Essay About General Manager Of Dakota Office Products And Customer Service

Dakota office Products
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Professor Robert S. Kaplan prepared this case. HBS cases are developed solely as the basis for class discussion. Cases are not intended to serve as
endorsements, sources of primary data, or illustrations of effective or ineffective management.
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ROBERT S . KAPLAN
Dakota Office Products
John Malone, General Manager of Dakota Office Products (DOP) was concerned about the
financial results for calendar year 2000. Despite a sales increase from the prior year, the company had
just suffered the first loss in its history (see summary income statement in Exhibit 1).
Dakota 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. DOP had an excellent reputation for customer service and responsiveness.
DOP operated several distribution centers in which personnel 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, DOP personnel
drove forklift trucks around the warehouse to accumulate the cartons of items and prepared them for
shipment.
Typically, DOP shipped products to its customers using commercial truckers. Recently, DOP had
attracted new business by offering a “desk top” option by delivering the packages of supplies
directly to individual locations at the customers site. Dakota operated a small fleet of trucks and
assigned warehouse personnel as drivers to make the desktop deliveries. Dakota charged a small
price premium (up to an additional 2% markup) for the convenience and savings such direct delivery
orders provided to customers. The company believed that the added price for this service could
improve margins in its highly competitive office supplies distribution business.
DOP ordered supplies from many different manufacturers. It priced products to its end-use
customers by first marking up the purchased product cost by about 15% to cover the cost of
warehousing, distribution, and freight. Then it added another markup to cover the approximate cost
for general and selling 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. Actual prices to customers were adjusted based on long-term relationships and competitive
situations, but were generally independent of the specific level of service provided to that customer,
except for desk top deliveries.
Dakota 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
customer and order data manually. Several customers had switched to this electronic service because
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of the convenience to them. Yet Dakotas 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.
Distribution Center: Activity Analysis
Malone turned to his controller, Melissa Dunhill and director of operations, Tim Cunningham for
help. Tim suggested:
If we can figure out, without going overboard of course, what exactly goes on in the distribution
centers, maybe we can get a clearer picture about what it costs to serve our various customers.
Melissa and Tim went into the field to get more specific information. They visited one of Dakotas
distribution facilities. Site manager Wilbur Smith confirmed, “All we do is store the cartons, process
the orders, and ship them to customers.” With Wilburs help, Melissa and Tim identified four
primary activities done at the distribution center–process cartons in and out of the facility, the new
desk top delivery service, order handling, and data entry.
Wilbur described some details of these activities.