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 replacements of all inventory. Joe did notice however that purchasing department costs varied considerably between stores. The minimum was $575, 000 and the maximum was $2.2 Billion. This was perplexing, and he thought this 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 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 contracted purchasing managers from three different stores who agreed that these were potentially good cost drivers and they no others were readily apparent. The managerial cost specialist gathered the data for four variables from last year’s financial information and reported in Table 1. The data was also entered into an Excel spreadsheet (See appendix) By the team’s administrative assistant.

1. Prepare a statistical analysis of the costs provided.

A). Plot the purchase department cost vs. each cost driver (Graph per page)

B). Analyze the data for the potential problems, correct data problems if necessary and report any changes made.

C). Use the regression analysis to develop cost model for all potential cost drivers.

D). Identify the best model and explain why.

E). Explain what the model means from an economic perspective.

2. Use the model to make two recommendation to the CWWR management team for improving the efficiency of the purchasing operations Be specific with the details of the recommendations Estimate the cost saving from the implementation of your recommendations. Consider the secondary implications, quantitative and/or qualitative. Indicate how these changes (recommendations) should be implemented.

Discuss

1. What cost drivers are useful for predicting the purchasing departments costs? What is the recommended model? What does it mean? How can this model be used to reduce costs?

2. Does CWWR use a centralized or decentralized purchasing system? Why would the company use this strategy? Under what circumstances would a decentralized strategy be more valuable?

3. You developed recommendations, which are essentially are changes to human behavior. Is change in an organization easy? How can human behaviors be changed in a management setting?
 

Toble 1: CWWR Purchasing Department Costs and Cost Drivers Purchasing Dept. Cost (USS) Store Location Merchandise Purchased (USS) Number of Number of Purchase Orders Shendan Suppliers $575.000 $47,239.000 1.700 61 Denver 1226,000 102364.000 2.519 05 Salt Lake City 1,710,000 100,162,000 2.506 139 Kansas Oty 881.000 95.760,000 1.719 Omaha 1,544,000 51,466,000 2.883 156 Milwauke 794 000 50,631,000 647 75 Minneapolis Phoenix 103 1341.000 84, 753,000 2.978 794,000 103 464.000 3,761 117 Las Vegas 2.584 73 2216000 162.000 Albuquerque 2.030.000 62 364,000 5.497 178 Tucson 1,338,000 65,635,000 4247 130 Houston 88,524,000 2878 62 129. Oklahoma City 1.122 000 72.645,000 19 Tulsa 863.000 61,638.000 1247 145 141 Dallas 1,085.000 105.666,000 2.162 San Antonio 59437,000 2,822 105 952.000 S.115 51 Austin 1,134.000 38.542.000 131 33020,000 36.322,000 B Paso 1,042.000 382 5293 172 Nastiville 1634,000 699.000 34,121,000 967 34 Memphie 675.000 31,920,000 2,425 48 Indianapolis IMA EDUCATIONAL CASE JOURNAL 3 VOL 10. ND. A. ART. 3. OECEMBER 2017