Hudson Jewelers Case Study

"Welcome to Hudson Jewelers, the Naples, Florida jewelry store attendant said with a smile. Im Bill; let me know if I can answer any questions you may have. Im browsing with my fianc, the customer responded. Oh! So, you two are getting married. Congratulations! Whats your name? as Bill extends his hand to shake hands. My name is Lilly and this is my husband to-be, Lester. Well, if you need my help, please let me know, Mr. Hudson said as he walked behind the counter at about 1:30 pm. Would you like a glass of wine while you browse? Mr. Hudson asked. No, thank you, as Lester noticed for the first time a small wine rack and comfortable leather chairs in the back corner of the store. Lilly and Lester continued looking at engagement rings, as Bill gave them space.

After about ten minutes, Lester asked Mr. Hudson, I noticed your big high-definition television with that beautiful wedding ring rotating. What is this? It is a 3D software system that allows you to co-design your own ring. You can pick out the diamond(s) and mount them on any ring you want. Once the entire ring is finalized our manufacturer will produce it.

Can we sit down and see how it works? Lilly asked Mr. Hudson. The three of them began to design a prototype ring, with Mr. Hudson answering questions. Mr. Hudson and Lilly were beginning to establish a friendly relationship based on trust. All of the ring designs could be stored on the computer for future reference.

A diamond became a symbol of social status and wealth in India about 3,000 years ago. De Beers, a diamond mining and production company, began to market diamonds in the 1900s with slogans like A diamond is a girls best friend, and A diamond is forever. De Beerss advertisements promoted the idea that those who do not buy diamond jewelry must not love their partners as much as those who do. One modern De Beers ad states, She already knows you love her. Now everyone else will, too. A century of advertising and branding, and billons of dollars in industry advertisements, has made a diamond a symbol of eternal love.

While Mr. Hudson and Lilly exchanged ideas about alternative ring designs, Lester asked Mr. Hudsons daughter, Jasime, what was the time. Its 3 pm, Jasime replied. Whew! I need a break, Lester responded as he stood up from his chair. Everyone laughed at Lesters comment as the clock kept ticking. OK, Ill hurry, Lilly said as she glanced at Lester. Lester walked around the store for a few minutes and then sat back down to reenter the design your own ring conversation.

By 4 pm everyone was exhausted after discussing an array of ring design questions, answers, and what ifs. However, Lester and Mr. Hudson now had a much better idea of what Lilly wanted in an engagement ring. Jasime had been listening to the three-way discussion but decided not to join the conversation at this time. Two ring designs were stored on the computer. Ill have my daughter Jasime work on these designs, Mr. Hudson said. I am good with the software but my daughter is the CAD expert. She will call our diamond and ring dealers and make sure what we have designed can be manufactured at your target price, Mr. Hudson continued.

Mr. Hudson, Lester asked as he was walking toward the door, Is your inventory lower because of this custom design capability? Mr. Hudson replied with a positive nod, Yes, definitely. It is a high-risk business to stock lots of diamonds and jewelry at the store. With the 3D/CAD system, I think we do a better job of matching our physical inventory to customer needs and trends. We have less security, loan, and insurance risk using CAD. We also see new trends that our customers may want using CAD. And the customers seem to enjoy designing their own unique jewelry. Exhibit 1.1 provides example customer comments during one month.

As Lilly and Lester began to leave the store, thanking Mr. Hudson and Jasime for their help, Betty, Mr. Hudsons wife entered the store and was introduced. Hudson Jewelers was a true one-store, family business. Lilly and Lester crossed 5^th Avenue to a restaurant and discussed their first computer-aided engagement ring design experience. Lilly was excited about the prospect of having a one-of-a-kind ring as they drank a glass of wine.

After three more visits to Hudsons Jewelers the final ring design was done with everyones approval. Jasime and Mr. Hudson carefully went over every aspect of the ring design to assure agreement. For example, the CAD technology allowed Lilly and Lester to see several alternative designs with gold or platinum prongs to hold a yellow diamond. Checks were written and the final ring design was electronically sent to the manufacturer.

One month later Hudson Jewelers called Lilly and Lester, and they went to the store to pick up their engagement ring. As they entered the store Betty and Bill Hudson and Jasime greeted Lilly and Lester by name. Are you ready to see your ring? Jasime asked in a joyful voice. Yes, we are so excited, Lilly responded. Mr. Hudson asked Lester to come to the backroom safe. He unlocked the safe and gave the ring to Lester. Can we put it in a box? Lester asked. Sure. Lester took the box and ring and walked into the storefront and gave Lilly the ring with a kiss on the cheek. Lilly opened the box and the ring sparkled under the high intensity lights of the store. Oh! It is so perfect, Lilly said as she hugged Lester.

Mr. Hudson then said, We have some presents for you, as he handed Lester a bottle of champagne and Lilly a small picture album that summarized how the ring was designed and manufactured step by step. It showed a 3D line drawing of the ring, a wax model of the ring that was used in production, the raw casting with platinum and gold prongs without the diamonds, and finally the completed ring from several viewpoints. The couple thanked everyone and walked across the street to their favorite restaurant to celebrate this memorable experience.

Hudson Jewelers is open from 10 am to 5 pm Monday through Saturday and closed Sunday. Two nights per week (usually Tuesday and Friday) they stay open until 8 pm. Also, customer appointments are made at any time the customer wants. Customer visits, as documented in Exhibit 1.2, are seasonal; the hot summer months being the lowest demand and the winter months the highest. Customers (called snowbirds) from northern countries or states move to the southern tip of Florida to avoid harsh winters. Snowbirds begin to arrive in October, followed by a pause during the holiday season of November and December. Peak season is January to April when the population of Lee and Collier counties almost doubles.

Mr. and Mrs. Hudson, their daughter Jasime, and sometimes her husband, Thomas Navey, work in the store. Mr. Hudson and Jasime Navey are the expert jewelers with Mrs. Hudson and her son-in-law filling in with friendly service but no particular jewelry expertise. Thomas Navey works full-time for the Collier County government. A typical staffing schedule for Tuesday is shown in Exhibit 1.3. The current store staffing schedule is based on two criteria. The first criterion is that either Bill or Jasime must be on duty at the store so an expert jeweler is always available for customers. Second, Hudson Jewelers is a family-owned business with no other hired staff.

Store inventory follows demand, with an average inventory in low season of $1 to $3 million, and in high season, $3 to $6 million. During some weeks in peak season jewelry inventory can peak at $15 to $20 million for short periods, due to customer special orders. Store display space is limited with the CAD system taking up floor space. Mr. Hudson would like to have more jewelry display space to show more moderate priced jewelry. Insurance rates are high and dependent on store security arrangements and inventory levels. The store has two fireproof safes bolted to the floor that weight over 8,000 pounds each. Security cameras are numerous and directly tied into a 24-hour security firm.

2. What are the detailed components of inventory holding costs in this situation? What other factors might influence holding costs, such as security costs, obsolescence costs, and others. What is your estimate of inventory carrying costs as a percentage of item value? Explain your reasoning