Maggies Dress Shop (MDS) offers dress-rental services for customers who want to have fashionable dresses for formal occasions temporarily.

Customers can rent dresses online by visiting MDSs website. The website provides information about the available dresses and the corresponding rental prices. If customers find the dresses they want, they place their orders. On average, there are 300 rental orders per day. When taking a rental order, MDS requires a customer to specify two sizes for the requested dress stylethe most likely and the second most likely. This policy significantly reduces the customers hassle in returning a dress because of fit issues. Once a customer places a rental order, two dresses (one style in two sizes) are sent to the customer via UPS next-day delivery (one-day shipping, which costs $4/order, borne by MDS). After receiving the dresses, the customer can hold the dresses for a 10-day rental period. At the end of the rental period, the customer returns the two dresses in a pre-labeled UPS package. Return shipping takes one day and costs $3/order, borne by MDS.

Because of the rental policy and the substantial demand for rental, MDS needs to keep a great number of dresses to ensure that most customers can find dresses in their sizes. On average, MDS has 2,400 dresses in its Rental-Ready Inventory, including different styles and sizes.

After customers return the dresses to MDSs fulfillment center, the dresses are first inspected and classified as either good or damaged. MDS hires workers to inspect and classify the returned dresses. On average, 75% of the returned dresses are in good condition and only require basic cleaning. MDS then sends those dresses to Quick Laundry, which is located next to MDSs fulfillment center. Quick Laundry charges $6 for cleaning each dress. After cleaning, the dresses are put back in the Rental-Ready Inventory immediately.

If the dresses are damaged, they require more rigorous cleaning or repair. MDS then delivers those dresses to Like-New Laundry, which is far from MDSs center but specializes in repairing and cleaning such dresses. Because Like-New Laundry is much farther away, MDS does not send each damaged dress right after the inspection. Typically, MDS batches some dresses before sending them to Like-New Laundry. It costs $10 for each dress to be thoroughly cleaned in Like-New Laundry. After cleaning, Like-New Laundry also batches the cleaned and repaired dresses before sending them back to MDS. Then, MDS receives the dresses from Like-New Laundry, and these dresses are also put back in the Rental-Ready Inventory. Customers typically want dresses from the current fashion trends (and without any wear and tear). To meet this need, MDS regularly purchases new dresses and writes off old dresses. An average new dress costs MDS $600 (substantially discounted from the average retail price of $1,000). A new dress has an average life of 100 days. That is, once MDS purchases a dress, the dress can be used for rental business for 100 days on average. MDS depreciates the cost of a new dress over 100 days in a straight-line fashion, which means that MDS incurs $600/100 = $6 per day on each dress it owns.

Additional Information: An internal audit conducted by MDS uncovered the following information about internal processing at the fulfillment center. 1. The average price of a rental is $29 per day. Thus, a customer needs to pay $290 for a 10- day rental of the dress (in two sizes). Please note that a customer only needs to pay for one dress although MDS sends two dresses to the customer. 2. On average, each worker can inspect 18 dresses per day. MDS hires 40 workers to make sure the inspection capacity is sufficient, and the wage of each worker is $100/day. Based on the capacity, the average flow time in the inspection station is 3 days. 3. Quick Laundry takes a day to perform basic cleaning of a returned good dress. 4. Dresses identified as damaged need to wait for a while before they are sent to Like-New Laundry due to batching. On average, there are 150 dresses waiting to be sent to Like-New Laundry. 5. After receiving dresses, Like-New Laundry takes an average of 3 days to repair and clean them. The cleaned dresses also need to wait before returning to MDS due to batch delivery, and there are 150 such dresses at Like-New Laundry waiting to be sent back. 6. The time to ship dresses to/from Quick Laundry can be assumed to be negligible (zero). It takes 1 day to ship dresses to/from Like-New Laundry after batching. 7. We assume that there is no shipping cost to/from Quick Laundry and Like-New Laundry.

Please submit a group write-up addressing the following questions about the case:

1. Draw a detailed process flow diagram that captures all the places where Maggies Dress Shop has the inventory of dresses. (Hint: please review all underlined words carefully.)

2. Please calculate and provide the following numbers: a. The average number of dresses that customers hold b. The average days the dresses need to wait for being sent to Like-New Laundry c. The average number of dresses in Quick Laundry d. The total average number of dresses that MDS owns to do business (i.e., the total average number of dresses in MDSs process)

3. If MDS wants to reduce the number of inspection workers, what is the minimum number of workers required to ensure the capacity is sufficient?

4. Complete the profit and loss statement using your answer to Questions 1 & 2. What is MDSs daily profit (including depreciation)? (NOTE: the profit can be negative.)

5. A transportation service provider offers MDS a contract with the unlimited shipment of the dresses to/from Like-New Laundry. With such a service, batch delivery is not required for the shipment between MDS and Like-New Laundry, but it still takes 1 day to ship dresses. The transportation provider asks for $1,000/day to provide the service. Should MDS accept the contract? Why?