INTRODUCTION

Dans Western Wear is typical of western wear retail outlets. The industry is characterized by many independent regional shops. Frequently, theseretail 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 wearstores 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 Dans Western Wear prior to going to graduate school for amasters 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 wearstores, starting with Dans Western Wear. He also assembled a management team to help him grow his business. As anew store is purchased, Joe and the management team study the store to learn how it is successful. Initially, they donot 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.

THE PROBLEM

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 $2.2million. 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 noothers were readily apparent. The managerial cost specialist gathered data for the four variables from last years financial information and reported it in Table 1. The data was also entered into an Excel spreadsheet (see Appendix) by the teams administrative assistant.

Joe asked you, the managerial cost specialist on his management team, to examine the data and to recommend some courses of action to reducepurchasing department costs.

1. Prepare a statistical analysis of the costs provided.
   1. Plot the purchase department cost vs. each cost driver. Are they linear? Save them on one worksheet labeled Scatterplots.
   2. Do a High-Low analysis of each cost driver. Give the cost equation using each cost driver. Save them on one worksheet called High-Low.
   3. Use both simple and multiple regression analysis to develop cost models for all potential cost drivers. Put each result on a new worksheet and label the sheets.
   4. Identify the best model, and explain why.

Word File Edit View Insert Format Tools Table Window Help 48% Sun 10:09 AM a a 9 COO B. CaseRequirementsEdited - Saved to my Mac a Home Insert Draw Design Layout References Mailings Review View Tell me Share Comments Times New... 3 ' " Aa v to 21 T BbCcDdEe AaBbCcDdEe Aa BCDE AaBbCcDdEe AaBbCcDdEe AaBbCcDdEe AaBb CcDdi Heading 1 Paste B 1 x ADA Body Text Heading 2 Heading 3 List Paragraph x Normal No Spacing Styles Pane Dictate Table 1: CWWR Purchasing Department Costs and Cost Drivers + Store Location Number of Suppliers 61 Number of Purchase Orders 1,708 2,519 2,506 1,719 2,883 95 139 91 Sheridan Denver Salt Lake City Kansas City Omaha Milwaukee Minneapolis Phoenix Las Vegas Albuquerque Tucson 155 75 103 117 Purchasing Dept. Cost (US$) $575,000 1,226,000 1,710,000 881,000 1,544,000 794,000 1,341,000 794,000 2,216,000 2,030,000 1,338,000 856,000 1,122,000 863,000 1,085,000 952,000 1,134,000 1,042,000 1,634,000 699,000 73 647 2,978 3,761 2,584 5,497 4,347 2,878 Merchandise Purchased (US$) $47,239,000 102,364,000 100,162,000 95,760,000 51,466,000 50,631,000 84,753,000 103,464,000 96,162,000 62,364,000 65,635,000 88,524,000 72,645,000 61,638,000 105,666,000 59,437,000 38,542,000 33,020,000 36,322,000 34,121,000 31,920,000 176 130 Houston 62 819 129 1,247 2,162 145 141 Oklahoma City Tulsa Dallas San Antonio Austin El Paso 105 51 2,822 5,115 382 5,293 131 172 Nashville 34 Memphis Indianapolis 967 2,425 875,000 48 Page 3 of 3 1072 words English (United States) Focus BE 153% 19 N ctv 4 Word File Edit View Insert Format Tools Table Window Help 48% Sun 10:09 AM a a 9 COO B. CaseRequirementsEdited - Saved to my Mac a Home Insert Draw Design Layout References Mailings Review View Tell me Share Comments Times New... 3 ' " Aa v to 21 T BbCcDdEe AaBbCcDdEe Aa BCDE AaBbCcDdEe AaBbCcDdEe AaBbCcDdEe AaBb CcDdi Heading 1 Paste B 1 x ADA Body Text Heading 2 Heading 3 List Paragraph x Normal No Spacing Styles Pane Dictate Table 1: CWWR Purchasing Department Costs and Cost Drivers + Store Location Number of Suppliers 61 Number of Purchase Orders 1,708 2,519 2,506 1,719 2,883 95 139 91 Sheridan Denver Salt Lake City Kansas City Omaha Milwaukee Minneapolis Phoenix Las Vegas Albuquerque Tucson 155 75 103 117 Purchasing Dept. Cost (US$) $575,000 1,226,000 1,710,000 881,000 1,544,000 794,000 1,341,000 794,000 2,216,000 2,030,000 1,338,000 856,000 1,122,000 863,000 1,085,000 952,000 1,134,000 1,042,000 1,634,000 699,000 73 647 2,978 3,761 2,584 5,497 4,347 2,878 Merchandise Purchased (US$) $47,239,000 102,364,000 100,162,000 95,760,000 51,466,000 50,631,000 84,753,000 103,464,000 96,162,000 62,364,000 65,635,000 88,524,000 72,645,000 61,638,000 105,666,000 59,437,000 38,542,000 33,020,000 36,322,000 34,121,000 31,920,000 176 130 Houston 62 819 129 1,247 2,162 145 141 Oklahoma City Tulsa Dallas San Antonio Austin El Paso 105 51 2,822 5,115 382 5,293 131 172 Nashville 34 Memphis Indianapolis 967 2,425 875,000 48 Page 3 of 3 1072 words English (United States) Focus BE 153% 19 N ctv 4