This case study examines Cardon Carpet Mills Inc., a U.S. carpet and rug manufacturer currently distributing products through seven wholesalers. Facing declining industry demand, high intermediary markups, and distributor pressure to reduce prices, the company is weighing the creation of its own direct distribution network. The paper proceeds through three stages: problem identification (facts, root causes, and problem components), decision-making (generation and evaluation of three distribution alternatives), and action planning (implementation steps and contingency measures). A SWOT analysis rounds out the assessment, highlighting the company's financial stability alongside competitive and operational vulnerabilities.
The paper demonstrates structured problem-solving through a multi-step decision framework. Rather than jumping straight to a conclusion, the author separates fact-gathering, root-cause analysis, alternative generation, and implementation planning into discrete, labeled steps. This approach — common in MBA-level case analysis — shows how to decompose a complex business problem into manageable components before synthesizing a recommendation.
The paper is organized into three stages containing eight numbered steps. Stage 1 (Steps 1–3) identifies the facts, root causes, and problem components. Stage 2 (Steps 4–6) generates, evaluates, and selects among three distribution alternatives. Stage 3 (Steps 7–8) provides a six-point implementation plan and a contingency protocol. A SWOT table closes the paper, summarizing internal and external strategic factors in a grid format.
Cardon Carpet Mills Inc. is a reputable player within the United States carpet and rug industry. The company currently sells its products through intermediaries but is considering the creation of a direct distribution system. The aim of this study is to identify the dimensions of the current situation, determine the most viable solution, and create an implementation plan.
This objective is achieved through an eight-step analysis organized into three stages:
Stage 1: Analysis of the case and identification of the facts; identification of the problem roots and the problem components.
Stage 2: Generation and evaluation of alternatives; selection of the best alternative solution.
Stage 3: Creation of an implementation plan and confirmation of the chosen alternative solution.
During the most recent board meeting, Cardon Carpet Mills executives raised the issue of the company opening its own distribution and wholesale facilities. This proposition is grounded in several key facts:
The industry reveals positive long-term perspectives, yet the company's financial strength remains behind industry averages. The carpet industry is experiencing declining demand, and analysts argue that this decline is also attributable to carpet companies that have implemented poor marketing strategies. The industry is becoming more concentrated as mergers and acquisitions intensify.
The company currently distributes through seven wholesalers, which then sell to approximately 4,000 stores across the country. Notably, 80% of residential segment sales were made through 50% of its retail accounts. The wholesalers met with Cardon Carpet Mills executives and requested a decrease in carpet prices, while also agreeing to a modest reduction in their 125% markup.
The costs of operating a new distribution center are estimated at $700,000, plus additional expenses, and efficient operations would require a minimum traded volume of 7 million carpets. Furthermore, the wholesalers discovered the company's interest in direct distribution and threatened to leave collectively when the first distribution center is opened.
The root of the problem consists of the elements that led to the necessity for a direct distribution channel. The most relevant of these reasons include:
The high markup implemented by retailers increases retail prices to consumers while reducing revenues for the organization. There is also poor communication and interaction with the customer base. The declining national demand for rugs implies a need for enhanced organizational efficiency. Finally, ongoing changes impacting the carpet and rug industry require immediate responses from Cardon Carpet Mills Inc.
The components of the problem represent the various elements that must be considered in the analysis and decision-making process. The most relevant components include the following:
a) The seven intermediaries used by the company raise retail prices and reduce Cardon's overall revenues and profits.
b) The seven intermediaries also handle operations beyond actual sales — including logistics and inventory — which are expensive and would increase the costs of a direct distribution channel. As Kerin and Cox (2002) note: "Wholesaler sales representatives performed a variety of tasks, including checking inventory and carpet samples, arranging point-of-purchase displays, handling retailer questions and complaints, and taking orders. About 25% of an average salesperson's time was spent on nonselling activities (preparing call reports, acting as a liaison with manufacturers, traveling and so forth). About 40% of each one-hour sales call was devoted to selling Cardon Carpet Mills carpeting; 60% was devoted to selling noncompeting products. This finding disturbed company management."
Based on the issues previously identified, two primary alternative solutions are outlined. The first involves Cardon Carpet Mills proceeding with the creation of a direct distribution channel, while the second maintains the current status quo. Each alternative presents the company with distinct risks and rewards, analyzed more thoroughly in the following section.
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