Norton Auto Supply Case Solution
Monica decided to decrease the fill rate by 96% with 3% overnight service guarantee for the regional distribution center because of increase in inventory size, and she offered customer services to their dealers with 24 hours shipment arrangement. As a result, this led to an increase in the services by 1 % overnight. Monica has to investigate the possible ways which could decrease the overall cost without compromising the customer services. Monica has achieved the goal of providing highest number of services provided by overnight shipment for which information is gathered from federal express.
The federal shipment cost is less for all multiple package shipments, as well asMonica is also following the federal costing system, howeverit costs higher because Federal Express ignores the additional cost charged for emergency shipment scenarios.
The pricingpolicy of federal express is based on price per package and the total price of shipment-weighted. Moreover,Federal Express provides standards for pricing the shipment on per pound basis as well as the company has to charge above those standards to show the variation in rates with respect to federal express rates. The other companies have to charge more asit includes the true additional cost for the shipment of inventory or stocks.
The company is using emergency shipments to itsclients with the policies and procedures followed by the Federal Express, therefore many emergencies dealing with one particular client lead to a decrease in cost advantage to the company, which ultimately leads to a decrease in demand for product. Apart from that, there would be a negative relationship in quantity demanded produced and fixed cost per unit.
After the successful cost optimization strategy of 96% service level, Monica is demanding the discount offer as per policy and rules of the Federal Express. There would be $3 discount per shipment of the total price of all packages, which is also knownas drop off discount whichis applied for priority one category, which includes an overnight letter and standard air services shipments and also this discounts include for international shipments.
It also mentions the payment policy by each client, since they can make payment on delivering of shipment through check, credit card or charge with a valid account number that is valid for the federal express account.
Another discounting program is Special Handling fees in which additional per package is chargedfor the “Hundredweight” rates, which have some special handling fees for delivering hundredths of shipment at one time, which provides a discount of $0.40 per $ 100 of products supplied.
These entire combined effects lead to a decrease in total Federal Express shipment rates for both local delivery and international delivery with the fixed real cost of using $ 1 per pound. If we compare with the individual company’s costing policy, whose real fixed cost is $100 for central distribution center (CDC) and $200 for regional distribution center (RDC) then this would lead to the increase in the shipment rates for the individual company as compared to the Federal Express’ rates, and due to this they charge more from their clients in order to compensate their loss or to gain more profit.
The company should follow proper inventory control system to manage the large inventories in its warehouse holding centers. It includes policies and procedures to limit the amount of people with access to inventory, and the person who has access must keep the record of inventory that is coming in the warehouse and going out of the warehouse with the fool proof system of storage and receipts……………….
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