Fiesta Gifts: Mending the pending

'Chri tm ason ha begun and we are in r acti rnode all o er

[Link]'sbeen year in eour hopping portal went Ii e, and we continue to grapple with our customer
orders!' P n lop San hez growled at the manager gath red inth room, "It' 2011 guy ! Thi whole
mortgage cri i is b hind us. omp titioni b ginning to knockon our door o uni , e bring
down our co t and improved liv ries v e will quickly go bu t,' he declared. San hez wa the C O
of Fie ta Gift , whose dient le chiefly con i ted of all occasion giftstores pread a ros thecontinental
United [Link]'swebsite carri d an extensive ariety of item. Of lat th company had built
reputat,ion for gift with Briti h theme uch union jack buntingsand regency tea cup (se E
hibit 1).

San hez had launchedhercompanyin mid-2010 with th backingofa small groupof in esto . Ha ing
rai eda tidy um of USO3 million he reported toa team 1 d by Malaika ahon y whov as known
a hawk, ithinequ,itycircle . The ational R tail F d ration(NRF) had pr di teda 2.3%hike in
holiday s le for the [Link] a serie ofhiccups Fi t s onlineshoppingportal wentliveon Dec mber
I,2010. ln l,inewith th RF forecast, holidays le hadimproved,in ovember; however, the numbers
went oft during D mb r.1 If onlyth IT team had commi ioned the ite inO tober like they had
promi ed, the company wouldhaveridden th wa e ofThank giving g,ift ale •a per RFesfonat , an
ave ge bopper had pent 365 during th t w ekend lone. Hind ightwa alway 20 0,

'Are we looking t soaring xpen again thi year'?' San h z thund red, fixing h r ight on P ter
Bridg s, , ho handled upply management and inbound logi tics as Fie ta's 01i f Procurement Officer
CPO). Bridge w s a trustedIi utenantof·anchez ever since·hehadlaunchedthebusine s. obody had
anticipat d e icing 4,500 orders in the ery fi t year. ourcing 3,140 different tock keeping
unit SKU from o er 570 upplier , nd routingthem efficientlyto 20di tributioncent rs (DC ) pread
acros the UnitedStat ( ee Exhibit 2) h d been anongoing truggl . or its part, the pro urement team
had met on a weekly ba i to poreo er aggregated pendreport and chalk out th next tep ; they had
giventheir b t.

TaraRao wa i tas latest hire a th CFO· n MBAwith a trong ba kground in accounting he had
[Link] year in FMCG retail. Ea h retail ector hadits owncadence and Raow y t to de
elopa good grasp of the gifting·ector. Datawa gen rally con id red a gold to a retailer
peciallyfor Fie ta withit wid diversity ofSKU to procur and ell. Once the FOcam on board
inSeptember2011,she initiatedan ext nsive data gathering and cleansing exerci e. p ndnumbe aero
s all regions w re pulled together andenri bedwith information uch thelo ationof each it m'
upplier th di tan e from the upplierto th DC and so on; thi exa p rat,ing exerci had takentwo we
ks from start to fini h.

RespondingtoSanchez alvo, Bridgessaid:

I get it that you are eriou about trimmingour spend nd reducingour lead times. My
manage havecollated all of th ir numbe todat .2 \ e now h ve good visibilityof
our
Fiesta ,ift : Mendingthe pending

[Link] hallb going over it thi [Link] e h II b lookingfor

are pe ifi patt m inthedata, o we can id ntifyopportuniti to rationalize upplier
and treamline our pend. We houldget ba k to you, ith a Ii t of thing to de ide on·
exp t to make om major change .

Th EO nd d th m eting ona tough note d daring:

To date e ha e paid out a milliondolla to our suppli r ju t toke pus afloat. Inst ad
of making our mon yongift w m to be giftingawa our mon y!

I D TRY O 'T[XT

Globally gifting constitut d an a tive mark t egm nt· the n u h d d dicat d a p ifi tor
ategory to "e tabli hm nt primarily engag d in retailing new gift no lty m r handi
greeting card , e onal and holiday decoration and urio . ' The y ar-end holiday ea on o
ring Thank gi ing II nukkah and hri tm dominatedpur ha inga ti ity inthi gm
[Link] wa riti I for busin to keep theiroperation running moothly during
the Ia t qu rt r to m et annu I performan target and also todeveloppo ts a n trategie for di
ounting pric onit m that r main unsold.

nnu I ale in th gifting e tor had taken a hit from th ir peak during th dot- om era ( E hibit 3),
and had made a te dy o ery o er th n t few year . The200 ri i d altanoth r blov • it took
until th nd of the d ade for the mark t to tabiliz . During thi period e- omm rce outfit u h a
Amazon and EBay had hO\n that their onlin torefront , re tru tworthy chann I for u tom rs to
pro ure a rangeof m rchandi e,in ludinggift it ms. In 009 Toy "R U hadboo t d its onlin
playwitha eri
of acqui ition .3

Two d ade in e the ad ent oftheInternet th pur pla onlin retail fonnat had mo ed from
beingan exp rimental option to veritabl threat for bri k-and-mortar ret iler a re ealed by the
following ob rvation from a con umer urv y:4

Hou hold nam go out the , indo h n con um are onlin and looking for a de I.
Of the consumer urveyed 67% ay th y would purcha an identical produ t from
an unknO\n web tore if the[online] retaileroffered a bett r value.

\ ithIntern t a e and mobil tel phon gainingubiquity th re we t toni hifts inretail at th

tum of the century ( e . hihit 4 . E en a hopping at phy i al tore premi e wa the pre alent
norm, cu tom had begun to u th ir ' martphon ' to h ck and ompare price on th Int m t.
A O I0 D Ioitte urve highlightedthi pra tice:
 icsta .ift.: Mending the p nding

Anoth r trend i the on um r u e of martphone to h k pri lo ate tore find

promotion andord r product . ixteen p r nt of con um urveyed b D loitte for it
20 IOAnnual Ilolida u ey r pond d that they ould like to or already do a ce
produ t information in o by canning the produ t' barcode with th ir mobil phone .

In du cou th world of gifting b gan to hiftonlin , ith format ranging from pure pla like Fie
ta to lick-and-mortar m del lik that ofTo Targ t and\ almart. tting up an onlin o front
de igning and ommi ioning an ngaging , eb ite· omplete nd fla I
hainintegratio, n riti al to u tainthe op ration failingwhi h there v ould b athing re i w on th
Internet hi h a mailer play r ould ne er o r [Link] di trou del exp rienced by hopp
ofToyr u. omduringChri tma 1999 andth more re entf:ilureofTarg t. om6duringit laun h
rved to highlight the on equ n of poor implem ntation.

ompli ating thi n ed for total integrationwereera!fa tor . a n I taffingat cramped D \ a an

annual ent in th ret ii industry, with pl y competing for the ar e uppl of t mpo ry I bor.
urthermore th winter months e • t d a bar h toll on the ountry' logi ti infra tru tur due to tr m
weather patterns and I d to onge tion on th highway a w II a air. a . D la could imply not b
tot rated; it wa unthinkable for a u tom r to re i e a hipm nt pa t th holida ea on afterhi h the
it ms would not II.

OMP YI FORMATIO

H adquarter din a ni building within th Ri r orth Di tri t of hicago Fie taGift wa a mall and
lean finn v ith 20 mployee . In thea nc of data to forec t pu ha ing trend , the artup wa op
rating on a ri k aver e, pull-ha ed bu in model: withea h order that ame through th , b ite, a pro
urement plan wa dra, n up. Items , ould th n b our ed froma n twork of suppli and hipp d to a
de ignated D b fore making their way to th u tom r. With ea h paym nt mad b the u tom r th
ompany would realize a tidy profit margin roughly ba ed on pro ured pric and inbound a w II
outbound hipping o t . The ombined margin onan KUba i tend d to ary with th m dian margin
ho ering around 0%.

Bridge ,; an indu trial ngine r by trainin,g ith over ad ad of experi n in managingsupply hains
at pharma euti al compani who e demand patt m w [Link] hadbuilt a putationa a teamplayer
whocould e th big pi ture and ollaborati ly a compli h tough mi ion . ith the infu ion of
capital by Fi ta' in e tor the CPO and hi t am of ommodity manag had p nt th fi t 6
month building and linking up th firm upply hain. Thi in ol ed Ii i ing, ith o r
70 uppli for th 3 140 ite that were di played on th v b ite, and working with third party pro
ider to lea e 20 D in diffi rent regions of th country E hibit 2 . ot knowing hov the proc
ing olum would tumout Bridg had n gotiated fixed sum of U D I00
000 to op rate ea h
Fiesta Gift : Mending the pending

fo due course th re, ould be ufficientdata for th F,i t t am to foreca t volume and d w up trat
gie to sto k top•ellingS Us in the inventorie at designat d D . Thi mo e would helpthe team aggr
gate olume negotiate bett r price with uppli r , and ut the I d tim for deli ery by large
amount. The retail ind try uffi d from a ting
premature! on thi front. Dani I Frit ch, an xp rt in in entory management ummarized the
problem:7

From an optimizationpoint of i w, companie looking to dri edown '1 orking capit I nd

rrying o t hould be analyzing inventoryfar mor frequently a theseindu try a erage
le e th door op n for large quantiti of exce s to k nd ob olet tock to pil up in
'1 arehou . Unfortunat ly most who! aledi tribute and manuf cturers do not put thi
into p ctic and a r suit ha a large percentage of working capital tied up ,inunhealthy
inventory level .

i sta was·et up to op rat fuUy on th Intern t·thi as the initial a atar of a loud tartup. It IT
team had work d m ti ulou ly to liminate th burden of pur basingco tly erv nd op rating
enterpri - level oftwar on the company' premise . flexible Intern t i e pro ider l P) had
helpedthem ho t all their op tion online and achi in reasing e onomi of cale. Embracing
a ervic oriented a hit ture or SOA model me nt that all a tiviti from supplier m n g m nt
to ,inbound logi tics fa iliti man g m nt paym nt and CRM were nabled by a \ eb i e. Pay-a
-you-go agre m nt w re in place for a h rvice o et-up o t w re low and ongoing e p n
ould be monitor d.

ln alignment with th ornp ny' TT t t gy the bu in d elopm nt team had d ided to •olely
work with upplie with horn they ould tran ct u ing an OA- tyle w b interfac , orgood
oldfashionedEDI Electroni D ta Inter hang fonnat. Thi wouldnotonly minimize inbound ycle tim
but al o helpFie ta pro id an timated tim for outbound delivery nd to comp! te cu omer ord
r. It made th ntire purcha ing exp ri n e 'Amazon-like' for th u tom r a an hez pro laim d
to her inv tor . Tne holiday e on of •011 appeared to be po itive for th inbound t am with pend
numbersfor theft t w ek of December exc ing that of the whol month one year prior, by 50%.

With all • y t m in pla bu ine wa bri k. In little more th n a ar of operation th total pend h d
clo ed ,inon SD 3 [Link] how ver the overallpicture w di heartening. D pit a 50%net margin
on
1 9 Fi t wa yet to turn dim ,inprofit ( K hibit 5). t ff compen ation h d wholly on um d the
margin·anoth r million dollar had b n •;p nt on IT office rent Ile ing contract for th D and
logi ti provid and oth r co t . Redundanci that had b n built intothesupply
cha·in e.g. sourcing from multiplevendo ) had de tro d the net profit margin leaving i t inth
red. While the in to were p tient M honey had gi en San hez one mor year to turn thin
around or clo e hop.
Fie ta ,ift : Mending the pendjng

PRELIMI ARY FI DI 1G

With San hez breathing down their n ks Rao and Bridge went to, ork. Ob erving a few Pareto plit
- often termed th 0- 0 rul - a well a oth r tru tural pattern in the data, they were able to pot
opportunitie that were lo hanging fruit . In fa t 0%of the total pend wa a ounted by 2%of th
KU ( xhibit 6 • 50%of the K had contributed to 9 % of the [Link] wa a cla on
ouldg t to a Pa to plit in reality.

The top lling item had hauled in o er USO 235 000·at theoth r extrem
adverti ed on the Fie ta ite had amounted to I than D 60,000or 2%of th annual pend. ould it
be
prudent to deli t th SKU - traditionally I nn d a -item " by retailing analy t ? Or ould the
commodity managers xplore alternative option to our e th m more efti ti ely? hould the CPO initiate
om kind of uppli r on olidationeffort ?

It \ a tandard m ntra for a retail outfit to be around for all cu tom r b it th lect fe, that
brought in profit or the a t majority that add d more to the ov rh d, but ontributed little to the
bottom line. A ca e could be made for not eliminating th -ite in order to u ain bu ine . u
tom could be bundling their A-it m purch e with -items· ompanie like mazon, nt on to di
ount u h bundle . Ho e r many an online retailingoperation had -it ms to blam for their d mi e.
ln f: ct thi pre lice wa en hrin d in the bu ine model of a dot-com ra outfit named
[Link],v hich had fo u ed e clu i el on fulfilling mall ord r of low alue item without
e en harging for their deli ery. Predictabl the operation went d fun t in 200 I three years aft r it
wa founded.

Th analy i further tabli hed a patt rn of considerable arian e in item price for th ame K ( e
E hibit 7). One would imagine that ourcing an entire year' requirem nt upfront for ach item from it
!owe t co t upplier - p rhap through an e rgr n cont t - would b a mart mo e. Di reg rding
holding co and a urning that th e uppliew re abl to fulfil bulk orders thtrat gy of pro uring
e ry"top10' it mat it rockbottompricewoulddelivera iz ble9%in a ing .lfthi alt rnati ewere
not fi a ible th non ould attempt to ourc the items from multiple upplier at price point that
we clo e to th a erage for the ourcing p riod in que tion. Howev r the re ulting p nd would o e hoot
the a tual p nd by clo e to 9%. \ hat th n hould be the orrect ourcing trategy'?

On the di tribution front, th re v a a wide ariation in th utilization of D . ontra t v orkers at

the Harri burg, P center h d begun to complainof burnout. drilldown of a tivitie r vealedthat
one in eight p nd dollar wa being routed through thi bu y DC. On th other hand a full third of
the D v ere underutilized due to optimi tic tarting projections that
had been mad prior to laun h. Bridge had ome tough deci ion to ponder on a to v heth r Fie ta
mu t incre le in deficit region with targ t d promotion divert shipm
nt to le bu y D in djacent region right ize the 'deft it' DC , or t nninat
themand moveth ir loads tooth r D ituated nearby.\ hile it\ a traditionto ourc part from
upplier
,. ho were lo ted lo e to the de ign ted D what t v ould thi n w trategy place on Fie ta? It wa
tim to intro pe t.
[Link] Gift : Mending the pending

, TRATEGIC , OURCI G

Th 201b century witn d the ri e and f: II of a set-rich firm with vertically integrated upply hain
. Innovation in technologyat the tum of the century helpedglobahze a firm' aluechain·manage
could no, out ourc non-<:ore function to p ialized uppliers exploit conomies of seal and
maximize the supplychain urplus. R cognizingthis hift Gottfred on and oth 10 ad ocatedthe
nee ity to de lop a strategic ratherthan a tactiical i ionof ourcing:

Greater focus on capability ourcing can impro a company's trategic position

by reducing co t tr amlining the organization and improving quality. Finding
mor - qual,ifi d partner. to pro ide critic 1 fun tions u u lly allow companies to
enhanc the ore capabilitiesthat dri e comp titiv ad ant ge in their industrie .

Engel" defin strategi sourcing a an organized and coll borative approach to I verage t rg ted pend
aero s location with el ct upplier that re b t uit d to create knowledge and alue in thecu
tomer supplier interface. trategic ourcing addre e the long tenn impact of upply base deliberation
on the ov rail upply chain de ign planning and implementation. Typical con ideration are make-v r
u -buy d ision ,detennin,ingwhen and how to out ource activities nd defininglinkage andalignment
between the upply ba e and re t of the firm.

, PENDA ALY I

A foundational pect of trategic ourcing i pend naly i . Pandit and M rmani 11 de cribe p nd
analy i a th process of aggr gating,clas ifying and11 ragingspend data for th pu11Pose of redu
ing co ts impro ing operational p rformance and en uring compliance. S nninizing a firm's pend
data i critical to id ntify hard-dollar a in opportunit,ie and to d elop ourcing, budgeting and
planning stmtegie . Spend analysi can unearth maverick purchases, and promotes compliance with
negotiated contract . Along the way it hellp di cover mis ed opportunities. Inaddition, it facilitate
compliancewith federal legalr gulations, pecifically a they relate to bidsandgrants management.

Be ide increa ingthe vi ibilityof a company' pend, thetypical goal of a pendanaly i are tooptimize
th allocation of bu ine aero the global!supplyba , and to identifyand hare b t practicesaero it
divi ions and geographi . pecifically, it eeks redu tions in purcha e prices tot I co t of ownership
TCO) and supply ri k; th se initiati es form the ba is for pendaudits and fore aluating the ucces of
pend negotiation .

Sp nd analy ,i i key to a e sing the perform nee of a ourcing organization, Typicailly, fter th
initial "lowhanging fruit ource of reducing•pend ar
identified, it i difficult to extra t additional a ing wivhout a y tematic data analy i . or
xarnple once suppliapp ar to h ve offi red the maximum
Fiesta Gifts: Mending the pending

po ibl di ount additional vmg may b harder to garn r. It might be om ne ary to ource from
low co t countri and id ntify I exp n i e material to m t any addition I produ t savings goal .

; PENDVISIBILITY

Diff rent di i ion of an organization t nd to operat ilo po ing a hurdle to impl m nt,ing a p nd
analy i . Small t am at d ntraliz d lo ation make our ing de i ion on ommon it m nd • rvice •
th lack of organization-wid ,isibility I ds to Io of lev rage with upplie . A di per ed company
that tran act in multiple geographi v ,ith different languag can mak thi i ibility ven harder.
Other hall nge in lud th pre en ofincompat,ibleordi e book-ke ping appl,ication oftentime as
a re ult of A a ti ity - and data th t i di parate and di aggre ated. La tly the pro foUov ed to
aluate th ourcing of direct and indirect p nd are not con i t nt.

Technology pl y a key role in lending great r i ibility to company pu ha ing a ti iti

• it upport data-drivencommuni ation to various tak holder in luding at gory champion
applier and team . Large ompani may choo e to mploy an exi ting ERP
platfonn a •tand-alone our ing pack g or a u tomde loped softwa implementation13 for pend
naly i . The e platforr help pro urement tear
d rive ,in igbt from y t matic in e tig tion su h a tlatt ned cub analy i and AB analy i .

With ad u t i ibility into a ompany' p nd m n g r n id ntify p tt m in it m at gory and

supplier pecifi purch e by rolling up expen along the dimen ion of a p nd cub (E hihit 8).
Qu rt rly report h Ip th m id ntify opportunities to aggregated mand. bundl complement r ,it ms and
n goti te b tter d a[ v ith supplier . Manage can ch k if , bat promi ed by a upp'lier Iba e
been applied uniformly. Itempric arian n b monitored to curtail ma ri k or out-of-cont ct pend.
Over tim , upplier informationi enriched with ttribute uch th pr ferenc ranking for a t gory
of it m
c dit rating ri k po ure diver ity cla ific tion tatu as minoritie \ omen ov ned enterpri and o
on.

ABCANALY I

Th te hniqu of AB Anal i invol e a -cat gory la ifi ation (A B and ) b ed on pe ificcrit ria
u b a the tot I p nd on SKU pend with upplier • p nd for cu tom r , price p r unit riti ality of
the it m nd contribution to profit to name a fi w. AB nalysi in ol e breakin down large d ta t
into
• egrnent (E. hibit 6) that aidde i ion making. Typically,Category A represent the mo t
aluabl item that ontribute highly to the overall profit of a ompany. at gory B r pre ent th n t set
of item that a, not profitable a items in t gory A but ma be ju t a
aluable. ategory u ually compri e th large t cat gory; they pertain to mall tran ction
that do not contribute highly to profit but could till be aluab!I to the ompany in term of
complementarity nd o erall co erage.
Fie,ta Gift: Mending the pending

upplier rationalization i a ritical out om of an B anal i . ourctng 10\: alu it m in lov

quantiti from multipl uppli r con um tim nd sourc whileal o adding to th co of relation hip
manag ment. Termin ting ontra t , ith ome of th upplie and aggregating th d mand in rea the
le erag that firm can wi Id \ ith th r maining uppliers. An B anal i and tegorization ould
y t maticallyre eal th top uppli r int rm of p nd highe t volum produ t ategori , and it ms v ith
highe t annual pend. olle ti ly u h in igh ould b in trumental in rafting a olid uppli r
con olidation rategy.

Fl AL ALY I

Up until the time hen the n \l FO cam on board, the had be n no oncerted effort by Fie ta'
manag m nt to tematicall gather data cleans it and examine pan m in pend and ugg t
impro ement . Bridg and Raokn w that there had to b a st mati way to v ad through the larg
pool of numbe and re ol e th many problems , ith inbound logi tic that th company wa fa ing.
mid t hea nowfall th two mad it to workover th w k nd, and ifted throughth p nd dat that
h d been a umulat dover theyear con tru ted a I \ of pi ot table and isu lizedtrend . Th
ould not afford the mi take that were made in th p iot year.

Th compan had been d ling\ ith a dizzying ariety of K . It wa imp rati e to bring a great r
focus to ie a' gi try of it m , which would in tum treamlin the upply chain. Th follo, ing
overarching prin ipl go em d th delib rations.

D ci ion 0: W mu t rry forward a man iter that are urrently adverti ed on our
, eb it a po ibl . \ mu t how er onsolidat or di continu tho iter upplie
and itemtyp that fail tom et om liberal riteria onthe total pend.

\ hil it wa a recommended pra ti in p nd naly i to I i it ms a cording to a uni

uch UN P ( nit d ations tandard Product nd od it m within the gift, no elty
and ouv nit e t r exhibit d t m ndou h t rogen ity· th re exi ted no uni r ally a ept d mod of
at orization. Th procurem nt t am had ppli dab i t t miningt hniqu 14 to the item de ription
in ord r tocl i the 3,I O tock ke ping units K into I I itemtyp hibit 9). Thereafter
th upplier we lab I du ing a impl h m 100 It m Typ ID O a rial numb [Link] illustrat ,
light ompri ed a popular at go with a T pe ID of 13·th upplier of light , er labeled 1001
01, I00130 and o on.

B A LYE

In ight b gan to em rge from a le, of anal e that, e condu ted along KU uppliers and item
typ . Looking to unco er fe Pareto plit Bridge and Rao ob rv d th t um of D 60 000,
amounting to two perc nt of Fie a' total pend for th y ar , a attributable to one-thirdsof the K
•
th pend on ea hit minthi group ho ered around U D 140. Aft r carrying out an AB breakdown
by KU p nd the two b gan to identi opportuniti for con olidation within -cat gory it ms. pe ifi
ally, th ex min d u h KU who a o iated annual pend v low nough to be considered a burden
to market pro ure and [Link] helpedth m arri e at th irft et of de i io :

Deci ion I: If th total p nd on an K fall below a thr hold alue thenmark the KU
for on olidation.

K that ha e b n mark d for on olidation under De i ion

I di ontinu the a o iat d uppli r relationship ifno other K have b en pro
u d from them ( e E ·hibit 10). hould th n ed ari we n arrange to
our the e K b alt mative m an , p rhap by u ing
another uppli r thatcate to it m with the am typ la ification.

e t, Bridge and Rao arried out an AB b akdown by upplier pend alu , and pott d more
opportuniti for con lidation. T n ting v itha upplier arri d with it an ov rhead; th procurem
nt effo alon co an a rag of U D 500 p r uppli r p r annum. Talcing into ac ount oth r o t
of tran a ting ith uppliers th duo arri d at the ne t t of d i ions:

Deci ion3: If th total p nd on a uppli r fall below a thre hold alue th n r di

tribute th p nd among the rem ining uppli r ( . hibit 11 prefi rably to
tho
at gory or B·avoid vendor lo k-in whe r po ible.

Proper i ual m handizing wa riticalin the retail [Link] manage a well a th mark ting
team often omplainedthat Fi ta' in entory w x iv ly diverse, whi h had complicated navigation
for u ers of the \ eb it . An AB analy i by Item Typ re ealed that th b ttomthirds amount d to
le than one p r nt of thetotal annual p nd Th duo fonnulated a deci ion to rationalize th item typ

Deci ion 4: If the tot I p nd on an item cat gory fall b Im a thre hold valu th n
rationalize th cat go (E hibit 12 . If it i limin ted then th a o iated upplier ,
, ell a the t of iter that th pro ide, v illhave to be pulled from th \ eb ite.

By choo ing to eliminate an itemcat gory K a well a uppli rs that wer cla ified und r th old
item t pe might ha e to be re- [Link] hopping port I had to be updated to refle t any hang .
ln a fe\ in an e the a i ted upplier might ha to be di ontinued.

ETWORKOPTIMIZ TIO

Distribution enter v re th hub of a ti ity for an retail enture. Fi ta' tw nty DC were operated by
third party provid r for a fe and had b ent up to handle the msh of ord r during the holiday:.
Thi way the onus of managing dynami taffing patt m wa hifted to an external party. Th
lead tim for d Ii ering an it ma ell the o t of hipping the item depended on the di tan e
between the uppli r
Fiesta Gift : Mending the pending

and the d ignat d D , and b r.: en the D and the u tom r. Bridg nd Rao tum d th ir att ntion to
redu ing lead tim . There were many hipment for \ hi h the D app red to ha e b n incorre tly
a ign d ulting in in rea ed hipping o t and levat d lead tim . Thi led to the folio, ing deci
ion:

Exhibit 13 partiall d pi the inbound logi ti nario for clo ks· fifth of th hipm nt to D in
lifomiahad originat d from upplie locatedall th v ay ro the Unit d tate in aine. nl there
w re m1t1gatmg cir umstan u h upplier tock-out or a mandated e er i e of minori ourcmg,
th K ould ha e b n pro ured from uppli tha, locat d mu h lo r. Thi led to th
t folio ing de i ion:

[Link] : Examine the hipm nt \ h re supplier-to-D or DC-to-cu tom r di ance

x ed a thre hold. Id ntify the rea or for a igning th D . le t a differ nt D th t
optimize th di tance from the upplier to th custom r.

Th top 20 A-catego item ontributed to ov r twerthird of th total p nd for th ompan . Ba d on

the initial proje tion of th ir demand made by i t Marketing team upplier w re id ntified for ea h
KU. However popularitems like bunting (E. hihit 1) turned outto be p n i to procure from th
four upplier for thi it m typ • the average upplier-D di tan e v a I 00 km Thi in r ed th co
t nd
, it tim for ustomer who ould pro eed to pur ha it from another our e leading to n xp n i
exit from th portal. Thi I d to the follov ing de i ion:

D ci ion 6: If th i hea, d mand for an - or B-cat gory K and th di tan are

inordinat ly high then id ntify n v upplier for th it m, with pr fi ren for a wid r
g o phi di p r ion.

Th top third of the DC a ount d for o er t\ a-thirds of the p nd· the e ent rs appeared to b
und t ffi d ni u that, unra el dbya mtinyofth p rforman eofth thirdpartyr ponsiblefor
th e D . Th bottom third, on th oth r hand. contributed to am r t\ elfthsof the pend. neoption
for on olidationwould b to di mantl th low-a tivity D and move the olume el ewh [Link]
folio, ing d ci ion wa fonnulat d:

D ci ion 7: Examin DC ho annual a ti ity fi II b lo a thre hold p nd alu .

on id r hifting th ir olum to nearb D in u h a wa that it d not overwh Im
op tion at the other D and lead tim will remain unafti t d.

DEMA D FORE TI G

Item pric in th gifting ctor follm ed a predictable c cle; the d mand for an S U wa a natural
refl lion of the pri e ( e E hihit 14). Equipp d v ith full year' data the Procurement team ould
foreca th quantitie of top lling U to procure in d ance and tock a in ntory at ariou D .
Thi would not onl liminat the uppli r-D I g in th delivery y I and impro e I ad tim but al o
F1iestaGift : Mendingthe 11endiug

bring down the sp nd if price wer negotiated carefully. Thi lin of rea oning led to formulat,ing the
follo, ingdeci ion:

Ded ion8: Examineth price- e u -d mand trend in the Cat gory A K that
have b n hipp d during 2011,and applyforec ting mod I . Providedtlt re i
physical!spa
to stor th inventory procure th e itemsin ad anc inord r tomaximiz avmgs.

CO CLU IO·

It wa the afternoon of Wedn day,Sancl1 z called uponBridgesandRaofor a lunch me ting. Little did
h r al,ize that their di ionwoulldla t w II into midnight. Whil he und tood the techni al
rigor with which th duo had perfom1d their an ly i t San hez wa al o he itant to tak ondrast,i m
asure , After all gifting was a year-roundindu try,is nd Fiesta had only been in operation for a year
or o.

QUE TIO S

I, What are om dmwba k v ith the pro urem nt t am' current mode of fun tioning? Ilowc n data
dri n d i iomn king b improvedat Fie ta?
2. Identifyfiv significantSKUs whose ItemTypecode , i. . item ategories have beenmiscat gorized;
and di cu ,remdies.
l Focu your tt ntion on ili two di tan column wifuin the preadsheet
Exmineili entri that have been mark d a [Link] ee a potent,i I
problem for th entries? If o ho, would you handle it?
4, Examin ili entrie inili pread he t for all it m of itemtype " lo k ', Doyou ee a prob! m,
What is the impa t of thi problemthatyouha e i olated?Howwouldyou handle thisprob! m?
5. UsingExhibit ,6 7 and the supp'lieddata how, ould you arrive at the preliminary findingsmade
by R o andBridg ?
6, orea hdeci ion analyzetheimpactofimplem [Link] om ofeachdeci ionindep ndent
of each other?Ifnot,whatare thepotentialcon equ nee ?
7. What teps anddeci ionsar difficult to implem nt u ingstandard pread h et tools?How wouldyou
addre s thi !,imitationor gap?
8. What con id ration mu t bet k n intoaccountfor makinga Build(inhou e) er u Buyd i ionin
th contextof p nd analy i oft-ware?
9. Ultimat :Jy,Bridg and Raomu t convince EO Sanchez, ho i mar of a u tamer-fr ing manager.
In part they mu t indicate howcost saving can be packaged a revenue opportunities and their
a sociated r turn on sales(ROS). Ilowcansuchcalculations be put in placeon a continuou b is?
Simi! rly an appropriate ommunication trategy to inform ahoney hould al o be put in pl ce,
10. What key u c fa tor mu t be taken ,intoa aunt in xecuting pend analy i proj t ?
[Link]: Mendingthe pending

Exhibit I
Example·of Britishthemedgiftitems

Sourtr: Pixabay

Exhibit 2
Fie·ta •distributioncentersb region

50·

45·

•
Allara Ham$1Jorg
•
40• R [Link].a lleCl
Kans•s y
•
mt! m bu
S
Bal more
ly
s •
•
Cr a

35·
San Be rnardino ix
• p

•
Fell Wol1

30•
•
h Jaell ,orwr

25·

1'20 1'00 0'0

long

West h(:ej\lral
Eas1Nerti, ceti1rat Mid-All lie NewEnp,d
W lit Soulh C
E $1SoulhC nl,1 Soulh Attonlic
nlrnl
Fie ta Gift : M nding the pending

Exhibit
AnnuaJ . ale in the S from gift no city and . ouvcnir tore

uaoa

ll

0
l .l 1 . I -4 l
) IOCIJ 1 001 IOOt 010
1 6 '"'

urce! Th! CCltlJt y: U CllSU SD

blip,,. l\1,w1, 2. cn.,tb.1M rct:til rd

Exhibit 4
Changing role of the , tore

Stor!! 1.0 Store 2.0 Store 3 O""

0 10(
v,tars a onloe adffl and seairle11 mtegra
channel/ ro11sellri;i pla: onns
S k'r. s•ra'.l!<JIC. U)"l m,c.. k'ss
ger IS t I 11hzec. :JI . OG

C 'CM r:1, ,t<l:Jdlffl ,I'

p,Js eo to stop m anuo tion o'
a II' l't'lr tdt
-no1InreilC110n 10- cU!tom«'s
p,Jrchases
Ci.s:Of'll!r e.,per-Eflo.> and mul
cduct and SErt1te
charne ,n1ega o,

(O!ltl)t'ltlOt 10 tr [Link] I g'dlrd 1\11 di t'S d 1'1"1C.e

Clt1il'

. urce! tor [Link] Store i [Link] u,,c1bc Store. Ocloiuc Report OI0)
Fie ta Gift : Mendingthe pending

Exhibit5
tatcmcnt of Account for December 1 2010 - December I, 2011

Sa. Balance beet Data (Figure in S 000 )

t'iestaGifts Inc.
(in 000)
ASST
Cash 900
A counts icccd abl 1,900
fnvcntori • 1200
Totalcurr nt as··ts 4000
[nta11gibl• a·sets 1,-00

TOT LA SET ,500

LlABILITIE AND HAREHOLDER 'E un

A counts payable 850
Accrued payroU and mplo • b·n·fits 650
otalcurrent liabiliti s 1,500
Long-termdebt I 000
Own rs'e<iuity 3,000
OTAL LIABILI l·S om ER Q IT • .00

. urCi'! Da1a c11 t d in upport ofthe c

Fie ta ,ift : 1endin the p oding

Sb. tat mcnt of Income Data (Figure in 000)

Fi .
ta
l sale·

GRO

1,200

pcnsc' 600

urce. 03 en atoo inSlJPfkll"I oftl 11Sc

hibit 6
8 ategorization of K b re cnuc

of Spend by Number of
Us

urce. 03 dshtt1
Fie ta Gitt : M nding the pending

E hibit 7
Top 10 items with price variance

.K , umof um of'Iotal Min of nit Max of nit A erage of nit

Code Quantit" Price Price Price Price
22423 3 564 I I.3 17. 17.39

8 0998 12060 3122 2.31 .91 2. I

!4879 12067 66 .03 .37 2.

47 66 36 2 3 5.25 6.93 6.

85123A 600 97 3.57 4.13 4.04

22386 6 I 171 2.31 .91 2.

23203 6051 16320 _.45 .91 2.

79321 29 1570 5.35 .o· 7.

8 099 53 136 JI .91 2. 0

23084 47 125 9 2.51 .91 2. 0

. urtt:0a prcadsbcct
Fie ta ,ift : 1 nding th pendin

hibit
pend cube

To al Spend To al Spend Total Spend

byCom odity by S pplie byQu er

Commo 1ty Spend Supphe Spend u er Spend

by Su lier by Com odty by Supplier

Supphe Spend u er Spend

y uarte by Commodity

urc:e: Im Court . Pa1idit and M1lffll:ln· 00 ) (reproducedwilh pcrmi ion)

hibit 9
Item chcma , ith a typical upplicr

D cription Item Item Type upplier

'l ·pe ID ID

23843 0 crafi

22423 6 cak

8 0998 bag I 0103

173 omam nt 10017304
_4 bunting IO 02

9 hanging 100902
22386 bag I 0103
23203 bag 100102
79321 13 light I 01302

8 099F bag 100103

23084 13 light 1001301

urc:e: Data spreadJt

Fie ta Gitt : M nding the pending

Exihtbit IO
K Rationalization

.K Description Item Item ·1otal Quantit_ uppliers

Code 'lypeID T pe pend
22266 ION 9 han 30 100901,...
ring 100 o·

T 145 pot 122 7 10014·01

. urtt: D la spreachli
ct

Exihtbit11
upplicr rationalization

cenario : Reassign spe,ul to atego, B supplier

, uppli rlD . um of Count of umof Category Action

·1otalPrice lnvoic No Quantit
100 001 r 310 C Rationaliz
•
10024002 19 B ontinu

100 003 .91 11 C Rationaliz

• cenario B:Redistribute sp 11d mulco11solidateintofew r suppliers

SupplierlD umof 'ountof 'umof 'ategor Action

TotalPriee In oice o Quanfit

100 601 263.704 2 432 C Rationalize

100 602 22 14 C Continu •
100 603 30 31 C Rationalize
100 604 29 507 C Rationaliz•
Fie ta ,ift : lending tihe pending

Exh,ibit 11( ontd.)

cenario,: • 011. olidaf i11fo 011esupp/ier

'upplierlD Sum of Count of umof Category Action

TotalPri e lnvoi e o Quantity
1004 01 70. I 10 61 C Ratiorutlize
1004 02 301.14 19 I 2 C Rationalize
1004 0 I 1.45 I 51 C Ratiorutlize

. en rio D: Eliminate th se suppliers

. upplierlD 'umof Count of 'umof Category Action

TotalPrice In oice o Quantit
100 701 69. C Rationali
100 702 16.• 6 11 C Rationalize

• urtt: D·ta Sf)tta.d.11 ct

Exh,ibit I
Top 3 item type. under [Link]- SD 500

ltemT pe Uem Type ID . um of • um of

TohllPrite Quantity

Ba·k I 7. I 3
6.2
uki 76 93.766

urce: Da1a Sf)ttadsll ct

Fie ta ,itt : Mending the pending

E hibit 13
hipmcnt from suppUcrs for clock

upplier Location

DC Location KS ME OK TX Grand
Total
p 63 3 43 54 1 9
NC 3 39 4 16

KS I 123
33 27 31 30 121

. urce:D taspreadsli et

E hibit 14
Trend in monthll pend for .. K 22423

1000 8.00
900
17.!IO
800
700 17.!',0
600
7.40
500
400 7.20
300
17.00
200
100 16.80

0 16.60
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

-sumofQuaitlty Average ofUnltPrl

urce:Dataspttadsli et