Placing your answer in a providing table and answer each given question using your solution on the table.

Colleen Starkey never thought she would be able to sell paper products to the consumer on the internet. However, after five years in business Paper.com has reached $75 million in revenue. Paper.com specializes in shipping paper-related products to customers, including diapers, paper towels, and facial tissue from numerous suppliers. Because these items have a little margin, Colleen knows she needs to control costs and at the same time have high service levels.

Paper.com receives 500,000 orders annually with an average revenue per order of $150 and an cost of goods per order of $60.00. Paper.coms current order fill rate is 92%. Colleen estimates that of the orders not filled correctly or completely, 15% of the customers cancel their orders and 85% will accept a reshipment of the correct/unfilled items. This rehandling costs Paper.com $15 per order and is only applicable on the reshipped orders. To retain customers, Paper.com reduces the invoice value of rehandled orders by $30.

Paper.com pays $2,500,000 for transportation, both inbound to and outbound from its warehouses. Its warehousing costs are $1,950,000 annually. Paper.com has $40 million of debt at an annual interest rate of 12%. Other operating costs are $1 million per year, and Paper.com maintains $100,000 in cash at all times.

Paper.com has an average inventory of $6.7 million. This level of inventory is necessary to help fill consumer orders correctly the first time. The inventory carrying cost rate is 30% of the average inventory value per year. Its accounts receivable average $ 350,000 annually. Paper.com owns three warehouses that are valued in total at $87.7 million. The net worth of Paper.com is $45 million.

Colleen has decided that a 92% order fill rate is not acceptable in the market and lost customers and rehandled orders are negatively affecting profits. She has decided to invest $1 million in a new stock locator system for the warehouses, increase inventories by 10%, and improve the on-time delivery of inbound shipments by contracting with a new carrier. This carrier upgrade will increase total transportation costs by 10%. Colleen hopes these changes will increase the order fill rate to 98%. Paper.com faces a current tax rate of 35%.

You are the logistics analyst at Paper.com and have been asked to do the following:

Question:

1. Calculate the financial impact of increasing order fill rate to 99% from 92% and write your answer using the given table.
2. Describe what your suggestion is.

Hint: For the 99% case, use the information given below.

1. Assume that an annual order amount is 510,000.

2. The additional $1 million investment in a locator system considered an additional warehouse cost.

3. Assume that the company borrowed $1 million for a new stock locator system from the bank.

a) 92% 99% Annual Orders Orders Filled Correctly Service Failure Orders Lost Sales Orders Rectified orders Net Orders Sold Sales (Revenue) Less: Invoice deduction Loss sales revenue Net Sales (revenue Cost of Goods Sold ** Gross Margin Rehandling Cost Transportation Warehousing Inventory Carrying Other Operating Cost Total Operating Cost EBIT Interest Tax (35% x (EBIT - INT)) Net Income b)