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    Shifts in Bookselling Industry

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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 mild day in October, 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 Preview

    Question 1
    MBD should implement a pull strategy. The superstores are asking that MBD should ship products directly to them according to the point of sale data and the online sellers prepare deliveries in accordance with the orders they receive. MBD should make quick deliveries direct to the superstores as and when required. The distribution centers of online retailers should be delivered books that are ordered by these centers. Whatever be the sophistication of MBD forecasts, it cannot ship books that have not been ordered. The impact would be that MBD would have to keep an even larger store of books in a centralized warehouse from which these books must be shipped quickly.

    The distribution strategies appropriate for superstores are quick-delivery based on point of sale data from the superstores and bulk deliveries at low cost to the distribution centers of online retailers. The question that MBD should ask is as follows. What will be the cost implication of making deliveries to superstores based on point of sale data? What will be the margins when low cost deliveries are made to online retailer's distribution centers?

    If superstores can be connected online to MBD then based on shelf information MBD can make preparations to make deliveries and reduce costs. It can use centralized warehousing more effectively to reduce costs. Also bulk shipments can be made to the online retail distribution centers leading to faster selling.
    The advantages to MBD in having fewer warehouses will be lower costs. More warehouses and a more decentralized operation mean faster deliveries but higher costs.

    Question 2

    Internal logistics expertise should be used when the company wants to keep close control on deliveries. If the company wants to ensure timely deliveries in good condition again and again, the company should go in for internal logistics. Also when the company wants to maintain confidentiality of the products delivered it must use internal logistics. For example, if MBD does not want its competitors to know which books it is shipping to each superstore it should use internal logistics. For a manager, internal logistics is most appropriate when he wants the products to be delivered without breakage or denting, and in a timely manner. Greater use of internal logistics means greater employment and a better image for the firm in the ...

    Solution Summary

    Book-selling Industry is discussed step-by-step in this solution. The response also has the sources used.