The Lancaster &York Distribution Company Is a Regional, Full Line

The Lancaster &York Distribution Company is a regional, full line, distributor of parts, tools and supplies used by maintenance personnel. The company maintains a catalogue of 75,000 odd active SKUs (items). Orders are taken over the phone 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 phone call away-within a day."The company considers the individual maintenance supervisor, rather than the corporate purchasing department, as its customer. L & Y'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 published list price. Their largest customer accounts for less than one tenth of one percent of their total business. L & Y has not been certified as a preferred supplier by any of its customers and it typically 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 $-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 telephone call.The annual volume of an average item carried by L&Y 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.L & Y has been approached by the purchasing department of a large industrial customer suggesting L & Y becomes their sole supplier for maintenance products. This would increase the sales 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 L & Y. In return, the customer requests an immediate 25% discount from list prices, and significant financial penalties for late shipments by L&Y. Because of your expertise in managing operations, the CEO of L & Y is seeking your advice: Should L & Y accept the offer? Why? Present your answer (together with any assumptions you deem necessary) in 50 words or less in the area below.