Required information

This case is important because the supply function is

frequently given responsibility for logistics and

transportation. As a leader in the supply organization, you

need to understand the potential costs and benefits of

maintaining a central distribution center.

Read the following case on Huntington School District and

then answer the questions that follow.

Huntington School District

On Tuesday May $7,$ Derek Chan, supply manager for

Huntington School District $($HSD$),$ in Arizona, met with

Jocelyn Harrison, finance supervisor. The district's

forecasted operating budget for the following year would be

in a deficit and Jocelyn had been asked to make

recommendations that would address the problem. During

their meeting, Jocelyn proposed eliminating the central

distribution center and giving the schools responsibility for

managing their own supplies. Derek had to respond to

Jocelyn's proposal by the end of the week.

THE SCHOOL DISTRICT

The HSD was created four years earlier with the

amalgamation of four repional school districts into one

centralized administrative body. Despite a growing

population in the area, the amalgamation was deemed

necessary to cut costs through operating synergies. The

amalgamated HSD operated approximately $200$ schools

employing more than $8,500$ full$-$ and part$-$time staff, in a

geographic area covering about $3,000$ square miles. Prior to

amalgamation, the Huntington City School District had been

the largest of the four, with approximately $100$ schools, while

the three others were smaller rural school districts. The

current operating budget for the HSD was $$690$ million.

SUPPLY MANAGEMENT

The supply departments for the three rural districts were

eliminated at the time of amalgamation, and the purchasing

department at the Huntington City School District was given

responsibility for the new HSD$.$ Staffing levels were

maintained at the pre$-$amalgamation levels of $12$ people.

For a number of years, the supply department had been

utilizing its SupplyNet e$-$procurement system to make it

easier for staff to order supplies and to help manage its

inventory at the distribution center. At the time of the

amalgamation, the three other districts also adopted the

same system, which had been upgraded recently.

Purchases for the HSD$,$ excluding major construction

projects, specialized consulting services, legal and financial

charges, were approximately $$100$ million per year. When a

staff member at a school needed to make a purchase, they

placed an order on HSD$\text{'}$s e$-$procurement system. Orders

were cross$-$checked by finance for approvals and to ensure

adequate budget resources were available to acquire the

requested goods or services. The system consolidated

orders and issued purchase orders to suppliers daily. The

district also used purchasing cards for some small value

purchases.

THE DISTRIBUTION CENTER

The supply management department maintained a $30,000-$

square$-$foot distribution center in the City of Huntington,

which served two primary purposes. Inventories were

maintained at the warehouse for general supplies, such as

paper, office supplies, and janitorial products. These

inventories were maintained either bscause quantity

discounts justified bulk purchases, minimum order quantities

set by suppliers, or substantial delivery lead times warranted

holding safety stock. Inventory levels at the distribution

center averaged $$1\mathrm{.}3$ million, although it fluctuated

considerably during the year. Also housed at the distribution

center was the district's inventory of educational resource

center was the district's inventory of educational resource

supplies$-$equipment such as audiovisual material and

special teaching supplies$-$that schools used occasionally

and could loan on a short$-$ or medium$-$term basis.

The distribution center also operated the district's delivery

system, including inter$-$department mail, supplies,

educational resources, computer equipment, and

audiovisual equipment for repair or loan. In addition, the

delivery service handled the removal of surplus equipment

and furniture for disposal. Deliveries were made to schools

and district offices twice per week, and sometimes more

frequently if required. The district owned four delivery vans

and one large moving truck.

The distribution center had one supervisor, one clerk, five

warehouse staff, and five delivery drivers. Overall, school

and administrative staff were satisfied with the current

arrangement and the services provided by the distribution

center.

JOCELYN HARRISON'S PLAN

When Jocelyn Harrison met with Derek, she explained that

the HSD was forecasting a deficit of $$9$ million for the

coming year and that adjustments to the budget would have

to be made in order to address this problem. While early

retirement of a number of staff and cuts to various programs

would eliminate some of the shortfall, additional reductions

were