e Estimated at CASE 12 Skin & Wellness Products Diem Skin Diem Skin & Well skincare products. Th exciting products for pany has distribute ruas, hair salon nesses. These cu sales have grown ra ating profit was over Wellness Products is a manufacturer of men's and women's organically based ducts. The company is based in Wisconsin and has developed several new and ducts for sales through retail stores in the U.S. market. Historically, the com- istributed its products to the institutional market. Its direct customers included ir salons which provide services such as facial treatments, and other such busi- These customers had been enthusiastic in their reception of Diem products and grown rapidly. The most recent year sales were slightly over $36 million and oper fit was over $4.8 million. The company's Return on Assets, measured as Operating divided by Invested Capital, was an admirable 28 percent. After considerable market research, the company decided to enter a more traditional merket by selling and distributing its products through a network of retail stores for sale in consumers. Being new to this type of channel, the company president, A. Diem, hired Anthony Don into a new position at the firm, Director of Logistics. Anthony is a relatively young man, age 34, who received an MBA with a concentration in supply chain manage- ment from a major Midwestern university. Following college he worked for six years in several different positions at a large health and beauty aid manufacturer. Anthony had pro- gressed rapidly in his short career and Jim felt confident in his choice despite Anthony's youth. Anthony settled into his new position, spending the first few weeks familiarizing himself with the company's and current operations. He learned that Diem Skin & Wellness Product line consisted of slightly over 100 SKU's but the vast majority of sales were accounted for by three product categories: women's foot care (WFC), men's foot care (MFC), body butter (BB). It as expected that the same sales pattern would be true in the new distribution channel. The INCL research team had developed an initial vear forecast for the new channel (Table 1) on expected average unit selling price to the retailer for these three categories. ving worked in a large manufacturer before joining Diem Skin & Wellness, Anthony o surprised to learn that the primary components of each of these products were was not surprised TABLE 1 Forecast Sales and Selling Prices WFC MFC $4,500,000 $2,000,000 $6.25 $15,000,000 $5.00 $4.50 Annual sales Avg. unit price quite similar to each other. While there are other minor ingredients costing only a few cents cach, the five major components consist of Bottle Shea Butter Ocean Mist Scent Fresh Sky Scent Mountain Air Scent Each product is made of three or more of these components: WFC is comprised of Bottle, Shea Butter, and Ocean Mist Scent. MFC is comprised of Bottle, Shea Butter, and Fresh Sky Scent. BB is comprised of Bottle, Shea Butter, and a combination of both Fresh Sky and Mountain Air. The manufacturing cost of each product can be determined from the data in Table 2. These costs include the contract manufacturer's profit margins. Anthony visited each facility in Diem's current supply chain. The company uses two contract manufacturers to actually mix the ingredients, bottle and package the finished products. The two contract manufacturers are located in New Jersey and California. The California plant produces WFC. The New Jersey plant produces MFC and BB. All products are single sourced, so neither of the plants produces the same product within a category. Table 3 provides case pack information from the plants. The company has three staging warehouses (SWs) located in New Jersey, Wisconsin and California Regional demand has been aggregated into five regional distribution centers (DCs). Each plant ships its production to the staging warehouses which in turn, ship to the five regional distribution centers. Any staging warehouse can ship to any distribution center The forecasted demand by region is provided in Table 4. Transportation lanes from the plant to staging warehouses and from staging warehouses to the regional distribution centers will consist of full truck loads. A full truck contains 100 cubic meters. Diem Skin & Wellness Products typically weigh-out a truck before cubing out a truck. The products will only fill 70 percent of a truck's cubic capacity before it weighs out. Anthony spent considerable time researching transportation cost data and developed Table 5 regarding transportation cost. TABLE 2 Manufacturing Cost Data Shea Butter Ocean Most Fresh Sky Mountain A 50.60 $0.80 $0.25 $0.20 $0.30 $0.40 $0.50 Labor Packaging TABLE 3 Case Pack Data Avg. Units per Carton UFC Volume per Carton (Cub. M) 0.05 0.034 0.05 North East Midwest 30% South 20% Northwest 30% Southwest 5% 15% TABLE4 Forecast Demand by Region Plants to SW New Jersey Wisconsin New Jersey California California $ 100 $2,000 $ 600 $1,700 TABLE 5 Transportation Cost per Truckload $2000 $2000 SW-DC North East Midwest New Jersey Wisconsin California Northwest $ 100 $ 700 $5,000 $ 800 $ 200 South $1,000 $1,500 Southwest $5,500 $3,500 $ 300 $5,000 $3,000 $ 600 $3750 $3,250 The distribution centers will deliver to stores throughout the United States. Anth felt that he could omit that cost for the moment as he pondered the remaining total cos elements. There are several alternative networks, particularly related to the assignment of staging warehouses to distribution centers. To complete his analysis, he assumed that the overall inventory turnover rate would be five per year. He also knew that Diem Wellness historically had an inventory carrying cost of 18 percent based on aver tory for the year. 1. Explain the concept of Echelon as it relates to Warehousing and Supply Chain Network. 2. Using the information described in the case study, create a flow diagram describing the company's current Supply Chain Network (Distribution Structure) as describe in the case. 3. The inventory carrying cost (holding cost) is 18% per year at each final warehouse. Calculate the holding cost for each product and location per day and per year. WFC MFC BB sales 15,000,000 4,500,000 2,000,000 Avg. Unit price 5 4 .5 6.25 Total Units 3,000,000 1,000,000 320,000 Forecast Demand per Region from Table 4 Warehouses North East Mid-west South Northwest Southwest Total Demand % 30% 20% 30% 5% 15% 15% 100% | WFC 9 00,000 600,000 1900,000 150,000 450,000 3,000,000 MFC 300,000 200,000 300,000 50,000 150,000 1,000,000 BB 96,000 64,000 96,000 16,000 48,000 320,000 4. If you could Modify the current Supply Chain Strategy, what would you change and why? - Develop a diagram or diagrams with the New Supply Chain Structure and explain your answer. e Estimated at CASE 12 Skin & Wellness Products Diem Skin Diem Skin & Well skincare products. Th exciting products for pany has distribute ruas, hair salon nesses. These cu sales have grown ra ating profit was over Wellness Products is a manufacturer of men's and women's organically based ducts. The company is based in Wisconsin and has developed several new and ducts for sales through retail stores in the U.S. market. Historically, the com- istributed its products to the institutional market. Its direct customers included ir salons which provide services such as facial treatments, and other such busi- These customers had been enthusiastic in their reception of Diem products and grown rapidly. The most recent year sales were slightly over $36 million and oper fit was over $4.8 million. The company's Return on Assets, measured as Operating divided by Invested Capital, was an admirable 28 percent. After considerable market research, the company decided to enter a more traditional merket by selling and distributing its products through a network of retail stores for sale in consumers. Being new to this type of channel, the company president, A. Diem, hired Anthony Don into a new position at the firm, Director of Logistics. Anthony is a relatively young man, age 34, who received an MBA with a concentration in supply chain manage- ment from a major Midwestern university. Following college he worked for six years in several different positions at a large health and beauty aid manufacturer. Anthony had pro- gressed rapidly in his short career and Jim felt confident in his choice despite Anthony's youth. Anthony settled into his new position, spending the first few weeks familiarizing himself with the company's and current operations. He learned that Diem Skin & Wellness Product line consisted of slightly over 100 SKU's but the vast majority of sales were accounted for by three product categories: women's foot care (WFC), men's foot care (MFC), body butter (BB). It as expected that the same sales pattern would be true in the new distribution channel. The INCL research team had developed an initial vear forecast for the new channel (Table 1) on expected average unit selling price to the retailer for these three categories. ving worked in a large manufacturer before joining Diem Skin & Wellness, Anthony o surprised to learn that the primary components of each of these products were was not surprised TABLE 1 Forecast Sales and Selling Prices WFC MFC $4,500,000 $2,000,000 $6.25 $15,000,000 $5.00 $4.50 Annual sales Avg. unit price quite similar to each other. While there are other minor ingredients costing only a few cents cach, the five major components consist of Bottle Shea Butter Ocean Mist Scent Fresh Sky Scent Mountain Air Scent Each product is made of three or more of these components: WFC is comprised of Bottle, Shea Butter, and Ocean Mist Scent. MFC is comprised of Bottle, Shea Butter, and Fresh Sky Scent. BB is comprised of Bottle, Shea Butter, and a combination of both Fresh Sky and Mountain Air. The manufacturing cost of each product can be determined from the data in Table 2. These costs include the contract manufacturer's profit margins. Anthony visited each facility in Diem's current supply chain. The company uses two contract manufacturers to actually mix the ingredients, bottle and package the finished products. The two contract manufacturers are located in New Jersey and California. The California plant produces WFC. The New Jersey plant produces MFC and BB. All products are single sourced, so neither of the plants produces the same product within a category. Table 3 provides case pack information from the plants. The company has three staging warehouses (SWs) located in New Jersey, Wisconsin and California Regional demand has been aggregated into five regional distribution centers (DCs). Each plant ships its production to the staging warehouses which in turn, ship to the five regional distribution centers. Any staging warehouse can ship to any distribution center The forecasted demand by region is provided in Table 4. Transportation lanes from the plant to staging warehouses and from staging warehouses to the regional distribution centers will consist of full truck loads. A full truck contains 100 cubic meters. Diem Skin & Wellness Products typically weigh-out a truck before cubing out a truck. The products will only fill 70 percent of a truck's cubic capacity before it weighs out. Anthony spent considerable time researching transportation cost data and developed Table 5 regarding transportation cost. TABLE 2 Manufacturing Cost Data Shea Butter Ocean Most Fresh Sky Mountain A 50.60 $0.80 $0.25 $0.20 $0.30 $0.40 $0.50 Labor Packaging TABLE 3 Case Pack Data Avg. Units per Carton UFC Volume per Carton (Cub. M) 0.05 0.034 0.05 North East Midwest 30% South 20% Northwest 30% Southwest 5% 15% TABLE4 Forecast Demand by Region Plants to SW New Jersey Wisconsin New Jersey California California $ 100 $2,000 $ 600 $1,700 TABLE 5 Transportation Cost per Truckload $2000 $2000 SW-DC North East Midwest New Jersey Wisconsin California Northwest $ 100 $ 700 $5,000 $ 800 $ 200 South $1,000 $1,500 Southwest $5,500 $3,500 $ 300 $5,000 $3,000 $ 600 $3750 $3,250 The distribution centers will deliver to stores throughout the United States. Anth felt that he could omit that cost for the moment as he pondered the remaining total cos elements. There are several alternative networks, particularly related to the assignment of staging warehouses to distribution centers. To complete his analysis, he assumed that the overall inventory turnover rate would be five per year. He also knew that Diem Wellness historically had an inventory carrying cost of 18 percent based on aver tory for the year. 1. Explain the concept of Echelon as it relates to Warehousing and Supply Chain Network. 2. Using the information described in the case study, create a flow diagram describing the company's current Supply Chain Network (Distribution Structure) as describe in the case. 3. The inventory carrying cost (holding cost) is 18% per year at each final warehouse. Calculate the holding cost for each product and location per day and per year. WFC MFC BB sales 15,000,000 4,500,000 2,000,000 Avg. Unit price 5 4 .5 6.25 Total Units 3,000,000 1,000,000 320,000 Forecast Demand per Region from Table 4 Warehouses North East Mid-west South Northwest Southwest Total Demand % 30% 20% 30% 5% 15% 15% 100% | WFC 9 00,000 600,000 1900,000 150,000 450,000 3,000,000 MFC 300,000 200,000 300,000 50,000 150,000 1,000,000 BB 96,000 64,000 96,000 16,000 48,000 320,000 4. If you could Modify the current Supply Chain Strategy, what would you change and why? - Develop a diagram or diagrams with the New Supply Chain Structure and explain your