The Polaroid case study is an example of the way how a major logistics change is met with uncertainty, scrutiny and resistance. The case gives an avid description of the implementation of a direct distribution system for its subsidiaries in Europe. It gives the details of the different aspects considered by different managers of the subsidiaries when responding to the proposal of the elimination of national warehouses and consolidating the warehousing to a central location in Enschede.
The reduction in the number of Polaroid’s warehouses in the US from 18 to 4 with significant cost savings was one of the key factors the proposal to adopt a similar strategy in Europe was put forward. The description of the different types of distribution channels in various European countries was provided in detail in the case. Several arguments were provided by European managers against the proposal even though International Distribution Director, Carroll, had put forward the proposal in 1982 after viewing the success of centralized distribution systems in the US. His proposal was met with one-sided responses from managers in Europe.
Several hurdles and reasons were provided against the carrying out of centralization of the warehouses in Europe. One of the main arguments put forward in this regard was the fact that the development of computer systems and technology was high in the US while Europe was lagging behind in this department. Since the success of centralization was to a great extent dependent on the development of computer systems, Europeans managers confirmed that the success story in the US would not be the same in UK for Polaroid. Further, they were concerned about the back-orders from customers and the order-fill rates of the European orders.
In 1983, four subsidiaries were provided with automated systems for controlling inventory and bringing them more closer to the concept of automated distribution which was then later intended to be merged into direct distribution. Since there were several technological differences in between the US and UK, the control program was re-written with many additional features added to the system. This gave the European managers a little relief since they were able to perform more automated functions than their US counterparts – a fact that actually made the managers leave their hesitation towards the implementation of the direct distribution system.
It was proposed that an International Distribution Service Center (IDSC) be made to function as a central distribution center at Enschede which would eliminate the need for the ten subsidiaries in Europe to operate a separate warehouse. It was estimated that the proposal would result in significant costs savings, timely deliveries and huge savings on packaging and transportations. Not many changes were made till 1985, when Lee Brewer was appointed as Vice President for International Marketing.
It was then when in the quest for cost-savings proposals, he displayed interest in the direct distribution concept and then changes began to be made at a faster pace than earlier to being the distribution system closer to a direct distribution one. Initially two subsidiary warehouses located close to the DISC at Enschede were eliminated. The European social and economic integration during the late 1980s provided more reasons to carry on with the concept of centralized distribution systems. However, some of the problems that were surfacing were of transportation costs via road and the time spent in customs clearing in various countries.
Initially, both of these problems were considered to be favorable. However, the management understood there were considerable risks involved and made appropriate plans to counter them. One of these solutions was the hiring of third-party logistics in a bid to streamline the delivery time and the costs. This was done keeping in view the general trend in that time adopted by growing corporations facing logistics problems.
The cost-benefit analysis of 1989 proposed a one-time cost of $5. 3 million of implementing the centralized distribution system while the benefits from the implementation were expected to total $5. million, thus making the project a highly favorable one with very quick returns on investment. Apart from the financial savings, the centralized system was also found to provide other advantages – higher order-fill rate, low delivery time, lesser responsibilities on national offices and greater uniformity of service across Europe. It also kept a provision for the back-order problems and had suitable recommendations to deal with it. It was proposed that the IDSC should begin having multiple shifts in a day to improve the service and the delivery time further.
An alternative to the Enschede central warehouse was: a centralized IDSC with two satellite regional warehouses. The distance and the costs of the alternative however led to the main proposal being the chosen one. However, subsidiaries began worrying about the effect of the changes onto their effectiveness in adapting to market changes. They felt that the removal of a warehousing form under their control would lead to them being unable to reflect market changes vigilantly as well as become slow in responding to the changes in consumer demands.
Just s centralization brings about with it a certain time lag in adapting to changes. However, Carroll had taken care of this and introduced flexible packaging lines so that this could be reduced to a great extent. But the subsidiaries were still not compensated for inventory carrying costs which led to a lag in the financial benefits being felt by the subsidiaries. European general managers were more comfortable with the fact that warehouses were placed near their offices. So the centralization of the warehouses was viewed by many managers as a reduction in their authority and control.
Further, the reduction in the number of workers on each warehouse that was closed was a difficult task in itself – firstly due to the social responsibilities and secondly due to the strong worker unions at these warehouses. Rod Bishop, manager of Polaroid’s UK subsidiary, felt that there was no need to hold a warehouse even in the UK and felt competent that the IDSC could handle even the UK’s packaging and delivery as efficiently as it could any other countries’ packaging connected through land routes.
The question of the first country in which the distribution warehouses should be wrapped up and it being directly connected to the IDSC was an important one. While Carroll considered several alternatives and contended starting the distribution with the UK warehouse, he knew that in order to carry on with the distribution centralization, he had to retain the support and trust of European managers or else the project was bound to fail at a point.
The summary of the problems presented in the case was that the success achieved by Polaroid in US could not be exactly mirrored in the European continent. Apart from the technical differences that existed between the two continents, the fact that European managers were not used to having centralized distribution systems as well as their reluctance to follow the American success story was a problem Carroll had to deal with.
Recommendations Although the team of Carroll and Lee Brewer and taken all the persuasive and conducive actions in support of the project, the main success of this project lay in its actual financial savings. If the project did not recover its costs as projected in the cost-benefits analysis, then there would be unrest amongst the European managers and discontent about the centralization of the distribution systems. However, success on the other hand, would be entirely a subjective issue.
Even after reaching its financial projections, European managers might still have discontent about the project owing to other factors causing inconveniences, for example lost faith amongst customers, more back orders, etc Some of the recommendations for this case would be to bring in other counter changes in the distribution systems and relocation of staff rather than laying off since it will contribute more significantly to the success story of Polaroid in Europe.
Courtney from Study Moose
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