DAKOTA OFFICE PRODUCTS - A CASE ANALYSIS

By

Amit Das

Kartik Agarwal

Pranjali Rai

Rahul Sharma

Rashmi Jha

COMPANY OVERVIEW

Dakota Office Products (DOP) was a regional distributor of office supplies to institutions and commercial business. It offered a comprehensive product line ranging from simple writing implements and fasteners to specialty paper for modern high-speed copiers and printers.

DOP has an excellent reputation for customer service and responsiveness.

The company introduced innovations (ideas) such as desktop delivery and electronic data interchange (EDI)

Despite a sales increase from the prior year, the company (DOP) suffered the first loss in its history.

WHALE CURVE ALSO CALLED PROFIT CLIFF CHART

ACTIVITY-BASED COSTING (ABC)

ABC is not a method of costing, but a technique for managing the organization better. It is a one-off exercise which measures the cost and performance of activities, resources and the objects which consume them in order to generate more accurate and meaningful information for decision-making.

Steps:

Allocates overhead to multiple activity cost pools, and

Assigns the activity cost pools to products or services by means of cost drivers.

HOW ABC CAN HELP DOP

To get the answer we first have to look into the services provided by DOP to its customers and activities in the distribution centers.

DOP SERVICES

• Shipped its product to its customers using commercial truckers

• Option of delivering the package of supplies directly to individual location at the customer site ( Desk top option/2% premium )

DOP SERVICES (contd..)

• Booking of Orders through Electronic Data Interchange (EDI)

ACTIVITIES IN THE DISTRIBUTION CENTERS

• Process cartons in and out of the facility

• Desk top delivery service

• Order Handling

• Data Entry

PRICING OF DOP PRODUCTS

Price =

(Purchased Product Cost + 15% of Purchased Product Cost) + Second markup

To cover the cost of warehousing distribution and frightFor General and selling

expenses plus allowance for profit.

Prices to customers were adjusted based in long-term relationship and competitive situation.

CUSTOMER PROFITABILITY

Melissa and Tim's Observations

For normal shipments commercial freight is used and the cost is volume based. shipping cost is about same regardless of weight and distance.

Existing personals had more than enough work. More people are needed , if the number of desk top delivery increases.

Manpower capacity is used to its fullest

Orders through EDI takes less time than manual entry by data entry operator.

DOP made 2,000 desktop deliveries during year 2,000

CUSTOMER PROFITABILITY

Customer A vs. Customer B

Customer A

• Places a few large order

• Has started to use EDI ( 50% of orders in year 2000 came electronically)

• Average accounts receivable balance was $9,000 ( year 2000)

• Pays bills within 30 days

Customer B

• Placed more orders but in smaller chunks

• Orders placed via phone or Paper.

• 25% of B's orders requested desktop delivery option.

• Average accounts receivable balance was $30,000 ( year 2000)

• Took 90 or more days to pay its bills

The existing customer profitability system indicated that both customers generated a contribution margin sufficient to cover normal general and selling expenses and return a profit for the company

THANK YOU