Case $1$: Supply Chain Management at EcoTech ElectronicsEcoTech Electronics $($EE$)$ is a manufacturer of environmentally friendly consumerelectronics and gadgets. The company is headquartered in Green Valley, California, anddistributes its products worldwide. Recently, a supply chain expert was appointed as theChief Operations Officer $($COO$)$ of EE$,$ bringing a fresh perspective to the supply chainoperations. The company's costs in this area have been on the rise, prompting concernsfrom the management. EE's annual sales reached $$150,000,000$ for the first time since itsinception, and the management believes that while some of the increased supply chaincosts may be due to higher sales, there are other underlying factors that need attention.The management is particularly concerned about the direct impact of supply chain costson the company's bottom line.EE supplies its products through three main distribution channels: online retail $($direct toconsumers$),$ third$-$party retailers, and international distributors. Each channel operates asan independent profit center with full financial responsibilities for their incomestatements and balance sheets. Online retail accounts for the largest percent of totalsales, followed by third party retail and international distributors. The cost of goods soldaccounts for $35\%$ of sales, and all three channels appear to be profitable, contributingequally to EE's overall performance as per the company$$s cost accountant.The order fulfillment process at EE involves four key areas:$1.$ Order Processing: $$12,000,0002.$ Packaging: $$9,000,0003.$ Labeling: $$3,000,0004.$ Delivery: $$35,000,0005.$ Total Supply Chain$-$Related Costs: $$59,000,000$The average order fulfillment time is currently $4$ days. All orders are processed through acentral location and shipped from distribution centers located across the country. Onlineretail and third$-$party retail orders shipped unlabeled while international distributorsoften require customized labeling to comply with different regulatory requirements. Tomeet these needs, the company invested in a labeling machine with a historical value of$$8,000,000,$ which is typically depreciated on a straight$-$line basis over $5$ years.EE has a consistent discount policy for all three channels, with net payments due in $30$days. Online retail adheres to this policy, while third$-$party retailers tend to pay within $20$days, and international distributors sometimes take up to $45$ days. The cost accountant

reports that all sales are made on credit, and cash sales or C$.$O$.$D$.$ sales are rare, so theycan be disregarded for analysis.In the current fiscal year, EE received a total of $3,500$ orders: $1,100$ from online retail,$2,100$ from third$-$party retailers, and $300$ from international distributors. Each ordercorresponds to a delivery that is typically completed within the $4-$day fulfillment cycle.The company's practice has been to allocate logistics$-$related costs to its three channelsbased on their relative percentage of sales volume. The orders were shipped as shown inTable $1$ Activity Summary by Distribution Channel. Packaging costs were the sameregardless the order size.EE maintains inventory safety stock to ensure it meets its promised delivery times,estimated at an average of $100$ days for online retail, $70$ days for third$-$party retailers,and $50$ days for international distributors. The cost accountant estimates that carryingcosts, including the cost of capital, amount to approximately $12\%$ of the total averageannual inventory. The company's cost of capital for both borrowing and lending isestimated at $8\%.$EE$$s currently has accounts with $13$ third$-$party retailers. Table $2$ provides a salessummary and logistics volume $($orders$,$ packages$)$ by account.The COO emphasizes the company's commitment to providing excellent customerservice, particularly in maintaining a $4-$day fulfillment cycle. However, the board ofdirectors is beginning to question whether this strategy is generating enough value tojustify its cost.Management has tasked you, as a supply chain expert, with the followingquestions:$1.$ Analyze the current cost allocation methods used by EE$.$ What potentialchanges can you recommend to make the system more efficient andaccurate?$2.$ Determine the profitability level and return on investment for eachdistribution channel under the current cost allocations and therecommended changes$\mathrm{.}3.$ Provide recommendations regarding the company's policy of offering allcustomers the same service level $(4-$day fulfillment cycle$).$Table $1$ Activity Summary by Distribution Channel

Channel Name Sales Orders PackagesOnline Retail $$80,000,0001,1002,000$Third$-$Party Retail $$45,000,0002,1002,500$International Distributors $$25,000,000300700$Table $2$ Activity Summary by Third$-$Party RetailRetailer Name Sales Orders PackagesGadgets and I $$3,000,0002530$All Things Tech $$6,000,0006090$Tech at Home $$2,500,0005080$Electronics Mart $$14,200,0004760$

Retailer Name Sales Orders PackagesWiFi Deals $$800,000210240$Best Source $$6,700,0005080$Wired