report #1: distribution caseweb.eng.fiu.edu/chen/fall 2012/egn 5621 professional... · web viewfor...

Report #1: Distribution Case 2012

ENTERPRISE SYSTEMS COLLABORATION

Analysis of Distribution with ERP Simulation

Team EE:

• Anobb Hyacinthe – Procurement Manager

• Sriharshini Gudibanda – Marketing Manager

• Victoria Martinez – Sales Manager

• Gonzalo Figueroa – CEO

Thursday, July 25th, 2012.

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ContentsI. Initial Strategy....................................................................................................................................................................3

II. List and graphs...................................................................................................................................................................3

a. List and graphs of Daily Inventory per Item....................................................................................................3

b. List and graphs of Daily Sales Quantity per Sales Area...............................................................................4

c. List and graphs of Daily Value Amount per Sales Area...............................................................................5

d. List and graph daily price changes for each item...........................................................................................7

e. List and graphs for daily market Investment for each product in different areas..........................7

f. List of Purchase orders including all valuable information......................................................................8

III. Correlations....................................................................................................................................................................9

a. Correlation between Inventory and Sales/Profits........................................................................................9

b. Correlation between Price and Sales/Profits................................................................................................10

c. Correlation between Market investment and Sales/Profits...................................................................10

IV. Strategies by Plants..................................................................................................................................................11

V. Conclusion.........................................................................................................................................................................12

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I. Initial StrategyFor the Distribution game, we decided to take in consideration the pilot game and push to get as much margin as possible. Striving to get the highest profits, the sales department decided to price both of the ClearPure Water products with a higher price, assuming that the demand was vertical. This was supposed to provide a higher income. We decided to start with a higher price that will reduce slowly over time to keep competing in the market.

We also decided not to invest in Marketing as we did in the Pilot Game, to keep as much cash flow as possible.

As the result of these decisions, we had the highest margin at the first round of the Game I.

II. List and graphsList and graphs support our Report for the outcomes of Game I: Distribution.

a. List and graphs of Daily Inventory per Item

In regards to the daily inventories, the product that was sold the most was the ClearPure Water in both Presentations. The Lemon Spritz and the Spritz were not high in demand; however, both presentations attracted customer when the price got closer to the cost.

The table indicates the days of out of stock of product per Plant. FF is the Plant with the lowest out of stock days. This gave them a big advantage for the Second Quarter.

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b. List and graphs of Daily Sales Quantity per Sales Area

The first graph shows that the 1L Lemon Spritz had more sales in the South Region. This information is also supported by the second graph.

Both graphs also show that Plant EE had more sales of these items than the other two.

The graphs of the 1L Spritz show that the product had more rotation in the North and South area than in the South. Plants EE and DD had more sales of these items than plant FF. However, those sales were not as significant as Clear Pure Water sales.

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These graphs show how the ClearPure Water items had the highest demand in all the sales areas. Also, these graphs show how plant DD dominated the market by having the highest rotation of the items, which concluded in more orders. Price was key to atract customers, and Team DD nailed the competition by trading margin for volume.

c. List and graphs of Daily Value Amount per Sales Area

ClearPure Water items had the highest value in both sales quantities and Value Amount. The graphs show that the items had a higher rotation in the North Region and the lowest on in the South region. Also, the graphs show that Plant DD have the highest value amounts given them their position as winners.

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These graphs show that due to the low demand of the Lemon Spritz, on both presentations, the value is very low. However, the 1L presentation had a better value than the smaller presentation on both the South and West sales regions. In the North region, it barely had a presence.

The graphs show that the Spritz is the water that has less value for all the plants. These presentation barely show sales compare to the Lemon Spritz; however, we can notice that Plant EE gain a higher value from the 500mL than any other plant or the other presentation.

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d. List and graph daily price changes for each item.

In regards to price change, we can notice that Plant FF has the highest prices at certain points, which was related to low inventory. Team FF has a policy of raising the prices to keep inventory. We can notice that also in the 1L presentations, all the items follow the same trend. On the other hand, we notice that plant FF spread among the 500mL presentations with the two outstanding differences:

1. Plant EE price Lemon Spritz under cost for about 2 days, which made them loose significant profits. It was very hard to recover from those loses.

2. Plant DD sold under cost both Spritz and Lemon Spritz items among the last 3-4 days of the 3 rd

quarter.

These graphs are very important because they determined the sales volume achieved by plant, since the customer were driven by the price of the products. We can notice that Plant DD manage to dominate the market by offering a low price and ensuring the first position among the competitors.

e. List and graphs for daily market Investment for each product in different areas.

This graph shows that sales volume is interrelated with the investment in marketing that attract customers. With certainty, we conclude from this graph that Team DD gain the first place by investing in attracting customer even more when prices were closer to cost. Team FF had a reactive strategy and decided to invest at the end where they gain position in the market. Finally, team EE did not invest in marketing which never attracted customer even when prices were 1 cent over cost.

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f. List of Purchase orders including all valuable information

From these lists of the information of the Purchased orders issue by plant, we can monitor the replace and strategy implemented by team. Both plant DD and EE made only 5 Pos, while FF made 7 purchased orders.

Plant DD made sure that they had both ClearPure Water products at all time, replenishing on time and reducing the slack. On the other hand, Plan EE started by replenishing all the products by the second round which indicates that the team was trying to move all the items without identified the main ones (both ClearPure products). Finally, team FF kept restockig all the items with indicates that they were not focusing on the main items and ended up with a high stock of inventories.

It is important, to identified the main items with higher demand since the beginning. This allow us to focus on pricing and marketing and eventually achieve a total domination of the market. This was the strategy implemented by team DD.

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III. Correlations

From this graphic, we noticed that DD and FF were competing in the market, and obtained the biggest market share. We also observed that DD produce a very aggressive inventory.

a. Correlation between Inventory and Sales/Profits

As per the graphic obtained and correlation index, we are able to determine that a small positive correlation exists between amount of inventory and net income. Meaning that the companies that had a higher inventory, ended up with a higher Net Income. However, the information does not show a strong correlation.

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b. Correlation between Price and Sales/Profits

As per the data indicates, there is a strong negative correlation between the Price and the Net Income. This indicates that a higher price will produce a lower Net Income and vice versa. This

information helps to explain why the strategy used by team EE (our team) was not successful. The market was very sensitive to a price change and our competitors engaged a price war.

c. Correlation between Market investment and Sales/Profits

As per our data and graphic, there is positive correlation between marketing and Net Income, indicating that the bigger the investment, the higher the Net Income. Team DD (winning team), has a strong positive correlation, demonstrating that Market Investment was a valuable tool for winning market shares. Our strategy of avoiding investing in Marketing was definitely incorrect.

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IV. Strategies by PlantsBased on the information collected, we determined the strategies of each team:

Plant DD: offered aggressive prices and invested on marketing, which attracted customer until domination of the market. This team also had an aggressive policy for inventory. Therefore, they were able to supply all the products that customers were demanding. This strategy demonstrated to be successful, because they ended up winning the Distribution Game.

Plant EE: had a conservatory strategy by pricing according to market demand and without investing in marketing. Besides this, costs were always a focus and gross margin. We did not consider the option to drop the prices and compensate with a higher volume in sales, which ended up costing us the market share.

Plant FF: they offered aggressive price in reaction to the strategy implemented by Team DD. They invested in marketing at the end of the game with low efforts and poor results. This team also produced high inventories due to numerous PO’s, but were not able to move all the material as fast as Team DD.

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V. ConclusionBased on the results of the game and the analysis performed, we were able to acquire the following wisdom:

- The first game is that starting with low prices resulted in domination of the market.

- We realized that investing in Marketing prove to be a valuable tool to attract customers, which was contrary to our beliefs. We did have some technical difficulties that did not allowed us to invest in marketing before day 55 of the game. For that moment, it was already too late to recover part of the market.

- Selling under costs proved to be an effective way of reducing inventory and Net Income. This has to be avoided at all cost. That error definitely helped the other competitors and reduces the possibilities to achieve the same levels of sales. Costs are one of the key elements in any environment. Knowing your costs will allow you to establish a prices strategy ad hoc to the environment.

- Another valuable lesson was to consider trading margin for volume, in order to achieve a good position on the market and stay ahead of the game.

- The German market proved to be sensitive to the price and Marketing investment, which are considerations we will keep on for next games. This is considering that the market keeps a similar behavior, because our next company is still located on Germany.

- Paying attention to the bestselling products is a very important. Those products may compensate for products that are not being sold.

- Running out of stock is deadly when you are competing in the market. Those lost sales will benefit your competitor.

- To be able to analyze in real-time the market behavior and switch a strategy is key to keep on top of the game.

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report #1: distribution caseweb.eng.fiu.edu/chen/fall 2012/egn 5621 professional... · web viewfor...

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