RWV2 - Measures of product attractiveness in retail operations Shelf space limits the quantity and variety of products offered by a retail operation. The visibility of a particular stock-keeping unit (SKU) and probability of a stock-out are related to the space allocated to the SKU. Total contribution for the retail operation is influenced by how shelf space is allocated to the SKUs. For retailers, shelf space is their life blood - and it's very limited and expensive'. Shelf space, accordingly, can be treated as a constraint in retailing operations. The most attractive SKU is the SKU that generates the greatest contribution per unit of space (squar calculate contribution, all incremental expenses are deducted from incremental revenue. Incremental revenues include retail price and other direct revenue such as deals, allowances, forward-buy and prompt-payment discounts. Incremental expenses include any money paid out as a result of selling one unit of a particular item. Included in the incremental expenses would be the invoice unit cost and other invoiced amounts (shipping charges, for example) that can be traced directly to the sale of the particular item. Incremental revenues and expenses are found by dividing case values by the number of units per case. If capacity is not changed, then the relevant costs are the incremental costs rather than full costs. The choice of low direct product cost items (i.e. a full product cost including a share of the fixed warehouse, transport and storage costs) over high direct product cost items is essentially a choice to use less of the capacity that has already been paid for. If the costs of capacity are fixed, then using less capacity will not save money. Like the product mix problem, the answer to the space management problem is how to allocate existing capacity so that profit is maximized. To maximize profits where profits are constrained by space limitations, capacity should be allocated on the basis of the SKU that generates the greatest contribution per unit of space. Question 1. What are the relevant costs and revenues applicable to retail operations? RWV3 - Outsourcing and make or buy decisions - outsourcing police services Following public expenditure cuts and other austerity measures in the United Kingdom in 2010, the City of London police commissioner has made soundings about privatizing some sections of the police force who deal with fraud (Financial Times, 16th January 2011). Over 30 billion of fraud is committed annually in the UK. With a 20% cut in the budget for the City of London police, the police commissioners have to find ways to be efficient while maintaining service. To this end, the City police commissioner suggested that banks and financial institutions could contribute to the fight against fraud as it's in their own interest, he touted. The force, together with the Financial Services Authority, has also applied for a share of a 650 million fund to fight cybercrime. The funds would allow the police to employ specialized technology experts, who are not police officers but systems and technology professionals. Other areas of police activity are also under the outsourcing spotlight. Custody cells and private criminal investigators are also being considered by some police forces. Questions 1. Do you think it would be difficult to ascertain the costs of some police services, such as custody cells, to allow for comparison with private operators' prices? 2. Would the quality of any police services suffer if transferred to private firms? RWV4 - German drugstore Schlecker closes branches In January 2012, German drugstore chain Schlecker filed for the protection under German bankruptcy laws and an administrator was appointed. At that time it was hoped that the jobs of nearly 50 000 workers in about 10 000 stores across Europe would be safe. The news was not surprising, as the company has closed over 1000 stores in the previous two years as revenues declined. The decline in revenues may have been due to reported cases of being harsh on staff, which permeated the German media during the same time period. By the end of February 2012, the administrators had a clearer picture of the financial state of the Schlecker chain. About 3000 stores were to close with the loss of 13 000 jobs. The administrator is quoted as stating that such closures and job losses were necessary for a 'sustainable continuation of the chain. By mid-March 2012, most staff had been informed and the final number of store closures was approximately 2000, with 12 000 staff affected. All shops which were to be closed immediately started a sale with 30% off all products. In addition to the store closures eight distribution centres were confirmed as definite closures. Since the closures, the company has re-focused itself on the remaining stores, as well as launching a new corporate look and logo. Questions 1. How might the administrator of Schlecker decide which stores to close? 2. Why offer a 30% off sale on products in the stores to be closed down