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CASE 11 Supply Chain Management at Dream Beauty Company Dream Beauty (DB) Company is a manufacturer of commer beauty supplies and cosmetics. Based out of Money City, Nevada, the company services its customers across the United States. Recently, a supply chain expert was elected to the board of directors, with his insight into supply chain operations, heightened attention was turned toward that area. The cost in this area has been increasing, and management became very concerned about the ime. The company annual sales reached $130 million for the first time since inception Management believed that some of the increase in supply chain ons may be attributed to additional sales, but they were confident that other factors existed that needed to be addressed. The situation had management full attention, especially since supply chain costs and savings for that matter) flow directly to the bottom line DB supplies its products through three distinct channel tail stores direct). convenience stores and mass merchants. Each channel is considered an independent profit center with full financial responsibilities for income statement and balance sheet. From DB sales, retail accounted for 50 percent, convenience stores for 30 percent, while mass merchants picked up the remaining sales, Cost of goods sold accounted for 40 percent of sales. All the channels seem to be profitable, and contribute equally to DB, according to the company cost accountant The order fulfillment cycle at DB consists of forca Oude 200 La Dety Tuule The total order fulfillment averages 3 days. All orders are processed through a central location, and delivered from distribution centers located across the United States. Usually retail and convenience store orders are shipped unlabeled on standard nonmixed pallets. Mass merchants, on the other hand, have placed a lot of pressure on DB and want the company to take an active role in helping them manage their inventory. To accommodate this channel, DB has asumed some of the jobber functions in the store and started tabeling the orders formas merchants. To accomplish that, the company recently purchased a labeling machine that can process labels at a speed of 30 label second. The machines historical value was determined to be $10 million. The company mually depreciates similar equipment on a straight-line busis ever a period of 5 years. 432 The company has a discount policy for all three channels that it services. The net is due in 30 days. While this policy is explicitly stated on all DB invoices retail stores are the only ones that pay according to invoice terms. Mass merchants usually pay within 15 days, while convenience Stores ually pay within 45 days. The coman's.costant that all sales were sold on credit Cash sales and GOD. alles were rane, they can be ignored 432 The company has a discount policy for all three channels that it services. The net is due in 30 days. While this policy is explicitly stated on all DB's invoices retail stores are the only ones that pay according to invoice terms. Mass merchants usually pay within 15 days, while convenience stores sually pay within 45 days. The company's cost accountant reported that all sales were sold on credit. Cash sales and C.O.D. sales were are therefore, they can be ignored for the purpose of this analysis. DB does not engage in any barter transactions The company received a total of 3.600 orders. Retail anders amounted to 1.000: convenience stores to 2.500; and mass merchants had 100 orders. Each order has a corresponding delivery that is usually completed within the day fulfillment cycle. The company's practice has been to allocate logistics-related costs to its three channels based on their relative percentage of sales volume. The orders were shipped in 2.000 packages, with retail accounting for 800 packages convenience store for 1.100 packages, and mass merchants for 100 packages Packaging cost is estimated to be the same regardless of To service these onders, the company has maintained an inventory safety sack so that it can meet the level of service that it promises its customers the day fulfillment cycle). is estimated that the company holds an average of 90 days inventory for retail 60 days' inventory for convenience stores, and 40 days inventory for mass merchants. The company's cost accountant estimated the total carrying costs of inventory to be approximately 15 percent of total average annual inventory. These costs also include the cost of capital The company's customer base in convenience stores includes 13 different stores located in major US cities. Table 1 provides a heakdown of sales per store, as well as the number of orders, and packages for each store Historically, DB has offered its customers a level of service that is of the highest standards. One of the fulfillment managers has been quoted. We do not discriminate between customers our 3-day fulfillment cycle in my opinion is becoming an industry benchmark, and I like it that way. I do not think that our strategy should change in that regard." The board has some second thoughts about this categy and what type of value-added it is generating to the company On your first day. you get accustomed to your aroundings, and you become familiar with the computer system. On your second day, the vice president for supply chain and your hiring manager) comes up to you. He proceeds to brief you on a high-level meeting that he just concluded with the top bass at the company. He states that management wants to know why supply chain cont seem skewed, as well as a full analysis of the three logistical channels that the company employs. Management would like you to answer the following questions TABLE 1 Activity Summary by Account Share Packa tee Your Style 55 Latest 1. Willy be S. 10 SI La Femme Le BM Ft Terry L'AD SES 51.300.000 RSR SH