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Dream Beauty Case Sttudy Essay

2513 words - 11 pages

Group 2
June 15, 2014
Group 2
June 15, 2014
Prepared for: Professor Kenneth Dymock
Prepared by: Kehinde Okitika, Babatunde Ojofeitimi,
Ayodele Motunrayo, Apurva Krishna Tiwari,
Shima Kar
Prepared for: Professor Kenneth Dymock
Prepared by: Kehinde Okitika, Babatunde Ojofeitimi,
Ayodele Motunrayo, Apurva Krishna Tiwari,
Shima Kar
Assignment 1: Dream Beauty Case
SCM 510
Assignment 1: Dream Beauty Case
SCM 510

Table of Contents

Page number
1. Description of Current State - - - - - - - - - - - - - ...view middle of the document...

Besides that DB maintain 3 days replenishment cycle time. Dream Beauty Company ship the ordered products to retail stores and convenience stores unlabeled and standard non-mixed pallets but for mass merchants they help to manage their inventory by labelling their orders.

A supply chain expert is elected to DB’s Board of Directors and she has observed that the supply chain cost have been increasing for DB which drives her towards the factor analysis to find out the actual cause of cost elevation though according to company’s cost accountant view all the channels are profitable.

The points are:
* Increasing Cost in Supply Chain
* Increase in supply chain costs may be attributed to Additional Sales!
* Highest Annual Sales Revenue since inception
* All Three (3) Sales Channels are Profitable; Equal Contribution
* Capital Expenditures for Mass Merchants Channel of $10,000,000 for Labeling Machine
* Company provides discount policy for all Three (3) Channels
* Credit terms:
| Almost all Sales are on Credit |
| Invoice Terms (Days) | Actually Paid (Days) |
Retail Stores | 30 | 30 |
Convenience Stores | 30 | 45 |
Mass Merchants | 30 | 15 |

Problem Statement:

Before we analyse the current costs allocation, profitability for different distribution channels and profitability by account (C-stores) we need to calculate Average Inventory of the different distribution channels (based on information given in the case):

Channels/Profit Centers | Retail Stores | Convenience Stores | Mass Merchants | Total |
| | | | |
Cost of Goods Sold ($) | $26,000,000 | $15,600,000 | $10,400,000 | $52,000,000 |
| | | | |
Days Sales of Inventory | 90 | 60 | 40 | |
Total Days assumed (Annual) | 365 | 365 | 365 | |
| | | | |
Average Inventory | 6,410,959 | 2,564,384 | 1,139,726 | 10,115,068 |

After getting average inventory we have jumped into the calculation of different supply chain costs (associated to the information given) for those channels and then we find out their profit margin.
Note: * Labeling Machine was bought for Mass Merchants Division at $10 million. Depreciation amount (5 years) as per straight line method is $2 million allocated to Mass Merchants Division. * Cost of Capital is irrelevant for this calculation as all costs include cost of capital; i.e. estimated at 9%. Similarly, Carrying Costs of Inventory include Cost of Capital.Cost Allocation and Profitability Analysis: |
  | DB Sales |   |
Company Annual Sales | $130,000,000 |
  | | | |   |
Channels/Profit Centers | Retail Stores | Convenience Stores | Mass Merchants | Total |
  | | | |   |
Sales | 50% | 30% | 20% | 100% |
  | | | |   |
Sales per Channel ($) | $65,000,000 | $39,000,000 | $26,000,000 | $130,000,000 |
  | | | |   |
Cost of Goods Sold (% of Sales) | 40% | 40% | 40% |   |
  | | | |   |
Cost of Goods Sold...

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