Question: OfficeMax with about 900 stores and annual sales of just
OfficeMax, with about 900 stores and annual sales of just under $10 billion, is the number two player in the office supply superstore channel. Holding first and third place are Staples and Office Depot. Even though OfficeMax has locations that are as good as or superior to those of its rivals, the same or better merchandise and prices and equally friendly and competent staff, it has lagged in logistical efficiency, especially in the area of inventory management. For most of its over two decade history, OfficeMax had vendors ship products directly to individual stores. This resulted in inefficient order size levels, high shipping and order processing costs, and, worst of all, frequent stock outs because orders often came from distant manufacturers. OfficeMax’s response was to build three giant distribution centers to which virtually all of OfficeMax’s suppliers would ship their products. The three distribution centers would then redistribute the products to all of the company’s 900 stores. The result is that 95 percent of all merchandise flows through the three giant distribution centers before going to the stores. Discuss the logistical rationale for this two step flow of merchandise: from manufacturer to distribution centers and then to stores. Doesn’t it seem counterintuitive that an extra step in the chain of distribution would increase efficiency? Explain.
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