OfficeMax Plans Turnaround

Discussion
Jan 24, 2006
George Anderson

By George Anderson

In yet another turnaround plan announced by a retailer, OfficeMax has put forth a three-point plan the company says will make it more competitive and profitable in the future.

The three points are:

  1. Making improvement in the corporate infrastructure with key initiatives in supply chain and information technology;
  2. Improving operating performance in the company’s retail and contract businesses; and,
  3. Delivering financial performance through a combination of cost-saving initiatives and the allocation of capital for growth.

Sam Duncan, chairman and CEO of OfficeMax, said the turnaround plan was a result of “a broad-based review of the entire OfficeMax organization, including our real estate portfolio
and business segment performance through every department of the company.”

The plan, he added, “will allow OfficeMax to attain stronger operating and financial performance, and ultimately, drive enhanced value for our shareholders.”

The company is looking to combine its retail and contract business supply chain management. Through this initiative, the company expects it can improve SKU management and forecast
accuracy. It also believes it will expedite replenishment and enhance supplier performance.

OfficeMax expects to achieve these supply chain actions through a number of major IT initiatives including: “consolidating two core data centers into one; investing in the eCommerce
platform; launching a common platform for in-store kiosks and OfficeMax.com, the company’s retail website; and integrating systems to utilize contract distribution centers to
augment retail store replenishment. Underpinning these initiatives will be upgrades to the inventory management system that will enhance store-level and item-level forecasting
and provide better reporting and visibility across the supply chain.”

Moderator’s Comment: Where do you see the office supplies business heading? What do you believe OfficeMax needs to do to turn its business around?

George Anderson – Moderator

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9 Comments on "OfficeMax Plans Turnaround"


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Race Cowgill
Guest
Race Cowgill
15 years 1 month ago
Become more efficient? Great. Focus on the customer? Even better! Too many players that are too similar? I agree. So a question for everyone: What significant, unserved needs are there in this market that OM could use to become #1? I don’t have enough data for the market at present to make valid conclusions, but let me voice my own observations, as skewed and as non-average as they may be: – It’s a terrible chore to find what you want in these stores, even if you are a frequent shopper. – Getting help is impossible. Even the floor staff I’ve asked (if you can find one) sometimes have no idea if they have what I need, and sometimes don’t even know what I’m talking about. – There seem to be a thousand SKUs for cheapest-of-the-cheap envelopes, copy paper, etc., but try to find something just one grade up, like 25 pound-weight super-bright matte-finish copy paper. – The low-end prices are great. Prices on the higher-end items are quite steep. – The websites of all three… Read more »
Don Delzell
Guest
Don Delzell
15 years 1 month ago
I believe that most of the measures announced are needed. Having said that, the earlier comment about supply chain and operational efficiency focus versus consumer need focus is also relevant and true. It would be better, I think, for OM to have delineated a market positioning which established differentiation in high value ways in comparison to it’s competition. The Wal-Mart model will not work in an established industry segment. Becoming the high efficiency operator is not a viable strategy when the industry is as mature as the DIY one is. Being essentially a fence sitter, I’ll also say that much of the tactical measures announced appears reasonable, appropriate, and probably useful in managing overall expenses. I stress, however, that they appear to be tactical, as opposed to strategic in nature. Tactical measures are necessary, but of most power when in support of clearly defined strategy. Any turnaround should begin with a rigorous review of the strategic positioning of the company, then followed by an analysis of how the existing infrastructure supports or enhances that positioning.… Read more »
Bob Houk
Guest
Bob Houk
15 years 1 month ago

I agree with the earlier statements concerning the importance of a customer focus. I agree even more strongly, however, with the comment about there being too many players in this channel.

Being #3 in any channel is pretty much hopeless these days. My advice to OfficeMax: Sell out or look to be a niche player.

Tillman Estes
Guest
Tillman Estes
15 years 1 month ago

OfficeMax is making an excellent move. Unlike some others on this board, I for one see promise in this supply chain centric turnaround.

The improved SKU management and forecasting capability can help customer satisfaction. By taking a scientific approach to the product mix, item consumption can me measured and/or aged. With this information, good buying decisions are enhanced to the benefit of the buying public.

Operating their distribution centers for multi-channel fulfillment has long been in practice among the other two giants of office supplies: Staples and Office Depot. OfficeMax is adopting best practices that will improve their competitive positioning by cutting costs, reducing capital investments in inventory and speeding products to market. A key difference for OfficeMax is that it seems they are interested in both the planning and the execution side of their supply chain business. Customer satisfaction levels will improve by reduced out of stock positions and SKU rationalization. Do not write OfficeMax out of the game just yet.

John Hennessy
Guest
John Hennessy
15 years 1 month ago

Office Max seems to be yet another company trying to cost-cut their way to excellence.

I echo the previously stated lack of any mention of who the customers are, what those customers want and how Office Max plans to delight those customers.

It’s essential to run an efficient operation. But getting the wrong products to the store better than anyone else won’t win the day. Delivering the right products efficiently but having untrained or not enough store personnel to check you out within a reasonable window of time won’t win the day either.

Understanding customers is a proven way to improve a business. Sam’s Club scored gains after it focused on owners of small businesses. By understanding the needs of those customers they were able to make intelligent decisions on product inventory and services offered.

John Fugazzie
Guest
15 years 1 month ago

Most superstore segments do not have three players chasing the same markets. The Wal-Mart factor and three additional national players makes this market over-stored, which hurts all there. The convergence of hand held electronics also has created additional cross over with the electronic superstore chains.

This needs to be a two player market with a reduction of stores by about 1/3 for this to be healthy for the remaining companies.

Michael Richmond, Ph.D.
Guest
Michael Richmond, Ph.D.
15 years 1 month ago

The strategy sounds mostly supply chain driven. I think they have missed the boat! Who is their customer? Who do they want it to be? How can they make them happier? What about innovation, service levels, product mix, service mix, etc. I go to OM quite a bit because it is handy. But having said that, they really need to focus on customer service and having the products I need for my small business. I would do more with them and buy more but I don’t think they understand the consumer side of things. I would say -“OM, get some consumer/customer input before you go off and fix the supply chain!”

Mark Lilien
Guest
15 years 1 month ago

I agree that America doesn’t need 3 similar national office supply chains. OfficeMax, Staples, and Office Depot are all way too similar. If OfficeMax doesn’t create a distinctive approach, their profits (if any) will always be mediocre. None of the announced initiatives are headline-grabbing big picture home run strategies. Mediocre goals lead to mediocre performance (or worse).

Daryle Hier
Guest
Daryle Hier
15 years 1 month ago
My background is narrowed to sports marketing, so I can’t talk to all the needs of OM and the office supply business; plus these are only observations. I agree the segment needs to be pared down and I also agree that none of the competitors have done a good job, so there’s definitely an opportunity for OM to be #1. My experiences with OM have been relatively good, although the mention on cheap goods being readily available with poor pricing on higher-end goods is very accurate – and that is an area they should be taking advantage of! I would expect all the office supply stores to have what I need, period. If I’m strictly looking for price, then I’ll go to Sam’s. Again, I agree there has to be differentiation, but how? You need a disruption and I see none. How do you stand out and create loyalty? You need to be bold with fresh news ideas combined with a consumer’s commitment to repurchase and, again, I see none of that. OM seems to… Read more »
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