Generalizations from Polaroid Distribution Channel Strategy Spring Semester February 2000 L. P. Bucklin

Why the Debate? With Almost a one Year Payback! Market units are being threatened with the loss of control of a valued marketing tool Ability to respond to emergency calls for inventory Ability to adapt to packaging requests Loss of control over resources Worry over potential for error, weather, mgmt. Limited benefits provided regional managers by means of the change

Comparative Polaroid Logistic Channels Factory Factory Speculative Inventory System Postponed Inventory System Central Warehouse Central Warehouse Local Wholesaler Local Warehouse Local Wholesaler Transit Inv. Key Service Points Retailer/ Industrial Supply House Retailer/ Industrial Supply House End-Users

Comparative Logistic Service Speculative inventory logistic channel Faster response to unexpected needs More adaptable to local needs More stable delivery times Postponed, centralized channel with transit inventories Lower inventory, warehouse costs Greater fill rates, but standardized level of service Higher transport costs due to small parcel system, transit inventory handling

Comparative Strategic Dimensions Postponed channel Operates as a cost center Minimize system costs against service objectives Poorly defined service objectives may obscure true costs of the postponed logistic channel Speculative channel Operates in support of local marketing

Missing Elements Close examination of customer needs No survey of customers with reference to service needs Large German and British customers have optimized their inventories, postponing goods to supply system Smaller retailers may benefit from multi-week delivery systems, contrary to US experience No recognition of advantages to providing customers with different service/price options Proposed British service provides a fast-standardized, high cost response due to second, third shifts Pressure on 3rd parties for fast turn may force poor use of local transport with delivery trucks not fully laden

Other Options? Regional warehouses Placing warehouses in southern France for Spain and Italy Locating a warehouse in Denmark Improving efficiencies in existing system Reducing transport costs by developing improved local solutions Improving local inventory management

Data from Polaroid

Data from Polaroid

Logistic Generalizations When end-user logistic needs are high they: buy in small lot sizes, want frequent and fast delivery Dual, speculative inventory system provides goods close to buyers to respond quickly Ceteris paribus: Longer speculative channels provide high service at lower costs than shorter channels

Savings From Postponement SBU local warehouses carry speculative inventories for retailers, wholesaler Local spec inventories serve small markets, suffer from low inventory turnover, productivity Centralized system postpones inventory commit-ment by shifting EUI order filling up channel Postponement savings derive from a reduction of system stock, increased turn, productivity Postponement losses from possible poorer service levels, distant management

Postponed Logistic System Postponed logistic system functions well when: Order size (units purchased) is high to reduce need for breaking bulk Volume is high permitting frequent shipment of large scale trucks to match needs Delivery systems are fast and reliable System inventory location is transparent

Governance Generalizations Existing strategic units not charged for inventory. Absence of inventory charge provides no incentive to minimize inventories, enhance productivity Inventory managers not responsible for costs will sub-optimize Channel conflict emerges within integrated system when logistic goals of managers differ as between cost savings and service level