You have recently been hired as a new cost-management analyst by Corporate Express, the world’s largest supplier of office supplies to large corporations. Corporate Express takes orders from its customers via the Internet, processes those orders with office supply manufacturers, and delivers the supplies to the corporate employees who ordered them. Corporate Express’ customers do not need to hire anyone whose job is to order, receive, or distribute supplies, nor do customers need supplies inventories or warehouses. Large customers (such as Coca-Cola and Hewlett-Packard) save millions of dollars per year by outsourcing their office supply tasks to Corporate Express.

The vice president of marketing is concerned that the company’s policy to serve only large companies does not fit its strategic goals. She believes it might be worthwhile to offer limited services to small, rapidly growing businesses because they could graduate to the full line of services offered to large companies. As a first step, the VP has asked you to analyze the costs and benefits of serving small and large customers.

You have developed the following information:

One Large One Small Annual Average Data Company Company Number of orders per year 2,000 200 Sales value of supplies per order in dollars $1,000 $ 600 Cost of supplies to Corporate Express as a percent of sales 80% 15%

Processing cost per order $25 $25 Delivery cost per order as a percent of sales 8% 8%

Cost to create and maintain Internet access per customer per year $3,000 $3,000 Required

a. Compute the annual profit generated from an average large or small company.

b. Would it be worthwhile to add 10 small customers to replace one large customer? Why or why not?

c. If other characteristics of small firms differ from those of large ones, would this change your evaluation?

Give an example.

d. Do you recommend that Corporate Express consider this business alternative further?

e. BUILD YOSURP ROWEN ADSHEET. Build an Excel spreadsheet to solve requirements

(a) and

(b). What would your recommendation be if the sales value of supplies per order of a typical small customer increased to $700? to $800? Explain