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Case Analysis: Merton Industries
Problem Statement
The U.S. carpet and rug industry has gone through some vast changes in the past decade. The number of U.S. carpet and rug manufacturers has dropped greatly due to changes in consumer preference and foreign competition. The type of retailers and the retailer purchasing strategies have changed drastically also. Currently, Merton Industries, a small carpet and rug manufacturer has had to face these changes in a re-evaluation of their distribution process. They have given Suzanne Goldman, special assistant to the president of the company, the task of assessing their current distribution system. They currently use 7 wholesalers to distribute to their 4,000 retailers; however, they are now evaluating the possibility of cutting out the wholesalers (who get a cut of about 6% of sales) and setting up their own distribution channels in the form of 5-7 warehouses with sales teams working out of each site. Suzanne Goldman must now perform a detailed comparison between both distribution options. She must find out which system is most economically feasible and best strategically fits into Merton’s plan to remain competitive and sustainable.
Analysis
Strategically, at first glance the option of Merton forward integrating to distributing its own products seems like a great idea. It would give the company more control over inventory, prices, and communication with retailers while giving Merton a higher profit margin on sales from cutting out the middleman wholesalers. However, in the same strategic context when one delves deeper into the logistics of forming their own distribution network, the disadvantages far outnumber the benefits. First of all, Merton ...