Analysis Of The Model Of Supply Chain At Dream Beauty Company

Dream Beauty is a manufacturer of consumer beauty supplies and cosmetics based out of Money City, Nevada. The establishment provides high quality services to its numerous consumers located across the United States. Dream Beauty has amassed sales of $130,000,000, which is an all-time high for the company. However, the upper management team has expressed dismay about the rise in expenses related with its supply chain activities as all directly affect the business’ profit margin. Presently, the total supply chain correlated cost is $50,000,000. The four cost groups contributing to this are order processing, packaging, labeling, and delivery.

Analysis

Currently, order processing ($10 million), packaging ($8 million), labeling ($2 million), and delivery ($30 million) make up the total supply chain-related costs totaling $50 million. Dream Beauty stations its products to the marketplace through direct retail stores, mass merchants, and convenient stores. These avenues are sovereign, with each accountable for its income statement and balance sheet. Direct retail sales are responsible for fifty percent of sales, therefore, makes up the highest profit considering that the three channels are comparatively profitable. Convenient stores contribute thirty percent of sales, while mass merchants account for twenty percent of total sales. Given the present setup, the three channels of distribution equally affect Dream Beauty’s lucrativeness. Additionally, expenses are forty percent of the total sales. These figures are rather high, and consequently, is the area of principal emphasis in terms of growth of profits. There is a discrepancy in the distribution of cost among the distribution avenues. In relation to the proportion of the packaging costs, convenient stores account for the highest cost of package delivery among the three distribution channels. However, it contributes more than double the number of orders from the retail stores. Meaning that it contributes the highest relative profit than the other distribution channels. Holding the other costs continuous, or basing the level of costs on package deliveries and orders, the convenient stores will account for above fifty percent of the total sales and profits. Their endorsement for cost distribution is the convenient stores account for a higher level of costs than the previous arrangement, in which retail outlets had the highest level of costs compared to the other two. Dream Beauty Company proposes all its clients the same service level i.e. three-day fulfillment cycle. This improves logistics of the supply chain. It simplifies easy management of delivery service. Furthermore, it is a motivational tool that improves efficacy. Dream Beauty utilizes the least possible fulfillment cycle as the benchmark for all deliveries.

Solution

Upon reviewing the case and operations at Dream Beauty, it is recommended that Dream Beauty should begin a minimum order quantity. Smaller orders acquire more excessive cost, minimum order quantities of 1000 should be delivered within the 3 day delivery period. Yet, orders below this quantity should acquire an expedited delivery fee if considered a rush order and delivery and packaging surcharge will be added. Dream Beauty should also terminate services to convenience stores. Dream Beauty stations its products to the market through direct retail stores, mass merchants, and convenient stores and each channels operate individually, affect equally to the company’s profitability and are accountable for its income statement and balance sheet. The complete abolition of one distribution channel, convenience stores, will reduce the cost within the supply chain area, and the same will have a positive effect on Dream Beauty’s profitability. Convenience store operators may be stimulated to obtain Dream Beauty’s products from mass merchants.

Another recommendation is to find alternate delivery, order processing and packaging methods when serving convenience stores because existing approaches are not practical given the returns on sales. If manufacturing and purchasing is scaled back, return on assets are higher even though gross and net profits are lower. The last recommendation is that Dream Beauty implements an invoice payment policy. This can be achieved by fining consumers that do not follow the terms and further rewarding consumers to clear their invoices within the specified thirty day period (Murray, 2018). The incentives could contain volume or product discounts. Receiving timely payments will enable Dream Beauty to advance investments and cultivate its business.

Justification

• Improved profitability in multiple distributions channels.
• Decreased cost in the convenience store channel.
• Consumers would adhere to the invoice payment policy to avoid being fined.
• Efficient processes that will permit data distribution to stream throughout all operational areas.
• Reduce expenses across divisions, thereby the company.

Summary

Dream Beauty’s model of supply chain increases its profitability and leadership in supply chain management. The non-discriminatory, three-day fulfillment cycle motivates its mission to move forward as the trailblazer in proficient production and supply of consumer beauty products. Conversely, Dream Beauty Company should decentralize order processing to improve efficacy in distributions.

Delivery should be the main focus because it the largest expense the company has at $30 million. Implementing the minimum order quantity, it will reduce the number of shipments and lower the cost to distribute to that channel. Dream Supply can supply a way to combine some of the order processing steps and devote more capital in better information technology and programs.

It is important that the company provide the best possible quality in the fastest possible way. Full shipments will become the norm and the shipments would be maximized for service and profits. Orders would take more time and effort to prepare and ship to fulfill the cycle. The best thing to do is to reiterate the importance of ordering as soon as possible while honoring the minimum order quantity.