Dream Homes, a US based MNC, started its Indian operations with opening of few stores in its nascent phase. In recent times, it started running nationwide stores in India selling range of home-based products right from home improvement tools, decors, electronic appliances to small kitchen utilities like steel pans, nonstick dishes, kitchen organizers, knifes, cardboards, countertop stickers, ice cream molds, chocolate molds and alike. It had gained wide popularity particularly among the ladies’ group of India since its expansion of the product line. Previously it was selling just the intermittently purchased home-based products like furniture and appliances. It was the extended accessibility to daily utilities that elated the ladies’ group about visiting the stores. Some women referred Dream Homes as the one stop search for all their necessities.
Dream Homes manufactured some of the products rather than making an outright purchases and sales thereof of all its products. To make various kinds of furniture and kitchen based small utilities, it derived its raw materials directly from local market which were mostly the recycled materials like plastics, scrapped items, used furniture and alike rather than the raw wood, forest products and firsthand products. Its raw materials were therefore capable of generating various forms of work in progress. The work in progress and finished product relation worked in similar fashion. From a particular WIP, it was capable of generating multiple outputs. Therefore, the firm kept its material cost low and primarily relied on the recycling process, thereby keeping up its pledge to serve the environment.

For the in-house manufactured products, the materials department of the firm functioned in the below manner:
1) The manager of the department kept a watch on each type of inventory levels in the warehouse.
2) He then estimated the required production based on historical demand and long-term forecasting policies of the firm.
3) A room was also left for safety stock so that any unforeseen delay in delivery of the goods could be covered.
4) Based on the existing inventory and production plans and safety stocks, inventory replenishment levels were calculated.
5) Once the stock reached its reordering level, an order to replenish the stock was being sent to the vendor.
6) Based on departmental orders, vendor delivered the materials.
To manufacture the finished products i.e., to convert raw material to finished good, the intervening time was 3 weeks. It will take approximately take 4 weeks to deliver the in-house manufactured product from the time order is received. The standard lead time of similar products in industry is 2.5 weeks.
For products purchased out-rightly, a purchase order was prepared by the purchasing department based on the inventory in hand and expected demand. Some of those products did show a sketchy demand pattern, with surge in demand for lame reasons. However, the department did not take into account safety stocks for any of these purchased products, since the cost to maintain such inventories were high and the costs of these products itself were high enough. The problem however was failure to meet surprise orders or sudden increase in demand. . The work in progress and finished product relation worked in similar fashion. From a particular WIP, it was capable of generating multiple outputs. Therefore, the firm kept its material cost low and primarily relied on the recycling process, thereby keeping up its pledge to serve the environment. They tend to be progressively demanding and expect their orders to be processed in couple of hours after being placed. They do not want to grapple with the tracking information of their package. They need real time update of their package location so that there are no abrupt surprises about the delivery time and the condition of the package
People were getting busier and there was hardly any time to procrastinate buying things they need until they could visit the stores based on their availability. Moreover, it was just the metro cities, that had overwhelming number of stores, but states like Gujarat and Odisha remained an untapped target with very few stores only in the developed parts of the cities. Dream Homes’ agenda was not just to add more variety to its existing offerings, but to reach people all around the country since it perceived manifold needs were yet unmet. Going digital was a challenge since its popularity was limited to its store locations and therefore it was dubious of its acceptability among the nationwide customers. It was prepared for an extensive marketing of its digital channels though and funds were not a problem. Having heard about the peaking demand of businesses for E Customers, it was supportive of the idea and considered to follow the suit.
From its US operations, it was very well aware about the expectations of its E Customers and the quality of service they desire from their E Sellers. They tend to be progressively demanding and expect their orders to be processed in couple of hours after being placed. They do not want to grapple with the tracking information of their package. They need real time update of their package location so that there are no abrupt surprises about the delivery time and the condition of the package. They like to purchase from E Sellers who offers competitive prices accompanied with free shipping and on time delivery. That is all too much for a developing market like India.
The labor cost is relatively low in India but the infrastructure in not adequately sound to guarantee the same level of service at their expected prices. Indian market is not similar to the US market, there being an immense cultural gap. The income of the middle-class people is also not remarkably high and hence they can spend sparingly on things that are not paramount on their list. Kitchen items though marked as "necessities" by the women section of the society were not real necessities in economic sense. Hence the firm thought of applying the paradigms of Target Costing to set the prices of their online products such that they remain competitive before their E Customers.

Now they need you to help them shape up the SCM look of Dream Homes. explain the suitability of Target Costing concept to Dream Homes. The firm also needs a flawless Supply Chain Management (SCM) System in Indian environment, but the back-office team of the firm had little knowledge about this aspect of the E Commerce project and it did not see the light of the day.

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Target Costing Target Costing is a pricing method used by firms It is calculated by taking the market price of a product subtracting the desired profi... View the full answer