MidWest Office Product was a regional distributor of office supplies to institutions and commercial businesses. The company offered a comprehensive product line like simple writing implements and fasteners to specialty paper for modern high-speed copiers and printers. Warehouse personnel in the company’s distribution center unloaded truckload shipments from manufactures, and moved the cartons into designated storage location until customers request the items. Typically, the company shipped products to its customers using commercial truckers; however the MOP had introduced the new way of shipment which called a desktop delivery option in which the personnel delivered the products directly to the destinations at the customer’s site.
The company believed that the new way of shipments would improve the margins and create more loyal customers in its competitive market. Moreover, the MOP introduced the electronic data interchange, which allowed customers’ orders to arrive automatically into the system so that clerks wouldn’t have to enter the data manually. John Malone, general manager of Midwest Office Products, was concerned about the financial results of his business for a calendar year 2013. Malone was concerned that even after introducing the innovations, the company couldn’t earn a profit. The company’s management team decided to check out:
What actions he should take to regain the profit?
What profits Midwest Office Products had really earned on each of the orders stated?
According to calculations made on the Excel sheet, we think that in order for MOP regain the profits the company should look on the following recommendations: 1) To encourage customers to use more efficient and cheaper types of channels, like in this case the EDI. As you could see on the excel sheet 1 the electronic entry costs $3.50 which is the cheapest way of entering the information about the orders. 2) Improve the efficiency of the warehouse operations and order-entry process ( manual and electronic). We could recommend to decrease the amount of order-entry operators. The following action will help the company to decrease the costs on personnel.
3) To improve the Desktop Delivery option meaning to introduce the specific charges for the following options depending on the amount of drop points, distance, time consumed for travelling If the cost for Desktop Delivery is $75 per hour, the company should introduce the specific charges for a such delivery because it costs almost 5 times higher as the commercial freight. 4) It’s highly recommended to minimize the amount of small orders, may be it would be efficient to establish the minimum order size or put the minimum price for an order