12.10End-of-Topic Case: Office DeluxeThe DC Challenge

Office Deluxe (OD) is a global player in marketing and distributing office supplies and equipment. It is the market leader in terms of sales in Europe, and in the top 10 in the U.S. OD distributes to office supply stores, as well as directly to homes and businesses through online sales.

OD's main suppliers are located in the U.S. The bulk of the products are manufactured at supplier locations in Asia. To best serve its European customers, DSR ships all of its finished product from U.S. manufacturing locations to a company-owned cross-dock operation near Rotterdam, Netherlands. This involves moving them by truck to the port of Charleston, by ship to Rotterdam, and by truck to its company-owned Rotterdam cross-dock facility. The cargo is containerized so that it is properly mixed for specific European DCs, which are also company- owned. This makes the process of unloading and transshipment easy and fast.

Management is currently considering an increase in the number of its European DCs. The goal in expanding its operation in Europe is to stage inventory closer to the customer. Rivals have raised customer service expectations, so OD feels that it needs to do it to remain competitive. Indeed, rivals had begun promising shorter delivery cycles and achieving higher levels of customer service. As a result, many of OD's most important customers had recently begun complaining about OD's delivery lead times. The note that due to the distance of OD's DCs from their location, it takes too long to fulfill orders. Further, with growing e-commerce business, OD wants to build a capability to efficiently deliver directly to customers who order from its websites. The company has estimated that three to five more distribution centers in Europe would be ideal.

At the same time that sales is pushing expansion, senior leadership at OD voice concerns about the current financial markets, Euro fluctuations, and slowing growth in Europe. Even though OD has always owned and operated its own distribution network, top management has concerns about whether to commit to such growth and investment in times when EU austerity may be increasing.

Questions:

1. Go back to the trade-off figure in section 15. X of this topic. Using this figure, describe what you think are the likely impacts on each of the relevant costs if OD adds more distribution centers.

2. Given the current environment, do you think OD should outsource its logistics and distribution to 3PLs or not? Examining the reasons for insourcing and outsourcing, and other relevant factors, what do you recommend? Please clearly justify your answer.

3. Regardless of your answer to the prior questions, assuming that OD does want to outsource, what are the selection criterion it should use in choosing its outsourced 3PL(s)? Which two or three factors should receive the most weight, and why?

4. Continuing with the prior question, what type of relationship should it seek with the 3PL, and why? What types of services and benefits do you think that DSR is seeking?

5. What do you think might happen if OD decides to do nothing, and just wait this out as some members of the current management team propose? As you answer this question, keep in mind that you believe that competition in the EU will continue to increase.