Assignment:

1. Draw a detailed process flow diagram that captures all the stages of TDG's operations?

Tommy's Dresses to Go

Founded by enigmatic designer Tommy Haverford, "Tommy's Dresses to Go" (TDG) rents out

designer fashion apparel to customers who would like to wear elegant dresses on special occasions

but do not wish to purchase them. For example, a customer can rent a $1000 dress for $25 per day

for a 10-day rental period.

To rent a dress, a customer visits the TDG's website which displays the available dresses and their

rental prices. On average, TDG sees rental demand of 100 dresses per day. The number of webpage

visitors to the webpage is actually very large, but not everyone rents. Many leave the website, not

finding the dresses they want. To ensure that enough customers do find dresses, TDG keeps 5

days' demand (i.e., 500 dresses, assuming original demand for 100 dresses per day) in their "Readto-

go Inventory", which includes different styles and sizes. This number must be large due to a

variety of dresses TDG keeps as well as the policy that TDG ships two dresses (same style in two

different sizes) to satisfy a customer's request for one dress. When taking a rental order, TDG

requires that a customer specify two sizes for each dress she requeststhe most likely and second

most likely size. This minimizes the customer's hassle in returning a dress because of fit issues.

Once a customer places a rental order, two dresses (one style in two sizes) are sent to customer via

UPS next-day delivery (one-day shipping that costs $5, borne by TDG). At the end of rental period,

the customer returns the two dresses in a pre-labeled UPS package. Return shipping takes one day,

and again costs $5, borne by TDG.

Upon its return, a dress is sent immediately for basic cleaning. The basic cleaning is performed at

InstaClean laundry located next door to TDG's fulfillment center. InstaClean charges $5 per dress

for performing this service. Some of the returned dresses are damaged, and require some repair

before they can be rented to customers. After dresses are returned from InstaClean, they are

inspected for such damages. This inspection process, performed at "Designer's Den", is time

consuming and management has expressed frustration over number of dresses that are either

waiting to be inspected or are getting inspected. The Designer's Den takes long time for inspecting

dresses, as workers there are busy figuring out latest trends to be incorporated in TDG's dress

portfolio. The marginal cost of inspection is zero, since salaries of workers at Designer's Den are

paid irrespective of the number of dresses they inspect, and they carry out inspection in their spare

time. In the inspection process, on average 25% of the dresses are found to be damaged. The

dresses found to be in good condition (i.e., not damaged) are placed back in Ready-to-go Inventory.

And the damaged dresses are sent across town to MaxiClean laundry who specializes in repairing

such dresses. Since MaxiClean is farther way, TDG typically batches a number of dresses before

sending them to MaxiClean. MaxiClean charges $10 for repairing each dress, after which the dress

is placed back in the Ready-to-go Inventory.

Customers typically want dresses from the current fashion trends (and without any wear and tear).

To meet this need, TDG regularly buys new dresses and writes-off old dresses. An average new

dress costs TDG $750 (substantially discounted from the average retail price of $1000). A new

dress has an average life of 125 rental days. TDG depreciates cost of a new dress over 125 days in

a straight-line fashion (this is the same as saying that TDG incurs $750/125 = $6 per day on each

dress it owns).

2

While there is enough demand for its service, TDG continues to bleed money. As a new CEO,

your responsibility is to figure out how to show signs of profitability of this business before going

for the next round of funding. Various proposals have been put forward to improve profitability.

The following two competing proposals are on your table:

(i) Five-day rentals: A survey of customers who visit the website but do not rent suggests

that there is demand for a 5-day rental. For example, for a $1000 dress, customers are

willing to pay $30 per day for a 5-day rental period. The demand for 5-day rentals is

estimated to be 100 per day. One downside of this proposal is that it will eat away some

of the 10-day rental demand (around 20 per day). However, the total demand increases

to 180 per day, a substantial increase of 80%. Furthermore, satisfying this additional

demand would require TDG to buy more dresses.

(ii) Improving inspection: Currently dresses wait for long time in the Designer's Den for

the inspection process, since people working there have other tasks at higher priority

(they are responsible for figuring out what dresses TDG should purchase for upcoming

seasons). One suggestion is to have a pool of workers in Designer's Den dedicated to

carrying out inspection. This will cost around extra $6 per dress but will reduce the

time taken at the inspection process to one third.

Which of the two proposals would you pursue? What other changes would you make to TDG's

operations and business model to achieve profitability?

Additional Information: An internal audit conducted by TDG uncovered the following

information about internal processing at the fulfillment center.

1. InstaClean takes a day to perform basic cleaning of a returned dress.

2. On average there are 1200 returned dresses at Designer's Den. These dresses are either

waiting to be inspected or are being inspected.

3. Dresses identified as damaged typically have to wait for a while before they are sent to

MaxiClean due to batching. On average there are 75 dresses waiting to be sent to

MaxiClean.

4. After receiving dresses, MaxiClean takes an average of 2 days to repair and clean them.

But after this, the dresses are also picked up in batches. Due to this, dresses again wait at

MaxiClean after they are processed. On average there are 75 such dresses at MaxiClean.

5. The time to ship dresses to/from InstaClean and MaxiClean can be assumed to be negligible

(zero).

6. While there is variation in the cost as well as rental fee of a dress, you can assume an

average dress has retail value of $1000. An average dress is rented out for $25 per day

(2.5% of retail value) for 10-day rental period, and for $30 per day (3% of retail value) for

5-day rental period if you adopt proposal (i). TDG's cost of an average dress is $750, which

is depreciated over 125 days in straight line fashion.