Dream Beauty

1. When we use the traditional allocation methods, we are spreading all the costs over each channel equally. We are also allocating costs such as labeling and deprecation across channels which were not using the equipment. At the current process the three channels seem very profitable. Retail- $12,038,356 or 18.5%

C- Store- $7,415,342 or 19%
Mass -$5,029,041 or 19.3%

The changes which I would recommend to more accurately assess the expenses are as follows: I would allocate depreciation only to Mass as they are the only sector using the machine. I would allocate Labeling only to Mass as they are the only sector using this. The other sectors ship merchandise unlabeled. the order processing cost should be calculated by the number of % orders completed by each sector The Packaging cost should be allocated according to the % of total packages of total. Delivery should also be allocated according to the portion of number of packages sent through each channel. I would also suggest reducing the DOS of inventory kept at the warehouse down to 30 days across all channels.

After making changes the three channels are now generating:
Retail- 20,701,674 or 31.85%
C-Store -4,636,773 or -11.83%
Mass 9,294,003 or 35.75%
2.PROFITABILITY LEVEL:
CURRENT STATE:
18.5%
19.0%
19.3%

REVISED STATE:
31.85%
-11.89%
35.75%

3. After implementing the changes, it showed us that the C-store channel was operating at a loss. I then looked at each store individually and calculated the expenses per store. This showed that there were 5 stores which were driving the profitability of this channel down as they were costing more than the profit generated from them. I would either stop servicing them, increase the price when selling to these stores to offset the high costs, or change the shipping terms which would favor cost reduction. I believe that offering the same level of service to all its customers is an incorrect strategy. In order to offer this, Dream Beauty has to keep many days of safety stock which decreases the return. Also, in order to maintain this three day fulfillment, this increased the SC costs significantly, especially in the C-Store channel mainly because they place frequent orders but smaller orders. So by increasing the 3 day to 5-6 will improve the SC costs.