Dan's Western Wear began its humble roots on Main Street in Sheridan, Wyoming, where Thomas George, a Greek immigrant, settled his family in 1919 and began a cobbler business that served ranchers, cowboys, and coal miners. Dan George, Thomas' son, was nine years old when they arrived in the United States and was soon active in his father's cobbler business. Ultimately, he took over the business and began to increase the store's inventory, creating the business that is known today as Dan's Western Wear, which sells quality boots, work clothes, western apparel, and jewelry to just about anybody. Dan believes that if clothes can hold up to a dusty hard day's work, and look great at the same time, all the better. The company prides itself on quality clothes with good old-fashioned service. Customers are greeted at the door and helped throughout their experience. A visit to Dan's Western Wear is like a visit to an old friend.

Dan's Western Wear is typical of western wear retail outlets. The industry is characterized by many independent regional shops. Frequently, these retail shops have been in operation for many years and have a multigenerational, loyal customer base. Recently, the online western wear business has shown some growth, but customers are primarily interested in face-to-face shopping where they can feel the products, try them on, and visit with locals who share their interests. Because these specialty retail outlets have relatively little competition from online and discount retailers, western wear stores have enjoyed relatively high profit margins for retail businesses. If managed well, these can be profitable stores.

Joe West, a young entrepreneur who had worked at Dan's Western Wear prior to going to graduate school for a master's in business administration, saw an opportunity to consolidate western wear retail outlets to gain efficiencies. Thus, he founded Consolidated Western Wear Retailers (CWWR) and began purchasing profitable western wear stores, starting with Dan's Western Wear. He also assembled a management team to help him grow his business. As a new store is purchased, Joe and the management team study the store to learn how it is successful. Initially, they do not make major changes, keeping the same store name and encouraging the store to operate as before. Over time, Joe and the management team implement changes to improve profitability. Currently, CWWR owns 21 retail stores, and Joe believes this is large enough to aggressively pursue efficiencies from consolidation.

Each year Joe reviews the financial information for all the CWWR stores. This past year was a relatively good year; company profits were up despite the huge July Fourth fire in Las Vegas, Nevada, that shut down the store for four months and required replacement of all the inventory. Joe did notice, however, that purchasing department costs varied considerably between stores. The minimum was $575,000 and the maximum was $2.2 million. This was perplexing, and he thought this might be an area where efficiencies could be achieved. Currently, each store has its own purchasing department with full autonomy. In the western wear industry, regional customers have regional tastes and desires. Local purchasing agents are thought to be best able to understand the desires of local customers and to meet those needs.

On his management team, Joe has a managerial cost specialist with skills in data analytics. Together they discussed the purchase department cost problem and identified three potential cost drivers: merchandise purchased, number of purchase orders, and number of suppliers. To verify these ideas, Joe contacted purchasing managers from three different stores who agreed that these were potentially good cost drivers and that no others were readily apparent. The managerial cost specialist gathered data for the four variables from last year's financial information and reported it in Table 1. The data was also entered into an Excel spreadsheet (see Appendix) by the team's administrative assistant.

Required:

Joe asked you, the managerial cost specialist on his management team, to examine the data and to recommend some courses of action to reduce purchasing department costs. Joe would like a two-page memo (plus attachments) outlining your analytical findings as well as recommendations. This memo will be shared with the team before the meeting to discuss purchasing department costs.

Table1: CWWRPurchasing Department Costsand Cost Drivers Purchasing Store Location Merchandise Dept. Cost (US$) Number of Purchased (US$) Number of Purchase Orders Suppliers Sheridan $575,000 $47,239,000 1,708 61 Denver 1,226,000 102 364,000 2,519 95 Salt Lake City 1,710,000 100,162,000 2,506 139 Kansas City 881,000 95,760,000 1,719 91 Omaha 1,544,000 51,466,000 2,883 155 Milwaukee 794,000 50,631,000 547 75 Minneapolis 1,341,000 4,753,000 2,978 103 Phoenix 794,000 103,464,000 3,761 117 Las Vegas 2,216,000 36,162,000 2,584 73 Albuquerque 2,030,000 62,364,000 5,497 176 Tucson 1,338,000 65,635,000 4,347 130 Houston 856,000 88,524,000 2,878 52 Oklahoma City 1,122,000 72,645,000 819 129 Tulsa 863,000 51,638,000 1,247 145 Dallas 1,085,000 105,666,000 2,162 141 San Antonio 52,000 59,437,000 2,822 105 Austin 1,134,000 38 542,000 5,115 51 El Paso 1,042,000 33,020,000 382 131 Nashville 1,634,000 36,322,000 5,293 172 Memphis 699 000 34,121,000 967 34 Indianapolis 875,000 31,920,000 2,425 48