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The battle lines were drawn in the membership

warehouse sector and the competitive intensity

was ratcheting up$.$ As Jim Brau looked out the

airplane window through the clouds, he pondered

the charge to improve efficiency and cut costs

through logistical redesign. His flight would be

landing in a few minutes and he would be back in

the office within the hour. Jim had just completed

a tour of three Midwestern stores and was

anxious to get back to work. Jim and his re$-$

engineering team had been given the mandate to

$$Provide a competitive advantage to SAM$$s CLUB

by having merchandize flow through the SAM$$s

CLUB supply chain at the lowest possible cost.$$

Existing Inefficiencies

To date, the team had analyzed the $$as$-$is$$ supply

chain and identified ten sources of inefficiency.

Jim knew that the challenge was to determine

how to exploit the inbound network to transform

the following inefficiencies into opportunities for

competitive advantage.

$1.$ Too much freight was moving in non$-$

truckload quantities. Freight cost analysis

revealed that TL was by far the low$-$cost

option. Multi$-$stop TL cost $25\%,$ LTL $250\%,$

parcel $700\%,$ and airfreight $1040\%$ more.

$2.$ Delivery options from suppliers were not

always analyzed adequately. Cross$-$docking

leveraged TL economies; yet, the team

wondered whether other options might be

more cost effective at times.

$3.$ Despite all of Sam$$s Club$$s efforts, empty

backhauls were still prevalent. Wal$-$Mart

also suffered from empty backhaul

inefficiencies.

$4.$ Freight imported from Asia landed almost

exclusively on the West Coast and was then

shipped by truck to DCs and individual

stores. Everyone wondered if this was the

most efficient option.

$5.$ Sam$$s Club shipped millions of pounds of

freight LTL$.$ There was no way to create

milk runs or buy certain products in larger

quantities; still, the team wondered if some

other alternative might be found.

$6.$ Industry practice was to buy product with

shipping prepaid. While suppliers often

offered a shipping allowance, the question

was whether or not this was really the best

way to manage in$-$bound freight.

$7.$ Scores of carriers and thousands of routes

were used to move product from suppliers

to DCs and then on to stores. Was Sam$$s

Club using the most efficient options,

especially with respect to shipping points?

$8.$ The loss and damage bill seemed

excessive and materials handling costs

were high. Transportation costs for some

low$-$density products like garden ponds

really took a toll on profit margins.

$9.$ It appeared that the impact of purchasing

decisions on transportation efficiencies was

often ignored, leading to poor capacity

utilization and excessive damage.

$10.$ The team knew that a trailer$$s capacity is

determined by weight and volume; yet, this

fact had not been taken into consideration

in defining trailer loading policies and

procedures.

Industry Background

The members$-$only shopping craze began in $1976$

when the first Price Club opened in a converted

airplane hanger in San Diego, California. By $2002,$

almost $1,000$ club stores were in operation

worldwide, most in the United States. Two

companies dominated the market$$Costco and

Sams$$ Club. Costco operated $390$ stores and

generated sales of about $$35$ billion in $2001.$

Sam$$s Club claimed over $46$ million members,

operated over $500$ warehouse stores, and

generated sales of $$30$ billion. Both promoted a

similar value proposition and operated using

comparable efficiency$-$driven business models.

Costco Sam$$s Club

Costco is dedicated to

bringing our members

the best possible prices

on quality brand$-$name

merchandise.

Our operating

philosophy has been

simple. Keep costs

down and pass the

Sams$$ Club offers

exceptional value on

brand name

merchandise at

"members only" prices.

SAM'S CLUB operates

by selling merchandise

at very low profit

The Club WarThe battle lines were drawn in the membership

warehouse sector and the competitive intensity

was ratcheting up$.$ As Jim Brau looked out the

airplane window through the clouds, he pondered

the charge to improve efficiency and cut costs

through logistical redesign. His flight would be

landing in a few minutes and he would be back in

the office within the hour. Jim had just completed

a tour of three Midwestern stores and was

anxious to get back to work. Jim and his re$-$

engineering team had been given the mandate to

$$Provide a competitive advantage to SAM$$s CLUB

by having merchandize flow through the SAM$$s

CLUB supply chain at the lowest possible cost.$$

Existing Inefficiencies

To date, the team had analyzed the $$as$-$is$$ supply

chain and identified ten sources of inefficiency.

Jim knew that the challenge was to determine

how to exploit the inbound network to transform

the following inefficiencies into opportunities for

competitive advantage.

$1.$ Too much freight was moving in non$-$

truckload quantities. Freight cost analysis

revealed that TL was by far the low$-$cost

option. Multi$-$stop TL cost $25\%,$ LTL $250\%,$

parcel $700\%,$ and airfreight $1040\%$ more.

$2.$ Delivery options from supplier