Alternative Distribution for SSI

Introduction

Sugar Sweets, Inc. has the objective to increase its market coverage and the sales volume on its products, candy and snacks (Bowersox, Closs, Cooper, & Bowersox, (2010). It is considering introducing a new concept of alternative distribution that has the capacity to broaden market coverage. In the new system, the company supplies display units of popular products, snack foods, to retail outlets for direct purchase by consumers. The retailers can easily restock fast selling items by making an order by telephone.

The company responds through a rapid, small package delivery service. The principle behind this strategy is that minimal effort is necessary on the part of the retailers since the popularity of SSI products facilitates easy selling. The rapid delivery service guarantees availability of fresh products. In addition, the company removes slow-moving snacks at no cost to the retailer.

Analysis and Answers to Questions

Qn. 1: At the period prior to implementing the distribution strategy, the company contacts 20% of the total number of target retailers in the region i.e. 20% of (320,000+290,000+210,000). This gives the number of current retailers to be 164,000. The number of anticipated retailers participating in the pre-trial period is 20% of 164,000, which gives 49,200. In the post-trial period, the number of retailers expected is 55% of 49,200 giving 27,060.

Qn. 2: The average amount, in unit sales or dollars, which the retailer can make, derives from table 2. The expected number of paying customers is 10 i.e. 10% of 100 customers per day. The projected unit sales per day are 11.2 i.e. 10 × 1.12. The projected amount of daily sales, in dollars, is $14.00 i.e. 10 customers × $1.40. In relation to annual sales, the anticipated number of paying customers is 10 customers per day × 260 days giving 2,600 customers. The expected annual unit sales are 11.2 units per day × 260 days giving 2,912. The project annual sales in dollars is $3,640 i.e. $14 per day × 260 days.

Qn. 3: An average retailer requires the number of large packs equivalent to 2,912 units per year divided by 180 units per large pack giving 16 packs per day. In relation to small packs, the number is equivalent to 2,912 units per year divided by 92 units per pack giving 32 small packs per year.

Qn. 4: In relation to large packs, the total number is 8856 orders for high performers + 4,428 orders for medium performers + 8,856 orders for low performers, which is 22,140 orders. In relation to reorders, the total number is 8,856×7 high performers + 4,428 × 5 mediums + 8,856 low performers, which provides 110,700 reorders. In terms of small packs, the number of pack orders is 27,060 while reorders are 292,248. In relation to the second six-week period, large pack reorders are 73,484 while small pack reorders are 175,619. In total, large packs are 205, 902 while small packs are 494, 927.

Qn.5: Table 3 and 4 provide information necessary for cost, revenue, and profit calculation for the 3 distribution centers. The total revenue is $ 99,126,515 logistics cost is $7,085,381 while total production cost is $87,624,226. The total display cost is $1,261,980 bringing the total costs to $ 95,971,587. Therefore, the profit is $3,154,928. Following the same procedure, the total costs are $95,796,380, and the profit is $3,330,135.

Conclusion and Recommendations

It is essential to establish whether the new distribution concept has the potential for increased sales and profits. The determination of the potential level of influence on the profit is vital for both SSI and the retail traders. This is because retailers would not participate in such a program if they do not make significant incremental profit. In relation to the calculations, it is evident that costs are extreme. The options that SSI has include increasing distribution centers and enhancement of responsiveness to customers.

Reference

Bowersox, D., Closs, D., Cooper, M., & Bowersox, J. (2010). “Supply Chain Logistics Management (4^th ed.)”. New York, NY: McGraw-Hill.

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