Reference no: EM132640119

Midwest Office Product john Malone, general manager of Midwest Office Products (MOP), was concerned about the financial results for calendar year 2003. Despite a sales increase from the prior year, the company had just suffered the first loss in its history

• Midwest Office Products was a regional distributor of office supplies to institutions and commercial businesses. It offered a comprehensive product line ranging from simple writing implements (such as pens, pencils, and markers) and fasteners to specialty paper for modern high-speed copiers and printers. MOP had an excellent reputation for customer service and responsiveness.

• Warehouse personnel at MOP's distribution center unloaded truckload shipments of products from manufacturers, and moved the cartons into designated storage locations until customers requested the items. Each day, after customer orders had been received, MOP personnel drove forklift trucks around the warehouse to accumulate the cartons of items and prepare them for shipment.

• MOP ordered supplies from many different manufacturers. It priced products to its end-use

• customers by first marking up the purchased product cost by 16% to cover the cost of warehousing, order processing, and freight; then it add ed another 6% markup to cover the general, selling, and administrative expenses, plus an allowance for profit. The markups were determined at the start of each year, based on actual expenses in prior years and general industry and competitive trends. Midwest adjusted the actual price quoted to a customer based on long-term relationships and competitive situations, but pricing was generally independent of the specific level of service required by that customer, except for desktop deliveries.

• Typically, MOP shipped products to its customers using commercial truckers. Recently,

• MOP had introduced a desktop delivery option in which Midwest personnel personally delivered supplies directly to individual locations at the customer's site. Midwest had leased four trucks and hired four drivers for the desktop delivery service. Midwest charged a price premium (up to an additional 5% markup) for the convenience and savings such direct delivery orders provided to customers. The company believed that the desktop delivery option would improve margins and create more loyal customers in its highly competitive office supplies distribution business.

• Midwest had introduced electronic data interchange (EDI) in 1999, and a new Internet site in 2000, which allowed customer orders to arrive automatically so that clerks would not have to enter data manually. Several customers had switched to this electronic service because of the convenience to them. Yet Midwest's costs continued to rise. Malone was concerned that even after introducing innovations such as desktop delivery and electronic order entry, the company could not earn a profit. He wondered about what actions he should take to regain profitability.

Problem 1: what actions he should take to regain profitability.