr. Nelson let’s get down to business” Here is the existing procurement situation faced by Rashid: The existing fleet of material handling equipment (MHE) in the Distribution Centre (DC) was reaching its end of life. The fleet (2 counterbalanced lift trucks and 2 warehouse forklifts) was breaking down far too often. Repair costs were up, and employee satisfaction was down. The DC employees claimed the MHE downtime was the root cause of missed productivity targets and late shipments. Rashid didn’t fully accept this argument because there were many times when one or two machines were sitting idle. Unfortunately, he didn’t have a good tool to measure fleet utilization. A complicating factor was that the lift truck was shared with the manufacturing operation across the street. Rashid’s DC employees complained that the manufacturing staff was hard on the equipment. Steve Fuentes, the Manufacturing Manager, called this hogwash; his team of machinists and welders knew the importance of maintaining their tools and related equipment respectfully. Rashid didn’t push however in truth, he wondered about the level of training provided to manufacturing staff on proper lift truck operation. Maybe Manufacturing should have their own lift trucks? Rashid, also questioned if the MHE was properly specified, especially the lift truck since it had to drive back and forth between the 2 buildings across the street. While not a concern in the summer months, the snow, ice, and salt in the winter must be a contributor to the ongoing maintenance problems. Another factor to consider was the potential outsourcing of the manufacturing operation. It was too early to know the outcome: if or when outsourcing would proceed. Unfortunately, Rashid felt he could not delay addressing the aging MHE fleet. Rashid had compiled a list of tasks performed using the MHE equipment:Load or unload trailers, both inbound and outboundShuttle materials between the DC and manufacturingMove floor-stacked pallets as required. Fitness machines and accessories were palletized but not rackedPut away and select racked pallets. About 4,000 sq. feet of the DC was racked at four levels high. Rashid wanted to ensure that the Total Cost of Ownership (TCO) was well understood. It wasn’t just the purchase price that was important: the costs over the life of the equipment needed to be understood. Warranty, service costs, and repair parts all had to be factored into the analysis. Did his ole MHE have a trade-in value? How long would the new equipment last? What value would the new equipment have at the end of its life? Should the equipment be leased or purchased? In the MHE business, manufacturers sold their equipment through a dealer network. Large dealers were typically multi-line; that is, they offered equipment from several different manufacturers. AFLI’s current equipment had been sourced from 2 different dealers. One of those dealers was no longer in business. Dealer support over the life of the equipment was an important factor to consider. AFLI was not a big company with a large fleet so lacked internal expertise. Unfortunately, this also meant that AFLI was not a large account with significant bargaining power. Rashid felt that the overall quality of the manufacturer’s equipment was probably comparable. But he suspected that each brand (Crown, Toyota, Raymond, etc.) had a “sweet spot”; that is, specific machines with a good combination of quality and costs. He hoped that a reputable multi-line dealer would provide unbiased advice. As a rule, AFLI spent its money carefully and didn’t see value in selecting the “top of the line” equipment. Employees need to play a role in the equipment selection thought Rashid. Obviously, they would be using the equipment every day for years so it didn’t make sense to leave them out of the process. However, Rashid understood that the employee’s “wish list” might be in conflict with the reality of the financial constraints. He needs to think further about how to best handle employee input. Lastly, there was management approval required. He wasn’t worried about May Wu the senior VP of Supply Chain. May was pragmatic and understood the DC environment. It was Joel Sampson, the owner, who was concerned. Brett was demanding, which was to be expected, after all, it was his money being spent-but he sometimes didn’t listen well. Rashid Knew this procurement exercise would need to be well managed. He worried Anton didn’t grasp the complexity of the situation. Case Exercise-In Your Groups Rashid and Anton are not ready yet to issue the RFP to the market. In fact, they are really at step 1 in our process as outlined in our Course Materials. (Identifying Needs) Imagine that you are a consulting procurement team of specialists (from the Humber Supply Chain Grad Program) assigned to Anton and Rashid. In your groups, discuss and record your answers to the following questions: How might the outsourcing of manufacturing impact the MHE needs? You will still have the warehouse operation. Manufacturing & full Production of AFLI products would be outsourced. Engineering & Technology Industrial Engineering Supply Chain Management SCM 5004 Share QuestionEmailCopy link Comments (0)
