Modern Book Distribution Inc Case Study of Logistics
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1. Modern Book Distribution, Inc. Case Study Evaluation. Richard Guy, CEO of Modern Book Distribution, Inc. (MBD) scanned the "Executive Summary" of the consulting report he had just received. Guy saw the report was filled with the latest buzzwords and hot concepts: Establish cross docking facilities for high-volume deliveries to large customers...centralize storage operations to decrease safety stock levels...leverage point-of-sale data to move toward a pull distribution strategy...Guy was familiar with all of these phases and concepts at a superficial level, of course - anybody who occasionally picked up The Wall Street Journal or Business Week would be. He was less sure, however, if the consultants were trying to dazzle him with fads or if the kind of radical operating changes that were being proposed in the report would help to position MBD for the future.
Founded 80 years ago, MBD had been for many years one of the largest book distributors in the country. From its seven regional warehouses, MBD services major bookstore chains and smaller independent booksellers throughout the country. The company had continuously strived to improve its service levels and operating efficiency, and it was considered the most efficient book distributor in the industry. Using advanced forecasting techniques to control inventory levels and technologically advanced warehouses to control operating expenses. MBD shipped virtually all of the orders it received within two days from its stock of nearly 500,000 books, the largest in the industry.
The bookselling industry, however, had been changing dramatically, and Guy realized that MBD would have to make changes to remain a book distribution powerhouse. In particular, two relatively new types of retailers were becoming more and more dominant in the industry: large superstores and online booksellers. Both of these categories of retailers presented new and unique challenges to their distributors.
In the past MBD had interacted primarily with the superstores through large regional distribution centers (DCs) that the superstores maintained. In general MBD had shipped to the DCs consolidated orders of many different titles bound ultimately for many different stores. As these superstores learned from the experiences of large retailers in other industries, they started to demand new kinds of services from their distributors. For example, some retailers had started to strongly encourage MBD to ship directly to stores, bypassing the DCs. In addition, as the industry consolidated, these huge superstores were developing more leverage with their distributors. They used this leverage to force the distributors to accept lower and lower margins.
On-line booksellers presented an entirely different set of challenges to Guy and the managers at MBD. Initially, these retailers kept no inventory at hand. Instead, they took orders and relayed them to distributors like MBD, who delivered the books to the retailers for repacking and shipment. Recently, the large on-line retailers had started moving toward a new business model: they established their own distribution centers where they kept inventory and handled packaging and shipment of books directly to the end customers.
Guy realized that these industry changes could provide opportunities and challenges for his company. In particular, the new business model developed by some of the on-line retailers, in which they established their own warehouses, may cut MBD's profit margins. Clearly, if MBD was to maintain its reputation as one of the nation's leading book distributors, it would have to start doing things differently.
Furthermore, he had the consultant's report, filled with recommendations and designs for new distribution systems. Guy knew that he and his management team would have to develop an understanding of these issues in order to properly assess the consultant's suggestions. Based on the case, answer the following questions:
a. Should MBD implement a push strategy? A pull strategy? A push-pull strategy? What would it require to implement the strategy? What is the impact?
b. What distribution strategies are appropriate for MBD's businesses? What questions should MBD management ask when assessing these strategies?
c. How can MBD benefit from changes in the book distribution strategy?
d. What are the advantages to MBD in having fewer warehouses and a more centralized operation? More warehouses and a more decentralized operation?
2. Consider a manager developing a logistics strategy. Discuss specific situations for which the best approach would be to:
a. Employ internal logistics expertise.
b. Acquire a company with this expertise.
c. Develop a strategy, and then employ the specific suppliers to carry out well-defined portions of the strategy.
d. Develop the strategy with a third-party logistics provider.
3. It's a cold day in December, and John Davis, a veteran driver in Atlanta for United Parcel Service Inc., checks his handheld device and discovers he's in for a busy day: more than 500 packages to deliver, a task that until recently would have left him banging on customers' doors well after dark. How does technology deliver for the United Parcel Service?
4. You are the CEO of a small electronics manufacturing firm that is about to develop a global strategy.
a. Would you prefer a speculative strategy, a hedge strategy, or a flexible strategy?
b. Why would you prefer the strategy that you selected?
c. Would your answer change if you were the CEO of a large electronics firm?
d. Why would your answer change or not change if you were the CEO of a large electronics firm?
5. Discuss how supply chain management decisions impact the ability to excel in certain dimensions. Specifically consider:
a. Conformance to requirements
b. Product selection
c. Price and brand
d. Value-added services
e. Relationships and experiences
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Solution Summary
This is a detailed explanation of when to use a push or pull strategy and various logistics strategies.
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1a) By pushing its distribution strategies, MBD will invest a significant portion into its advertising efforts to the retail stores that are selling its books. MBD will also try to forecast any long-term problems or changes that will affect the organization. MBD will examine their past orders by customers from different warehouses to understand and find demand patterns. By understanding the demand patterns MBD can further forecast changes more accurately. This type of forecasting will require large quantities and stock to meet its customer's demand, supply, and requirements. To hold back the problems with a push system, it would make sense to use the pull system as well. The books that are being delivered to the retailers will be the ones that they need and should be sold. In turn, the company will require fewer inventories for its vendors.
b) The organization could choose to personally hand-deliver their products to the superstores or keep their intermediaries in the distribution centers when moving the books. The distribution centers have been encouraging the flow of money, but are powerless due to the retailers. The superstores dictate their terms, that is minimizing the profit margin of MBD. MBD should try and negotiate the terms and reduce extra expenses to conduct direct selling.
The organization will deploy another method when it comes to the online stores. MBD should consider wholesaling. The online stores give the responsibility of delivering the product to the client directly. The ultimate goal should be employ a streamline system for production of most their products.
c) MBD will benefit in their distribution strategies by lowering the amount of lead times that they need to deliver their books. MBD will find benefit in that the company will better accuracy in their distribution approach because it is streamlined and more coordinated. Changing strategies in distribution will encourage better returns to its organization. The supply chains are as important as any other part of the production and if managed in a competent manner, this will result in greater output levels.
d) Having fewer warehouses and greater centralization will add to the offer value by any given company due to a few reasons. First, it allows greater understanding of the logistics process thus allowing an identification of the strengths and weakness inherent in that particular company. Additionally, it allows a given company to control volumes present in its warehouses. This means that changes in inventory levels can be adequately monitored. This also implies that turn rates can also be assessed. Through these analyses, companies can then determine types of materials that are needed to meet client needs. (Gallagher, ODwyer & Maher, 2000)
Conversely, decentralization may also benefit the company because it allows greater customization of service provision. This happens because there is a high degree of personalization by the company's representatives since logistical decisions do not have to pass through central logistics mangers or leaders alone.
Logistics Strategy
2a) Sometimes, internal logistics may be the best way to go for a company if supply chain management serves as a value additional point. If the latter part of production plays an important role in sustaining competitive advantage, then it would be wiser to stick to internal logistics. In other scenarios, a company's internal capabilities may be sufficient enough to handle supply chain logistics. Consequently, the need to employ external parties may not be necessary. In other words, when the technology, infrastructure and core competencies within a certain company have not been surpassed, then it is advisable to continue utilizing internal logistics expertise. (Hamilton, 2008). Often times, the culture within a specific company may not fall in line with that respective company's logistical strategies. This means that even if a company has assessed its logistics requirements and found that there is a need to employ external parties, prevailing organizational culture may make it impossible to do so and this may undermine the success of outsourcing. Consequently, such companies would rather stick to what they know best i.e. internal logistics expertise.
b) Acquiring a company with this expertise may also be another option owing to the fact that certain challenges or opportunities may occur within a given company thus heightening the need to consult ...
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