The Case for Infrastructure Investment: Lessons from Medco and Staples

This is an excerpt of the original article. It was written for the September-October 2011 edition of Supply Chain Management Review. The full article is available to current subscribers.

September-October 2011

Volatility has always been a factor in supply chain management. It just seems that the level of volatility we’ve been experiencing recently has been higher—and certainly a lot more persistent—than anything we’ve experienced in quite a while. Those boring good old days of relative stability have been supplanted by economic turmoil and wild stock market swings; by monumental natural disasters like earthquakes, hurricanes, and tornados; by political upheavals around the globe; and by suppliers cutting way back on capacity or in some cases simply going out of business. These are among the major contributors to that sense of volatility that seems…

Browse this issue archive.

Already a subscriber? Access full edition now.

Need Help?

Contact customer service

847-559-7581   More options

Not a subscriber? Start your magazine subscription.

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.

This complete article is available to subscribers only. Click on Log In Now at the top of this article for full access. Or, Start your PLUS+ subscription for instant access.

Not ready to subscribe, but need this article?
Buy the complete article now. Only $20.00. Instant PDF Download.
Access the complete issue of Supply Chain Management Review magazine featuring
this article including every word, chart and table exactly as it appeared in the magazine.

SC
MR