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The RCircle Distribution Company is a regional, full line, distributor of parts, tools, and supplies used by maintenance personnel

Operations Management

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The RCircle Distribution Company is a regional, full line, distributor of parts, tools, and supplies used by maintenance personnel. The company maintains a catalog of 75,000 odd active SKUs (items). Orders are taken via the internet and shipped by UPS out of the warehouse within a day. The company carries a full line of products—everything a maintenance operation may require. Its motto is: “Everything you need for maintenance is only a click away—within a day." The company considers the individual maintenance supervisor, rather than the corporate purchasing department, as its customer. RCircle’s prices are relatively high—you can get almost anything they sell as much as 30% lower if you shopped around. They do not give any discounts from their published list price. Their largest customer accounts for less than one tenth of one percent of their total business. RCircle has not been certified as a preferred supplier by any of its customers and it typicall

 y is not the primary supplier of a given item to a given company. The typical order is for two to six items, at a combined order value of $20 to $350. Many orders involve either an emergency situation where a particular item is needed right away, or a small dollar-value order where the major factor is the convenience of the maintenance supervisor who can get a complete order taken care of by just one internet interaction. The annual volume of an average item carried by RCircle is about 200 units, with some slow-moving items selling as few as 10 units a year. The company enjoys a superior reputation for service, product quality, and delivery (99% of all orders are sent complete within a day). The company has been consistently very profitable, but growth has been modest. The company is privately held. RCircle has been approached by the purchasing department of a large industrial customer suggesting RCircle become their sole supplier for maintenance products. This would increase the sa

 les volume to this single customer by more than one hundred-fold. It would also result in a noticeable increase in the predictability of demand for many of the items carried by RCircle. In return, the customer requests an immediate 25% discount from list prices, and significant financial penalties for late shipments by RCircle.

a. Because of your expertise in managing operations, the CEO of RCircle is seeking your advice: Should RCircle accept the offer? Explain why or why not? (Present your answer with any assumptions you deem necessary.)