You are on page 1of 2

They are also a regional Office Supplies distributor to institutions & commercial businesses Highly competitive office supplies

distribution business They compete on customer service & responsiveness; they cater to the customer Operating at capacity at their distribution center (total amount of handling, processing, & shipping was about at capacity) and data entry operators were operating at capacity Constraint: data entry operator has to entry individual order lines

History of the Company First ever loss in its history (year 2000) Even though their sales have increased, they still made a lossimportant to look into why this has happened Pricing strategy: Up to 2% addl markup for convenience & savings (ie. direct delivery orders) Not everyone receives the same price based on long-term relationships & competitive situations Problem with price system in current operating environment: 9500 hours spent for manual orders (16,000 orders) 500 hours spent for EDI orders (8000 orders) Issue 1 Desktop delivery system requires: Extra personnel Assigned warehouse personnel to as desk top delivery drivers Fleet of trucks they only charge a 2% mark up for this service if they are losing money because of it, it is still part of their strategy of good customer service & responsiveness ***the 2% mark up does not accurately reflect the fixed and variable costs needed for the Desktop delivery option ***the type of customers choosing to use the desktop delivery option are not highvalue customers they use fully phone or paper orders (more manual labor), they pay their accounts payable after 90 or more days, they order large amounts of small orders Desk top deliveries take 5000 cartons out of the total 80,000 cartons but it takes 10% of the labor Delivery truck expenses for year 2000 cost $200,000.. they are only used for desk top deliveries

The company made 2000 desktop deliveries, so each delivery costs at minimum $100 They only charge a 2% mark up on desktop deliveries Space & handling costs are proportionate to the # of cartons that go thru the facility They are saying it doesnt matter if customer A has giant orders and customer B has smaller orders they are also the ones who orders via desk top deliveries (25% of orders) & they order using phone or paper (manual data entries required more $$$$$!!!) Issue 2 DOP is paying 10% interest on its working capital line of creditsince Customer B takes 90 or more days to pay its accounts payable balance, this is affecting DOPs ability to pay its line of credit off faster Issue 3 DOP believes its cost driver is # of cartons Recommendation 1 Since customer B is taking advantage of ordering large amounts of small orders, they are costing DOP more money DOP must create a policy that states Desktop deliveries require a certain amount of dollars before a customer can request a desktop delivery service When taking orders via phone or paper, DOP should bring up the EDI system themselves and input the order request, to deter from having to do manual entries Recommendation 2 Create a stricter policy regarding required payment schedules (will deter Customer B from paying so late) Recommendation 3 DOPs cost driver should be DLH