CASE 12.2 HQ Depot
June, July, and August are unusually challenging months for HQ Depot, when this Chicago-based retailer experiences significant demand for its products in response to the annual opening of schools and universities in the months of August and September. HQ depot is an omni-channel retailer of a broad range of office supplies and back-to-school items such as computers, printers, and accessories, in addition to more traditional items such as notebooks, filing folders, writing implements, etc. Most of the SKU’s available at HQ Depot are imported from a number of emerging and developed markets, such as China, India, Vietnam, Philippines, and Mexico. Given the very price-competitive market in which HQ depot operates, most of these imported products are shipped by containerships to U.S. west coast ports, and then transported to distribution centers in Chicago, IL, Henderson, NV, and Greenville, SC via intermodal and over-the-road truckload carriers. Most frequently, shipments from these DC’s to individual stores, and to home and business addresses for e-Commerce customers, were fulfilled through a combination of truckload, LTL, and express services (particularly for time-sensitive deliveries). HQ Depot was managing its transportation operations internally, but the company decided it wanted to focus on its core competency, which, according to its SVP Supply Chain, was “maintaining our leadership in t he office and school supply industry.” ἀ e company also wanted to centralize its transportation operations. Looking carefully at the issue of overall performance in the logistics and transportation areas, a significant amount of variability was found in the transit times and service reliability of its store and customer deliveries. ἀ us the idea of centralizing its logistics operations was consistent in the pursuit of uniformity and control in its fulfillment operations. Additionally, HQ Depot had set an objective of improving service to some of its outlying stores and customer markets, which clearly would require expansion of its logistics network. According to HQ Depot’s VP Logistics, an analysis had begun to study how long it would take and what it would cost to build up the company’s transportation capabilities to be able to support such a network. As a key element of this process, a recommendation was being considered to using a 3PL provider to design and operate a system to better manage the transportation of products from DC’s to locations of company stores and e-Commerce customers. In addition, HQ Depot wanted to be able to reach markets for which it did not already have access, which would require expansion of its logistics network.
According to the director of logistics, an analysis was undertaken to study how long it would take and what it would cost to build up HQ Depot’s transportation capabilities to be able to support such a network. As a result, a recommendation was made to seriously investigate the use of a 3PL provider.
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1. What rationale is offered by HQ Depot in support of the idea of using a 3PL? Do you agree with the reasons cited for the interest in a 3PL?
2. Based on your understanding of HQ Depot and its business needs, what type of 3PL firm do you feel might be of greatest potential value in terms of a relationship?
3. What steps would you suggest be considered by HQ Depot as it begins to analyze the feasibility of forming a relationship with individual 3PL providers?
4. Once the selection process is complete, what kind of relationship do you feel would be most appropriate: vendor, partner, strategic alliance, or some other option?