Modern Book Distribution

1.    Modern Book Distribution, Inc. Case Study Evaluation (20 points). 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: (20 points)
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.    According to Bill Paulk, IBM’s vice president of e-marketplaces, “IBM has saved about $1.7 billion since 1993 by being able to divulge sensitive price and inventory information over a private exchange built for 25,000 suppliers and customers.” As the host of the exchange, the company helped defray the cost of connecting suppliers. The payoff: On-time delivery to customers soared from about 50 percent to close to 90 percent, “which helped justify the cost,” Paulk says. In 1999, IBM invested in E2open, a consortia-based e-marketplace for the electronics industry. Why do you think IBM needs both a private exchange and a consortia based e-marketplace? (20 points)

4.    You are the CEO of a small electronics manufacturing firm that is about to develop a global strategy. (20 points)
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: (20 points)
a.    Conformance to requirements
b.    Product selection
c.    Price and brand
d.    Value-added services
e.    Relationships and experiences

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