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The Case for Infrastructure Investment: Lessons from Medco and Staples

Companies like Medco and Staples share a common belief: The innovative investment in supply chain infrastructure — and in particular automated materials handling and distribution systems—is a foundational element in market leadership and business success. Their stories point to seven key takeaways that supply chain professionals in any business sector can learn from.

By ·

In August 2003, Medco Health Solutions, Inc. spun off from former parent company Merck. With $34 billion in annual revenue, Medco was the largest domestic corporate spin-off of that year. Despite its size, the new company had a lot to prove—and a lot to lose. But eight years later, Medco is one of the nation’s leading health care companies, managing pharmacy benefits for one in five of all Americans, with 2009 annual revenue of $60 billion. Its clients are the employers, health plans, trade unions, and government agencies that hire Medco to keep their members healthy while keeping prescription and medical costs down….
In the same period—from 1994 to 2009—Staples Inc., the world’s largest office products company, grew from $2 billion to $24.3 billion in annual sales. That 2009 figure represented 5.2 percent growth compared with 2008, a notable accomplishment given the state of the global economy at that time.  Staples’ performance put the company squarely in the lead in the office products market. By contrast, Office Depot had revenue of $12.1 billion in 2009, a 16 percent drop from 2008, and OfficeMax had sales of $7.2 billion, down 12.8 percent over 2008. Since 1996, Staples’ 2009 performance gave the company the distinction of being the only one of the three office supply companies to post positive profits in 2009—a robust $739 million.

In the face of tough competition and even tougher times, Staples credits much of its success to its willingness to invest in and experiment with its supply chain infrastructure—which includes state-of-the-art material handling technology— and to streamline and update processes that reduce errors and costs. While most senior managers view materials handling as simply a means of moving product within their distribution centers (DCs) and perhaps their supply chains, some of today’s leaders look at it as a means of moving their companies’ strategies to new levels.

Let’s take a closer look at the Medco and Staples stories to see what we mean.

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In August 2003, Medco Health Solutions, Inc. spun off from former parent company Merck. With $34 billion in annual revenue, Medco was the largest domestic corporate spin-off of that year. Despite its size, the new company had a lot to prove—and a lot to lose. But eight years later, Medco is one of the nation’s leading health care companies, managing pharmacy benefits for one in five of all Americans, with 2009 annual revenue of $60 billion. Its clients are the employers, health plans, trade unions, and government agencies that hire Medco to keep their members healthy while keeping prescription and medical costs down….

In the same period—from 1994 to 2009—Staples Inc., the world’s largest office products company, grew from $2 billion to $24.3 billion in annual sales. That 2009 figure represented 5.2 percent growth compared with 2008, a notable accomplishment given the state of the global economy at that time.  Staples’ performance put the company squarely in the lead in the office products market. By contrast, Office Depot had revenue of $12.1 billion in 2009, a 16 percent drop from 2008, and OfficeMax had sales of $7.2 billion, down 12.8 percent over 2008. Since 1996, Staples’ 2009 performance gave the company the distinction of being the only one of the three office supply companies to post positive profits in 2009—a robust $739 million.

In the face of tough competition and even tougher times, Staples credits much of its success to its willingness to invest in and experiment with its supply chain infrastructure—which includes state-of-the-art material handling technology— and to streamline and update processes that reduce errors and costs. While most senior managers view materials handling as simply a means of moving product within their distribution centers (DCs) and perhaps their supply chains, some of today’s leaders look at it as a means of moving their companies’ strategies to new levels.

Let’s take a closer look at the Medco and Staples stories to see what we mean.

SUBSCRIBERS: Click here to download PDF of the full article.

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