Glup SA Glup SA supplies a range of household soaps to supermarkets in northern Europe. There…

Glup SA

Glup_SA_supplies_a_range_of_household_soaps_to_supermarkets_in_northern_Europe._There_
are_12_stock-keeping_units_(SKUs)_in_the_range._The_logistics_manager_has_determined_
that_ an_investment_of_0.5_million_on_improved_material_handling_
equipment_would_ convert_the_main_distribution_centre_into_a_more_flexible_facility._A_number_of_benefits_in
improved_product_availability_have_been_identified__but_current_information_is_largely_in_
the_form_of_discretionary_costs._Glups_assessment_of_the_benefits_and_its_plans_to_convert_
the_justification_into_engineered_costs_are_outlined

Glup SA

Glup_SA_supplies_a_range_of_household_soaps_to_supermarkets_in_northern_Europe._There_
are_12_stock-keeping_units_(SKUs)_in_the_range._The_logistics_manager_has_determined_
that_ an_investment_of_0.5_million_on_improved_material_handling_
equipment_would_ convert_the_main_distribution_centre_into_a_more_flexible_facility._A_number_of_benefits_in
improved_product_availability_have_been_identified__but_current_information_is_largely_in_
the_form_of_discretionary_costs._Glups_assessment_of_the_benefits_and_its_plans_to_convert_
the_justification_into_engineered_costs_are_outlined_below.

Improved in-store availability

This_is_the_percentage_of_time_for_which_a_product_is_available_on_the_shelf._If_the_product_is_
not_available_on_the_shelf,_then_it_will_lose_sales_to_competitive_products_that_are_available,_
such_as_supermarket_own_brands._(Availability_is_a_classic_order_losing_sensitive_qualifying_
criterion,_as_described_in_Section_1.3.)_Current_available_data_at_Glup_are_scant,_but_suggest_
that_average_in-store_availability_is_as_low_as_85_per_cent_for_a_given_SKU._In_order_to_convert_
this_discretionary_benefit_into_ an_ engineered_cost,_Glup_intends_
to_measure_ the_ time_for_ which_each_of_the_12_product_lines_is_unavailable_each_week._One_way_to_do_this_is_to_use_a_
market_research_agency_to_conduct_sample_studies_of_product_availability_in_selected_stores_
at_random_times_across_the_working_week._This_will_yield_an_availability_guide,_such_as_the_
85_per_cent_figure_referred_to._The_new_system_will,_it_is_believed,_reduce_this_unavailable_time._
Glup_then_plans_to_model_the_new_material-handling_equipment_methods_using_simulation,_
and_to_calculate_the_new_in-store_availability._The_reduced_non-availability_time_could_then_
be_converted_into_additional_contribution_for_each_SKU_to_give_an_engineered_cost_saving.

Reduced transportation costs

The_new_equipment_would_also_allow_lower_transportation_costs,_because_trays_of_different_
SKUs_ could_ be_mixed_ together_ on_ the_
same_ pallet._Glup_ again_ intends_ to_ use_
simulation_modelling_to_identify_the_opportunities_for_savings_using_this_method._It_is_
considered_that_this_will_offer_the_opportunity_to_reduce_overall_transport_costs_by_more_
flexible_loading_of_the_trailers_used_to_distribute_the_products_to_Glups_customers.

Promotions and new product launches

It_is_considered_that_the_new_equipment_will_enable_promotions_and_new_product_launches_
to_be_delivered_to_selected_stores_more_accurately_and_more_quickly._Demand_uncertainty_
in_such_situations_is_very_high:_for_example,_a_recent_three_for_the_price_of_two_promotion_
created_a_fivefold_increase_in_sales._In_order_to_launch_a_new_product_it_is_first_necessary_to_
drain_the_pipeline_of_the_old_product,_or_to_write_it_off_as_obsolete_stock._If_the_more_flexible_warehouse_system_can_reduce_the_length_of_the_pipeline_from_factory_to_supermarket,_
it_is_argued,_then_a_real_saving_in_time_or_obsolete_stock_is_possible._Glup_again_intends_to_
measure_this_by_simulation._It_will_then_be_necessary_to_determine_by_how_much_sales_will_
increase_as_a_result_of_the_new_product_advantages._This_will_be_estimated_by_Glup_marketing_people,_who_will_use_experience_of_previous_promotions_and_new_product_launches._
The_engineered_cost_will_be_the_additional_time_for_which_the_new_product_is_available_
multiplied_by_ the_additional_estimated_ sales_volume_multiplied_by_
the_contribution_per_ unit._Alternatively,_it_will_be_the_reduction_in_obsolete_stocks_multiplied_by_the_total_cost_
per_product_plus_any_costs_of_double_handling_and_scrapping.

Question

1 Comment_on_Glups_plans_to_create_engineered_costs_from_the_perceived_benefits_of_
the_new_material-handling_equipment.

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