ORDER YOUR PAPER NOWGuy was familiar with all 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 of 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 Impact of the technology on the business The bookselling industry, had been changing dramatically, and Guy realized that MBD 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: 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 kind of services from their distributors. For example, some retailers had started to strongly encourage MBD to directly ship to the 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 repackaging and shipment. Recently, large online 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 online 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 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, Guy made a list of many questions: The Impact of the technology on the business 1. What is the impact of Internet on the business strategy used by the superstores and the online sellers? In particular, are online retailers going to keep inventory of most book categories in their distribution centers? 2. Should MBD encourage retailers to make point-of-sales (POS) data available? What is the value of these data? Do you think that data would help MBD to move toward a pull distribution strategy? 3. Should MBD establish more regional warehouses? Should it eliminate some warehouses and become more centralized? Was cross-docking really a viable strategy for book distributors?
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