Upload
bella
View
40
Download
0
Tags:
Embed Size (px)
DESCRIPTION
WKT Valentine’s Sourcing Strategies. Jason Bloom Srividya Deshpande Sarah Kruse Patrick Salemme. Situation. Valentine’s Day flower sales account for approximately 36% of fresh cut flower sales in the US Demand varies greatly year to year - PowerPoint PPT Presentation
Citation preview
WKT Valentine’s Sourcing Strategies
Jason BloomSrividya Deshpande
Sarah KrusePatrick Salemme
Situation Valentine’s Day flower sales account for approximately 36% of
fresh cut flower sales in the US Demand varies greatly year to year WKT (local supermarket) currently orders last minute to utilize
best demand forecasts but suffers high costs as a result
Current StrategyPostpone orders until
the last minuteExperience high
competition for scarce flower supply
Buy higher priced locally grown flowers
Need a new strategy
Major PlayersGrowers
Foreign and Domestic
WholesalersRetailers
GrowersForeign
2/3rds of US consumption
59% from Columbia18% from Ecuador6% gross marginSold for ~$0.05 per
stem
Domestic1/3rd of US consumptionUS is third largest
producer of fresh cut flowers
94% produced are sold in the US
40-60% gross marginSold for ~$1.75 per
stem
WholesalersDeal with large
consolidated bulk shipments from foreign growers to US
14 day life – cold chain required
Experiencing cost of $0.22 per stem sold
35% of flowers are lost during transit
45% gross marginSell for ~$0.40 per stem
Bullwhip Affect
Customer to Retailer
Retailer to Wholesaler
Wholesaler to Grower
Explain why wholesalers tend to have limited supply for last minute orders of the retail florists.
Retailers - WKT16th largest supermarket
chain in the US230 stores in the NESell roses to consumer at
~$2.00 (online or in store)
Average Valentine’s Day demand for past 10 years 2,285,862 stems High: 3,208,035 Low: 1,429,070
1996 1998 2000 2002 2004 2006 20080
500100015002000250030003500
WKT's Fluctuating Rose Demand
Stem
Dem
and
(in
1000
s)Year
Alternate StrategiesCurrent PolicyWholesale – 2 months in advanceWholesale HybridVertical IntegrationCoopetition – Cooperative Competition
Current PolicyPositives
Maximum demand accuracy
Multiple sources
NegativesFierce competition
between retailersHigher prices due to
local grower purchasesNo discount from
wholesaler
Current PolicyAssumes WKT can only
get 1.5mm roses wholesale at foreign $0.40 price
All other roses must be purchased for $1.75
Gross margin of 60%Standard Deviation of
14%
Wholesaler – 2 months in advance
Positives10% discount on orderGuaranteed supply of
order for Valentine’s DayStrengthens relationship
with supplier
NegativesMinimal demand
responsivenessAccurate forecasting
requiredUnderestimate demand:
high volume last minute from local growers
Overestimate demand: surplus spoiled stock
Compare the last minute ordering strategy and the advance ordering strategy.
Wholesale – 2 months in advance
Assumes all pre-ordered roses purchased at $0.36 (10% discount)
All additional required roses sourced from local growers at $1.75
Gross margin of 80%Standard deviation of
4%
Wholesale HybridPositives
10% discount for large portion of order
Opportunity to guarantee supply but make last adjustments
Maximize demand responsiveness at lower cost
Strengthens relationship with supplier
Negatives20% markup on small
portion of orderAccurate forecasting
required for advanced order optimization
How should WKT combine the last-minute order with the advanced order in the hybrid strategy?
Wholesale HybridAssumes WKT orders
69% of forecast at $0.36 to optimize margin
Additional roses ordered at 60% pre-order and 60% strike price
Gross margin is 75%Standard devation is 5%
Vertical IntegrationPositives
Maximum demand responsiveness
Higher profit marginAbility to profit from
additional stock
NegativesOutside company’s core
competency Infrastructure, grower
contacts, and knowledge of international shipping required
High fixed costs to implement
Vertical IntegrationAssumes WKT
experiences total landed cost of $0.22 per stem acting as wholesaler
All roses purchased for $0.05
Gross margin is 84%Standard deviation is 5%
CoopetitionPositives
Collaboration on securing supply
Potential for higher margins
Higher purchasing power
Information flow from competitors
NegativesAttempting to
collaborate with unwilling competitors
Consensus buying decision disagreement
Information flow to competitors
Summary of findings
Current Strategy
Wholesale Advance
Wholesale Hybrid
Vertical Integration
40% 45% 50% 55% 60% 65% 70% 75% 80% 85% 90%
Optimizing Profit Margin for WKT
Profit Margin
Stra
teg
y
Which Strategy works better for WKT? For the Wholesaler? Wholesaler and WKT combined?
Challenges of Vertical Integration Infrastructure – cold chain shipping and storageGrower contacts and importingBrokerage: customs and regulatory expertise
(traceability)Experienced Wholesalers lose 35% of flowers in transit… Can WKT handle this?
Risks of Vertical IntegrationCultural riskHigher costs due to
lower volumeLabor issuesSingle sourceLoss of focus on core
businessUnsatisfactory return Should WKT vertically
integrate with its wholesaler? Does the benefit outweigh the cost?
Recommendation: Wholesale in advanceYields savings of
$1,063,000 over current policy
Is more cost affecting taking into account fluctuating demand
Ordering newsboy quantity resulted in higher profit margin and lower margin variability than the hybrid model!
Questions?