Monday, February 18, 2013

One big office

This week reports have surfaced that two domestic office giants may merge. [1] Who are they, and just what would a merger mean for us and for their collective supply chain prowess?

Meet Max. Office Max, the smaller of the two was first founded in 1994 as a subsidiary of K-Mart. The office supply retailer sells office supplies and paper, technology, and office furniture. Its business comes in two forms: contract and retail. The two types of business provide an equal share of the company's sales and operated for a long time with two separate supply chains. The company sells 25,000 unique products, all available by catalog, and on average 8,000 will be available in any of their 1,000 + superstores in the U.S. and Mexico. In 1998 Office Max built three PowerMax Distribution Centers, improving inventory turnover by $400 million. These PowerMac DCs distribute goods from international suppliers to stores (retail) and to CFCs, which then ship products to contract customers. The supply chain looks like this:

Faced with budgetary woes of the "great recession," in 2007 Office Max decided to seek a new strategy. The company contracted with TransSystems, the supply chain consulting firm, to develop their new supply chain strategy  The three phase strategy was developed using a custom made econometric software and calls for Office Max to ultimately integrate its retail and contract businesses for improved efficiency. [2]

The head honcho. Office Depot, may be the world's largest seller of office products, but they too have felt the strains of the economic times and uncertainty. Dennis Cohen, Sr., Director of Private Brand Operations for Office Depot cited uncertainty in fuel prices, "political and ecological disasters," and consumer demand as key challenges in the supply chain. [3]

With Office Depot grossing over $11 billion annually and Office Max $7 billion, the two mega corporations compete primarily with Staples, who along with them fills out the top three spots for office supply retailers. The merger, if it comes through, would combine OfficeMax's supply chain innovation and Office Depot's market power for something bigger and better than ever. [1][2] 

But buyer beware, warn some experts, these mega-mergers can hurt consumers, workers, and hamper innovation by reducing natural market competition. [4]

Will it happen? And if it does, in whose best interest will the merger be?


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