In this case, Pepe Jeans is able to eliminate the 10 independent agents and directly work with the independent retailers. This will result in cutting its lead time from six months to six weeks or less. The retailers are able to log-in into Pepe’s system and put in their orders, from then the ERP provides a software road map for automating the different steps along the path to fulfill it. When a customer service representative enters a customer order into an ERP system he/she has all the information necessary to complete the order, since the customer’s credit rating and history from the finance module and the shipping dock’s trucking schedule from the logistics module are available in one screen. Workers in these different departments all see the same information and can update it. When one department finishes with the order it is automatically routed via the ERP system to the next department. To find out where the order is at any point one needs only log into the ERP system and track it down. The order process moves very smoothly through the organization, and customers get their orders faster and with fewer errors than before.
Pepe Jeans’ current situation: Unit Price = £ 45 Sale = £ 200M Cost of sale = 40% = £80M Operating Expense = 28% = £56M Profit before taxes = 32% = £64M Future expenses: Investment in new equipment = £1M Operation cost per year = £500,000 Renovation cost = £300,000 Decrease lead time from six months to six weeks ERP software = £1M
Pepe Jeans has decided to bring new equipment into their current office, and that will increase their variable cost by £500,000 a year. Also, by implementing the new ERP software and getting rid of the 10 self-employed agents, the company is able to save an estimated £300,000 a year. Therefore, the variable cost will only...