An online retailer of home furnishings purchases furniture from different manufacturers. The furniture is shipped to the company headquarters in Vancouver, Canada, where it is stored until sold. The furniture is then shipped to the customer using the company’s truck fleet. The activities, their costs, and the cost of best practices for the different activities are listed as follows
|Activity||Cost||Cost of Best Competitor|
|Shipping to Vancouver||3,000,000||2,000,000|
|Shipping to customer||3,000,000||2,000,000|
What activities are potential sources of cost savings?
Three of the activities are not on the value chain. Shipping to Vancouver, receiving those products, and warehousing do not add value to the customer. Those activities could be replaced by having manufacturers ship directly to the customer. Therefore, the activity of shipping to the customer using its own fleet should be re-examined. Purchasing and order processing appear to be operating efficiently when compared to the cost of the best competitor, but website maintenance is a potential source of cost
savings either through improvement or outsourcing.