Eco Bottle strategic Management

You have just been hired as the Director of Logistics for Eco Bottle (EB). In your new role, you will have responsibility for general logistical planning including functions such as inbound and outbound freight and any logistics-related functions within EB. EB is a ten year old Canadian manufacturer of premium refillable water bottles. EB is located in Winnipeg Manitoba where their manufacturing facility, warehouse, and administrative offices are contained within a single building. EB employs seventy staff members, 35 of them dedicated to manufacturing, 15 to warehouse operations, and the remaining 25 in various administrative positions. EB has positioned their product in the ‘premium’ category and is enjoying year over year growth. Their primary product is a 750 ml refillable water bottle that is manufactured using two primary raw materials: stainless steel for the body of the bottle and high density plastic for the removable lid. EB has spent considerable effort on research and development and the bottle is considered to be industry leading in its ability to maintain both hot and cold temperatures. 75% of EB’s sales are done through an online distributor called Skyway who maintains distribution centres in Calgary AB, Mississauga ON, and Montreal QC. Skyway specializes in selling athletic and outdoor goods direct to Canadian consumers and uses small package providers and couriers to provide a one or two-day delivery to most Canadian households. EB currently ships product over the road to Skyway’s distribution centres and if ordered in TL quantity, EB pays for the freight expense. When LTL quantities are ordered, EB charges the freight expense to Skyway. The remaining 25% of sales are done through a small group of boutique specialty stores across Canada that have requested the product specifically to stock. These sales are normally low volume and shipped via a small package or courier service to the boutique specialty store.
Thanks to strong demand for their premium water bottles, EB has outgrown their current facility in Winnipeg, MB. For ten years they have operated out of their single location that housed their offices, manufacturing facility, and their warehouse. The facility is 200,000 square feet and has 75,000 square feet dedicated to manufacturing, 75,000 square feet to warehousing, and 50,000 square feet to office space. The facility is leased from a commercial real estate corporation and the current lease expires in twelve months. EB’s warehouse is setup to accommodate standard pallets (48 x 40) in ten rows of steel racking with ten foot wide aisles between the racks. The racks do extend four pallet positions high. EB purchased these racks second hand from a local supplier when they were establishing the warehouse. All of the product is palletized coming from manufacturing and EB owns three forklifts and two manual pump trucks. One of the forklifts is used as a spare in case one of the other forklifts isn’t working. All of the forklifts are less than two years old and aside from routine maintenance, they haven’t had major breakdown issues yet. EB operates a two 8-hour shifts per day for both production and warehousing between 7:00 am and 3:00 pm for the first shift and 2:30 pm and 10:30 pm Monday to Friday. Manufacturing has requested additional room for a new set of production machines to increase capacity however this would require taking almost all of the space allocated for the warehousing operation. EB has advised their commercial landlord that they are considering expansion and taking on a new warehouse that would allow for manufacturing to expand. The commercial landlord provided two potential options for buildings that are within one kilometer of their current facility. The first option is a 100,000 square foot warehouse that could be leased and privately operated by EB. The second is an option to use a public warehousing that is operated by a separate tenant of the commercial landlord. In this space, the public warehousers has indicated they have up to 100,000 square feet that they could dedicate to EB and would charge them a flat rate for the storage area each month and then separately for the amount of product handling that is required. You have been asked to prepare preliminary report that will detail the advantages and disadvantages of expanding their warehousing operation to either a new privately operated warehouse or into the public alternative. Also, management is interested in any way that they could optimize the existing storage area possibly to provide more room for manufacturing. Specifically, you have been asked to:

1. Discuss potential materials handling strategies for reducing the amount of space that the existing warehouse operation occupies within EB’s building.

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