Supply Chain Management at Dream Beauty Company

Introduction

Dream Beauty Company manufactures cosmetics and consumer beauty supplies. It has its capital in Nevada and provides services to clients across the United States. In a time when costs in the area of supply chain have been increasing, the company management became concerned. The company heightened its attention to this area. The management believes that the rising costs may be due to additional sales, but they suspected that other factors could be on play, as well.

Analysis

At the moment, order processing, packaging, labeling, and delivery are the components that make up the total supply chain- related costs. Processing of orders accounts for $10 million, packaging $8 million, labeling $2 million, and delivery $30 million. This brings the company’s total cost to $50,000,000. Labeling contributes the least cost in relation to the other components, but the company could lower it further by centralizing labeling, in order to take advantage of the economies of scale. Additionally, the company should decentralize order processing in order increase efficiency and the speed of delivery.

Dream Beauty Company channels its products to the market via direct retail stores, mass merchants, and convenient stores. These channels are independent each responsible for its income statement and balance sheet. Direct retail sales account for 50 percent of sales, hence, contributes the highest profit considering that the three channels are relatively profitable. Convenient stores contribute 30 percent of sales, while mass merchants account for 20% of the total sales. Under the current arrangement, the three channels of distribution contribute equally to the company’s profitability. In addition, costs are 40% of the total sales. This is relatively high, and, therefore, is the area of primary focus in terms of expansion of profits. There is a disparity in the allocation of cost among the distribution channels. For, instance, the company received 3,600 orders in total. 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. This, therefore, means that it contributes the highest relative profit than the other distribution channels. Holding the other costs constant, or basing the level of costs on package deliveries and orders, the convenient stores will account for above 50% of the total sales and profits. Therefore, there recommendation for cost allocation is that 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.

The company offers all its clients the same service level i.e. three-day fulfillment cycle. This is because enhances logistics of the supply chain. It facilitates easy management of delivery service. In addition, it is a motivational tool that enhances efficiency. The company uses the least possible fulfillment cycle as the benchmark for all deliveries. Although it may not accord the company the benefits of differentiated services, it sets the industry benchmark and boosts the company outlook and customer service.

Conclusion and Recommendation

Dream Beauty’s model of Supply chain boosts its profitability and leadership in supply chain management. The non-discriminatory, three-day fulfillment cycle drives its agenda forward as the leader in efficient production and supply of consumer beauty products. However, Dream Beauty Company should decentralize order processing to enhance efficiency in deliveries.

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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