Case 1 - EE

Case 1: Supply Chain Management at EcoTech Electronics
EcoTech Electronics (EE) is a manufacturer of environmentally friendly consumer

electronics and gadgets. The company is headquartered in Green Valley, California, and
distributes its products worldwide. Recently, a supply chain expert was appointed as the
Chief Operations Officer (COO) of EE, bringing a fresh perspective to the supply chain
operations. The company's costs in this area have been on the rise, prompting concerns
from the management. EE's annual sales reached $150,000,000 for the first time since its
inception, and the management believes that while some of the increased supply chain
costs may be due to higher sales, there are other underlying factors that need attention.
The management is particularly concerned about the direct impact of supply chain costs
on the company's bottom line.
EE supplies its products through three main distribution channels: online retail (direct to
consumers), third-party retailers, and international distributors. Each channel operates as
an independent profit center with full financial responsibilities for their income
statements and balance sheets. Online retail accounts for the largest percent of total
sales, followed by third party retail and international distributors. The cost of goods sold
accounts for 35% of sales, and all three channels appear to be profitable, contributing
equally to EE's overall performance as per the company’s cost accountant.
The order fulfillment process at EE involves four key areas:
1. Order Processing: $12,000,000

2. Packaging: $9,000,000
3. Labeling: $3,000,000
4. Delivery: $35,000,000
5. Total Supply Chain-Related Costs: $59,000,000
The average order fulfillment time is currently 4 days. All orders are processed through a
central location and shipped from distribution centers located across the country. Online
retail and third-party retail orders shipped unlabeled while international distributors
often require customized labeling to comply with different regulatory requirements. To
meet these needs, the company invested in a labeling machine with a historical value of
$8,000,000, which is typically depreciated on a straight-line basis over 5 years.
EE has a consistent discount policy for all three channels, with net payments due in 30
days. Online retail adheres to this policy, while third-party retailers tend to pay within 20
days, and international distributors sometimes take up to 45 days. The cost accountant
reports that all sales are made on credit, and cash sales or C.O.D. sales are rare, so they
can be disregarded for analysis.
In the current fiscal year, EE received a total of 3,500 orders: 1,100 from online retail,
2,100 from third-party retailers, and 300 from international distributors. Each order
corresponds to a delivery that is typically completed within the 4-day fulfillment cycle.
The company's practice has been to allocate logistics-related costs to its three channels
based on their relative percentage of sales volume. The orders were shipped as shown in
Table 1 – Activity Summary by Distribution Channel. Packaging costs were the same
regardless the order size.
EE maintains inventory safety stock to ensure it meets its promised delivery times,
estimated at an average of 100 days for online retail, 70 days for third-party retailers,
and 50 days for international distributors. The cost accountant estimates that carrying
costs, including the cost of capital, amount to approximately 12% of the total average
annual inventory. The company's cost of capital for both borrowing and lending is
estimated at 8%.
EE’s currently has accounts with 13 third-party retailers. Table 2 provides a sales
summary and logistics volume (orders, packages) by account.
The COO emphasizes the company's commitment to providing excellent customer

service, particularly in maintaining a 4-day fulfillment cycle. However, the board of
directors is beginning to question whether this strategy is generating enough value to
justify its cost.
Management has tasked you, as a supply chain expert, with the following
questions:
1. Analyze the current cost allocation methods used by EE. What potential
changes can you recommend to make the system more efficient and
accurate?
2. Determine the profitability level and return on investment for each
distribution channel under the current cost allocations and the
recommended changes.
3. Provide recommendations regarding the company's policy of offering all
customers the same service level (4-day fulfillment cycle).
Table 1 – Activity Summary by Distribution Channel

Channel Name Sales Orders Packages
Online Retail $80,000,000 1,100 2,000
Third-Party Retail $45,000,000 2,100 2,500
International Distributors $25,000,000 300 700
Table 2 – Activity Summary by Third-Party Retail
Retailer Name Sales Orders Packages
Gadgets and I $3,000,000 25 30
All Things Tech $6,000,000 60 90
Tech at Home $2,500,000 50 80
Electronics Mart $14,200,000 47 60

WiFi Deals $800,000 210 240
Best Source $6,700,000 50 80
Wired $2,000,000 270 285
Connected Hub $1,000,000 214 240
Tech Boys $500,000 410 480
Techy Squad $3,200,000 215 290
West Tech $1,800,000 346 380
Western Tech Hub $2,300,000 161 180

ZZZ deals $1,000,000 42 65
(Note: You can determine which retailers are profitable using Activity-Based Costing.)

Case 1 - EE

Uploaded by

Copyright:

Available Formats

Case 1 - EE

Uploaded by

Document Information

Original Title

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

Case 1 - EE

Uploaded by

Copyright:

Available Formats

Case 1: Supply Chain Management at EcoTech Electronics

EcoTech Electronics (EE) is a manufacturer of environmentally friendly consumer

The order fulfillment process at EE involves four key areas:

1. Order Processing: $12,000,000

The COO emphasizes the company's commitment to providing excellent customer

Table 1 – Activity Summary by Distribution Channel

Online Retail $80,000,000 1,100 2,000

Third-Party Retail $45,000,000 2,100 2,500

International Distributors $25,000,000 300 700

Table 2 – Activity Summary by Third-Party Retail

Retailer Name Sales Orders Packages

Gadgets and I $3,000,000 25 30

All Things Tech $6,000,000 60 90

Tech at Home $2,500,000 50 80

Electronics Mart $14,200,000 47 60

WiFi Deals $800,000 210 240

Best Source $6,700,000 50 80

Wired $2,000,000 270 285

Connected Hub $1,000,000 214 240

Tech Boys $500,000 410 480

Techy Squad $3,200,000 215 290

West Tech $1,800,000 346 380

Western Tech Hub $2,300,000 161 180

ZZZ deals $1,000,000 42 65

You might also like