Alko Case Study

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External Environment2
Internal Environment2
Supply Chain Drivers4
Assumptions, Factors and Uncertainties6
Figure 6: Costs Savings from centralization9


 Our objective is to analyze the distribution network in order to minimize annual system wide costs that subject to a 95% customer service level for ALKO. Integrated Minds considered a scenario approach and looked at net present values to factor inventory costs and quality over the planning horizon. Striving to increase margins and expose various network characteristics and uncertainties, Integrated Minds analyzed many factors.

ALKO was founded on the basis of quality. This principle is indirectly leading to more buffer inventory throughout the supply chain to account for high rejects in shipping. With inventory hiding the real issue, ALKO is not able to achieve the margins desired for their 100 products they offer to the market. In order to remain competitive within their industry, reactive measures must be taken.

Integrated Minds analyzed holding costs, NPV options, and looked at external and internal factors to manage the uncertainty in the supply chain. Replenishment time, product availability, cycle service levels and fill rates were taken into consideration. A key driver was the uncertainty of safety inventory under the periodic review that ALKO performed every 6 days.

Integrated Minds recommends that ALKO combine parts1, 3 and 7 into a NDC in year one, while closing regions 5 RDC. Year two and three will see Alko close all regional DC’s moving the entire operation into a NDC in Chicago.


In 1943 John Williams created Alko Inventories. After a patent in 1948 for a lighting fixture, John decided to produce the item himself and by 1957 Alko was a $3 million company. Since then Alko has continued to grow and now distributes products nationwide. However with increasing competition, profitability has suffered. As a last ditch effort to save his company, John Williams hired Gary Fisher to lead the restructuring and reorganization of Alko. Fisher has reviewed the current standing of Alko and some possibilities for salvaging the company but has not been able to make a decision without a more thorough analysis of Alko’s numbers. This report will further break down Alko as a company and with a more in depth analysis of the demand by region as well as highlight a five year strategy recommendation for Alko to follow in order to reduce variation and maintain and increase efficiency (Chopra, 322).


Currently, Alko is facing additional pressure from their competition; Lightoiler has been offering a steady flow of new products, expedited shipping and has even been able to increase their prices. Alko is only expected to see stable sales over the next few years with potential for a plus or minus 5% growth however they seem to be “bleeding money” and are looking for an immediate solution in order to start spending and operating more efficiently. Alko is also facing excessive costs for expedited TL shipping, something that is in need of drastic reduction especially since the cost of capital is expected to increase over the coming years because of tighter federal monetary policies (SCM 479 HW 4 Supplemental Information). It has also been recognized that the number of defective products is growing out of control. This is something that is in need of immediate assessment and evaluation in order to cut excessive spending.

Currently Alko has a product line of about 100 products and all of their production takes place at three locations they have near Cleveland, Ohio. Alko’s current policy is to stock all of their items at each...
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