CEO of Common Value Corporation (CVC), Mr. David Bourne, scanned the annual review of the consulting report he had just received. Bourne 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…”
Bourne was familiar with all of these phrases 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 CVC for the future.
Founded 60 years ago, CVC had been for many years one of the largest book distributors in the country. From its seven regional warehouses, CVC 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 industry. Using advanced forecasting techniques to control inventory levels and technologically advanced warehouses to control operating expenses, CVC 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 Bourne realized that CVC would have to make changes to remain a book distributing powerhouse. In particular, two relatively new types of retailers were becoming more and more dominant in the industry: the large superstores and the online booksellers. Both of these categories of retailers presented new and unique challenges to their distributors.
In the past CVC had interacted primarily with the superstores through large regional distribution centres (DCs) that the superstores maintained. In general, CVC 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 CVC 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.
Online booksellers presented an entirely different set of challenges to Bourne and the managers at CVC. These retailers had very little inventory at hand. Instead, they took orders and relayed them to distributors like CVC, who delivered the books to the retailers for repackaging and shipment. Recently, these retailers had started moving toward a new business model—one in which the distributors handled packaging and shipment of books directly to the end customers.
Bourne realized that these industry changes could provide opportunities for his company if he could figure out how to take advantage of them. Clearly, if CVC 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. Bourne 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. As he prepared for the next day's meeting, Bourne made a list of many questions:
(a) How can CVC use the Internet to better serve their customers, the superstores & the on-line sellers?
(b) Should CVC implement a push strategy? A pull strategy? A push-pull strategy? Why? What would it require?
(c) What are the advantages to CVC in having fewer warehouses and a more centralized operation? More warehouses and a more decentralized operation?
- Please refer to the case “UNIQLO – A Supply Chain Going Global” and answer the following questions.
(a) What are the main differences of business models for Inditex, H&M, and Uniqlo?
(b) What is the governance structure in supply chain for Uniqlo?
(c) What is the e-business opportunity for Uniqlo in China?
(d) What can be the Uniqlo’s supply chain strategy for US and the world?
Sample Solution