4 A direct marketing company sells kitchen equipment through a network of local representatives working from home. Typically, individual orders usually contain 20 to 50 individual items. Much of the packing process is standardised and automatic. The Vice President of Distribution is proud of his distribution centre. ‘We have a slick order fulfilment operation with lower costs per order, few packing errors, and fast throughput times.

Our main problem is that the operation was designed for high volumes but the direct marketing business using representatives is, in general, on a slow but steady decline.’ Increasingly, customers are moving towards using the company’s recently launched website or just buying from supermarkets and discount stores. Bowing to the inevitable, the company has started selling its products through discount stores. The problem is, ‘how to distribute their products through these new channels?’ Should they modify their existing fulfilment operation or subcontract the business to specialist carriers? ‘Although our system is great at what it does, it would be difficult to cope with very different types of order. Website orders will mean dealing with a far greater number of individual customers, each of whom will place relatively small orders for one or two items. We are not designed to cope with that kind of order. We would have the opposite problem delivering to discount stores. There, comparatively few customers would place large orders for a relatively narrow range of products.

That is the type of job for a conventional distribution company. Another option would be to accept an offer from a non-competitor company who sell their products in a very similar way.’

(a) What are the implications of the different sales channels for the existing distribution centre?