case report

2012 ACADEMIC CASE STUDY SERIES

BlueStar Office Supply Company

By:

Rodney Thomas, Ph.D.

Assistant Professor

Georgia Southern University

Stephen Rutner, Ph.D.

Professor

Georgia Southern University

Christopher Boone, Ph.D.

Assistant Professor

Georgia Southern University

*Acknowledgment: The authors would like to thank Dr. Karl Manrodt for the data set utilized in

this case study.

Council of Supply Chain Management Professionals 333 East Butterfield Road, Suite 140

Lombard, Illinois 60148 USA + 1 630.574.0985

[email protected] cscmp.org

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BlueStar Office Supply Company

Introduction

BlueStar is a well established office supply company with annual revenue of $950M. The

company sources, manufactures, and markets a variety of products ranging from paper clips to file

folders. BlueStar serves thousands of customer locations throughout the United States and Canada.

The company supplies numerous items to major retailers, distributors, wholesalers, small business

owners, and consumers. Key customer accounts include major retailers like OfficeMax, Office Depot,

and Walmart. In addition to these large retailers, BlueStar also sells directly to commercial accounts for

companies like IBM, Toyota, and Boeing. If an individual works in any type of office environment, he

likely uses BlueStar products on a daily basis.

Supply Chain Status

Although BlueStar has popular products and a large market share, there have been a growing

number of problems with BlueStar’s supply chain. Customer service levels have been dropping and

costs have been increasing. As a result, corporate sales have stagnated and product margins have

steadily declined. This poor financial performance has the executive leadership team very concerned

about the BlueStar supply chain. In order to address these problems, the company has hired Katherine

Powell as the new Executive Vice President of Supply Chain Management. She has been challenged to

dramatically improve the BlueStar supply chain and return the company to a leadership position in the

industry. The CEO and board members want to see both immediate and long term improvement.

Therefore, Katherine is feeling the pressure to quickly deliver tangible results.

Katherine was formally trained as an undergraduate in Industrial Engineering at the Georgia

Institute of Technology and received her MBA from Stanford University with a concentration in

Operations Management. She has held leadership positions in several leading consulting firms and

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helped numerous corporate clients improve their operations capabilities. With this type of background,

Katherine has successfully worked in a number of production and distribution facilities throughout the

world and established a reputation as a thought leader in manufacturing strategy. Given her personal

expertise, Katherine would like to focus her efforts on improving BlueStar’s production facilities and

regional distribution centers. However, she also thinks there are tremendous opportunities for

improvement in her transportation group.

Transportation Opportunities

In your initial meeting, Katherine explained why transportation is such an important component

of the BlueStar supply chain. From a product cost perspective, transportation represents a relatively

large percentage of the total landed cost due to the low value and high density nature of many office

products (i.e., file folders). Another issue that exacerbates the relatively high transportation costs of

BlueStar products is fuel prices. In the current environment where fuel surcharges from carriers must be

accepted, the percentage of product costs associated with transportation expenditures continues to rise.

In fact, transportation costs now account for over 30% of product costs at BlueStar. If transportation

costs are not significantly reduced, then BlueStar products will not remain price competitive in the

marketplace and sales will decline. Therefore, transportation cost reduction is a key priority for the

company.

Given the increased corporate scrutiny on transportation costs, the BlueStar transportation group

attempted to reduce costs over the past year. The transportation group decided to move away from

established core carrier relationships and long term contracts. Instead, BlueStar placed every single

load on every single lane up for bid. This change was designed to ensure carriers were offering the best

price possible on every shipment. Unfortunately, this open bidding process did not have the desired

effects and it caused several additional problems.

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By moving away from utilizing their traditional core carriers and placing all loads up for bid,

BlueStar awarded some business to new carriers that did not understand the service requirements for

key customers. This lack of understanding and customer focus resulted in late shipments, extended

delivery times, and dissatisfied customers. The problem was made worse because customers sometimes

received loads from different carriers on each shipment. Therefore, the opportunity to collaborate and

develop a good working relationship was limited. As these service issues continued, BlueStar sales

began to stagnate and key customers began to evaluate other office products suppliers.

In addition to the customer service problems, last year’s change to an open bidding process also

resulted in price increases from most of the old core carriers. Apparently, the carriers were unable to

plan for demand on established lanes and unable to efficiently stage equipment as needed. In order to

pick up BlueStar loads, some carriers had to dramatically increase their empty miles and incur

additional costs. Plus, by spreading loads around to numerous carriers, economies of scale were lost.

Without sufficient volume, the traditional core carriers were simply unable to offer their normal prices.

Transportation Strategy Development

Once she assumed her new role at BlueStar, Katherine Powell set up meetings with each key

area in the supply chain. She wanted to understand the challenges each functional area faced and learn

more about their approach to problem solving. Although all areas of the supply chain appeared to have

opportunities to improve, it was clear that the BlueStar transportation group needed outside expertise

and direction. Katherine was not impressed in her initial meetings with the managers in the BlueStar

transportation group. She was frustrated and complained that:

“No one can even give me a basic summary of the business or typical metrics that a good transportation

manager should know. They cannot tell me high level things like how much we spend each year, where

we spend our money, who are our top carriers, where we ship most of our freight, what modes we use,

etc. At a more tactical level, they don’t know basic things like what is the average length of haul or

average shipment weight for each mode of transportation. If they cannot tell me these kinds of simple

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things, I hate to think about how much money we are wasting and how much risk we have in critical

areas.”

Based on her lack of confidence in the internal transportation group, Katherine contacted your school

for help and is looking for your team to analyze and synthesize some of the BlueStar freight payment

data in order to develop a revised transportation strategy. At a minimum, she wants summary

information about overall transportation spending, basic metrics for each mode of transportation, cost

savings opportunities, and risk assessments. In her closing remarks to your group she said:

“Let me make this simple. Tell me what I need to know, tell me what I need to do, and tell me what we

can improve. I need to reduce costs and improve service. Give me tangible, data driven

recommendations that are actionable.”

Directions

Your task is to review the attached freight payment data, transform the data into useful

information, and address Katherine Powell’s concerns about the BlueStar transportation group. As you

work on this project, please make certain to demonstrate a thorough understanding of transportation

spending, identify cost saving opportunities, address service levels issues, and assess transportation

related risks. As you structure your approach to this project, please consider some of the following

types of sample questions:

1. How much does BlueStar annually spend on transportation?

2. What are some of the key metrics for LTL shipments?

3. What are the top origin-destination pairs for LTL shipments?

4. How many carriers currently serve the top TL origin-destination pairs?

5. What is the average shipment size and length of haul for each mode?

6. Who are the top TL carriers?

7. What are your criteria for LTL consolidation?

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In the freight payment data file, there will be column headings with abbreviations or acronyms. In order

to help you interpret the data, BlueStar has provided the following definitions for each column heading:

Column

Heading BlueStar Definition

SCAC A unique identifying code for each transportation company

Carrier Name Name of each transportation company

Ship Mo The month of a shipment in numerical format (i.e. January = 1)

Ship Date Date of the actual shipment

Origin City City where a shipment initially started

Origin State State where a shipment initially started

Origin Zip The zip code where a shipment initially started

Dest City The city where a shipment was finally delivered

Dest State The state where a shipment was finally delivered

Dest Zip The zip code where a shipment was finally delivered

Weight The weight of a shipment in pounds

Miles The number of miles travelled between origin and destination cities

Preaudit $ The amount charged to BlueStar for a shipment by a carrier

Frt Paid $ The amount BlueStar actually paid a carrier for a shipment