Rose BMGT44780 Business Logistics Spring 2016

Case Study 2
ACME COMMUNICATIONS EQUIPMENT, INC.

The director of logistics at ACME Communications was examining the results of a

customer survey concerning the quality of logistics service. He had been asked by the VP of
Strategic Development to make recommendations regarding how logistics capabilities may
enable the firm to derive a competitive advantage.
ACME was a producer of telecommunications equipment and subcomponents, ranging
from telephone answering machines and related peripherals sold in consumer channels to highly
complex make-to-order components sold to major OEMs. Their reputation as a quality supplier
was well established. Business strategy at ACME had followed a traditional approach, selling
telecommunications subcomponents and equipment mainly through Amalgamated Telecom
(ATC), the giant ex-telecommunications monopoly. The telecommunications environment,
however, had changed over the years. Within the last 20 years, ACME had established a line of
consumer goods sold through large chain department stores and mass merchants. Department
stores purchased the full consumer product line and maintained established price structures.
Mass merchants took only high-volume consumer product lines but moved these in significant
volumes. They asked for substantial discounts on cumulative quantity purchases. The volume of
business with ATC had held steady, while that of the department stores had grown slightly.
Mass merchants held the key to growth as they were getting a larger share of consumer business.
The competition had also changed. Some new competitors were recognized as having
equal quality products at a significantly lower price. ACME had responded, not by matching
prices but by engaging in promotional campaigns. There also had been a flood of low-priced
imports that were beginning to saturate the consumer market.
ACME dealt directly with the retail buyers for department stores and mass merchants.
Buyers, particularly for the mass merchants, were extremely conscious of logistics service. Mass
merchants operated on weekly order cycles and managed inventory by responding to actual sales
rather than maintaining excessive inventory safety stock targets. As a result, they expected very
short order cycle replenishment times often 24 to 48 hours. To further complicate the situation,
the customers arranged their own special promotions and seldom communicated the schedules to
ACMEs logistics department. This often resulted in out of stock situations for the promoted
items. They also sought direct ordering from their computers to ACMEs computers.
The department stores were on a two-week order cycle and maintained adequate safety
stock levels in their own distribution centers as backup to their stores. Thus, order cycle
replenishment time expectations were longer, ranging from 5 to 7 days.
ATC was the least aggressive member of the industry. It placed orders using standard
order quantities on monthly order cycles. ATCs service expectations were the least demanding
since they held large amounts of safety stock to cover variances in their demand and in supplier
lead times. Service standards related to order fill and cycle time for ATC orders were relatively
low compared to other customer segments. ACME valued ATC as a customer because it
presented the full product line, which the other customers did not do.
ACME had commissioned the logistics service survey as a means of understanding the
strategic opportunities resulting from improved logistics service quality. Service complaints
usually came through the sales force and referred to a variety of logistics problems including on-
time delivery, order accuracy, and invoicing problems.
The customer service survey was conducted through interviews with select department
store and mass merchant buyers. In addition to general comments, questions were asked seeking
comparative ratings of ACME versus major competitors on specific aspects of logistics service.
This case study is adapted from Carlton Electronics, written by Professor Martin Christopher of the Cranfield
School of Management, U.K., and Professor Philip Schary, Oregon State University. The case originally appeared
in Strategic Logistics Management, 3rd ed., Douglas M. Lambert and James B. Stock, Richard Irwin, 1993.
Rose BMGT44780 Business Logistics Spring 2016
Case Study 2
The survey covered several specific aspects of logistics service: delivery time; inventory
reliability (fill rate); order status communication and ordering procedures; advertising and
promotion; and packaging and labeling. The results of the survey follow.
Delivery Time. The largest suppliers were about equal in terms of delivery performance.
However, as a group they were not equal to the performance of smaller competitors. ACMEs
average times were considered to be acceptable, but their performance had slipped in terms of
reliability. Customers could not be sure when their orders would arrive. On a local basis, this
was caused by ACMEs local delivery dispatching. At a national level, it was due to the
performance of the carriers that ACME was using.
Inventory Reliability. ACME was again comparable in inventory reliability performance to its
major competitors, fulfilling about 80 percent of item demands form stock on hand. Smaller
competitors, with their restricted product lines, tended to do better. ACMEs back-order
performance was better than average. Customers recognized that back-orders from ACME
would always be filled, even if it took a couple of months. When orders were picked there
would be occasional errors, which meant that items once shipped had to be returned. This
seemed to lead to considerable confusion on ACMEs part.
Orders. Customers expressed considerable annoyance about ACMEs order system. There
were frequent errors in recording/filling orders, and there was no confirmation when the order
was received. Orders were normally keyed in to the ordering system from purchase orders that
were telephoned or faxed in from customers or from sales representatives. Customers expected
confirmation of order receipt and compliance, which often took ACME several days to complete,
if it was completed at all. In the case of mass merchants, the confirmation was often received
after receipt of the actual order itself.
Packaging and Labeling. Packaging was an important area but involved conflict. ACMEs
policy had always been to pack well. Packages were always well labeled. However, the mass
merchant buyers had begun to use laser bar code scanners and wanted suppliers to adapt their
packages to the new system of item identification, requiring preprinted bar codes on a non-
reflective surface. This was extremely costly, and most competitors had yet to achieve the
capability. ACME was currently complying, but was unsure if the cost was justified.

The following table summarizes some key sales and cost figures for the 3 major market
segments.

Cost and Activity Summary

ATC Dept. Stores Mass Merchant Total
Sales ($ x 1000) 500,000 300,000 200,000 1,000,000
COGS ($ x 1000) 200,000 120,000 80,000 400,000
Annual Orders (x1000) 1,000 2,500 100 3,600
Total Logistics Cost/Order $111 $150 $310

This case study is adapted from Carlton Electronics, written by Professor Martin Christopher of the Cranfield
School of Management, U.K., and Professor Philip Schary, Oregon State University. The case originally appeared
in Strategic Logistics Management, 3rd ed., Douglas M. Lambert and James B. Stock, Richard Irwin, 1993.
Rose BMGT44780 Business Logistics Spring 2016
Case Study 2

Assignment

ACME hires you as consultant to analyze their supply chain operation and make general
recommendations for improvement

o Describe their biggest issues

o What are recommendations to address the issues
o What barriers will they face in implementing the recommendation

This case study is adapted from Carlton Electronics, written by Professor Martin Christopher of the Cranfield
School of Management, U.K., and Professor Philip Schary, Oregon State University. The case originally appeared
in Strategic Logistics Management, 3rd ed., Douglas M. Lambert and James B. Stock, Richard Irwin, 1993.