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Value Added Resellers (VARs) v. DD

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Using the "3M Health Care" case study by Viola Hoo please help with the following questions:

1. Identify the respective roles of VARs (Value Added Resellers) and 3M at the outset of the case.

2. Explain the benefits and drawbacks of working with VARs. Also, discuss why a company the size of 3M would choose to work with VARs versus using DD (Direct Distribution).

3. Using the Excel spreadsheet, evaluate the variable costs of the current VAR distribution system and the proposed DD system for fulfilling orders of Canadian hospitals. Assume that 3M currently compensates VARs at a commission rate of 10 percent of the value of the products delivered. Make sure that all your costs in the spreadsheet are annualized.

4. Identify and discuss other issues and costs that should be included in a detailed VAR versus DD analysis.

5. Based on your investigation and findings, what recommendations would you make to the Vice President of 3M Health Care Markets - continue to use VAR distribution, shift to DD, or something else? Explain your recommendation and provide appropriate rationale for your decision.

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Solution Summary

The Solution analyses the role of value added resellers used by 3M, identifies the pros and cons of a VAR compared to direct distribution (DD) as well as other issues to analyse when considering between the two options. The spreadsheet is provided with calculations.

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3M: VARs versus Direct Distribution

1. 3M's logistic network consisted of value-added resellers (VARs) who were specialized distributors. There were 8 VARs selling healthcare products to approximately 350 customers in Canada. Only a limited percentage was sold on a direct basis. Hospitals had a choice while purchasing 3M products-they could choose to buy directly from the company or through one of the VARs. VARs received a commission based on sales they made to hospitals for performing value-added services such as storage, transportation, product handling, transaction processing, billing return, inventory management, etc. 3M was indifferent to VARs as the contract was between 3M and its hospital customers and VAR acted as an intermediary. Hence, VARs had internal competition amongst themselves for award of 3M hospital contracts.

2. 3M had certain advantages while working with VARs. Since the contract was between 3M and its ...

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