Background
• Regional distributor of office supplies to institutions sand commercial businesses
• Comprehensive product line
• Excellent reputation
• Several distribution centers
Process
• Old:
• After customer orders received, orders were accumulated within the warehouses and prepared for shipment
• Used commercial truckers to deliver
• New Option:
• “Desk Top Deliveries”
• Delivered products directly to locations
• Small fleet of trucks
• 2% upcharge on products
Pricing of Products
• Markup purchased cost by 15%
• Then add markup to cover cost for selling expenses, and allowance for profit
• Determined at start of each year based on prior year expenses and competition
• Actual prices to customers depended on long-term relationships and competitive situations
Systems
• Electronic Data Interchange (EDI) 2 years prior, new internet site in 2000
• Allowed customers to order online – clerks wouldn’t have to manually enter in.
• Many customers took advantage because of convenience
Issue
• Year 2000: operated at a loss
• Even though increase in sales, there was a loss
• First time in history
• Costs continued to rise even after introducing new innovations – online ordering and Desktop Delivery
• Start: Look at distribution centers and understand the process and what goes on
The Essay on Customers In This Category Year Customer Profit
... say 4 per year) in subsequent years thereby decreasing the mailing costs while still maintaining relatively the same response rate from customers. Also we ... can also indicate the level of dormancy of a customer or customer segment. Also, product data may prove useful. If most of the ... to re-order. A gift card or a rewards system may provide enough incentive for repeat customers. Q 4) The 5-year time ...
Warehouse Activities
• 4 primary activities
Process cartons in and out of facility
• Dependent on number of cartons that go in and out of the facility
Desktop Delivery Service
• Pain for warehouse – have had to add extra people to handle
Order handling
Data Entry
• Manual: Validate customer and then key in line by line
• Time depends on how many items ordered
• Electronic: just a validity check
• Time is same for every order
2000 Stats:
• 80,000 cartons shipped
• 75,000 commercial freight
• 5,000 Desktop Delivery
• 2,000 deliveries
• Personnel at capacity
• Data Entry:
• 16,000 manual orders
• 150,000 total line items
• 8,000 EDI (online) orders
Results of Project Team:
• Distribution Centers:
• 90% processed cartons
• 10% Desktop Delivery
• Data Team:
Activity
Data Entry
Operators Time
Set up manual customer order
2, 000 hours
Enter individual order lines in an order
7,500 hours
Validate an EDI/internet order
TOTAL
500 hours
10,000 hours
Customer Profitability
Description
Customer A
Customer B
Sales Generated
$100,000
$100,000
Overall Markup
21.1%
22.4% (Desktop Delivery)
Type of orders
Bill Payment
Few large orders, ½ arrived electronically
Pays w/in 30 days
Many smaller orders;
most manual orders
90+ days to pay
Ave. A/R Balance
$9,000
$30,000
Assignment Questions:
1. Why was Dakota’s existing pricing system inadequate for its current operating environment?
2. Develop an activity-based cost system for Dakota Office
Products (DOP) based on Year 2000 data. Calculate the activity cost-driver rate for each DOP activity in 2000.
3. Using your answers to Question 2, calculate the profitability of Customer A and Customer B.
4. What explains any differences in profitability between the two customers?
The Research paper on Case Analysis Pizza Hut A Customer Loyalty Program
... Pizza Hut implemented the delivery service in order to improve customer service initiatives. Simultaneously, ... low loyalty units with high profitability rate. In such a way, ... different customer-oriented activities in order to gain better understanding of the customers buying ... customers. Loyalty surveys were conducted in the delivery and in the dine-in restaurants.The customers were asked questions ...
5. What are the limitations, if any, to the estimates of the profitability of the two customers?
6. Is there any additional information you would like to have to explain the relative profitability of the two customers?
Assignment Questions (cont’d)
7. Assume that Dakota applies the analysis done in Question 3 to its entire customer base. How could such information help the Dakota managers increase company profits?
8. Suppose that a major customer switched from placing all its orders manually to placing all its orders over the internet site. How should this affect the activity cost driver rates calculated in Question 2? How would the switch affect
Dakota’s profitability?
Assignment
Write a paper
First: Summary of the situation
Then answer the questions
NO page limit!
• For those presenting:
• Presentation should include:
• Summary of the case
• Answer to the questions in detail
