GB570 Managing the Value Change
DVD4less.com is a successful company that specializes in providing high-end DVD players. Their technique is purchasing large quantities of DVD players from a small number of suppliers. By conducting business in this manor, it allows for significant discounts. “DVD4less.com manages to sell its DVD players for $200 less than all of its high-end competitors, thereby creating competitive advantage.” (Coyle, 2008) DVD4less.com receives 112,000 orders for DVD players annually. Each DVD player sold for $500. As stated above, $200 was retained as gross profit. Although the company did not meet their goal of 99 percent of correct order fills.
The main issue with DVD4less.com is that they only filled 97 percent of all orders correctly. Their goal is to improve its’ correct order fill rate. The company would also like to lower its’ average inventory to improve. There were weeks of decision making to determine how to address their concerns and improve. After the many debates, it was Basileo Logistics that was awarded an annual cost of $500,000. By outsourcing DVD4less.com, it managed to save $760,000 in their warehouse expenses. This decision allowed DVD4less.com to meet its’ goal of 99 percent correct order fill rate. After all calculations are computed, it is determined that Net Savings is, $6,150,000. (The difference between gross savings and total expenses). Total Expenses - Gross Savings = $6,150,000 $1,950,000$760,000
Please see Excel Attachment for figures and calculations.