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IMSE1016 Fundamentals of Business Logistics Case Study Cheezy Wheezy

1. The policy of handling stock out can be divided into two categories: Before stock out and After stock out. Before Stockouts The best way to handle stock outs is to prevent stock out as it is costly to handle stockouts. Doing an accurate forecast of future demand is one way to avoid stockouts. The cost of an accurate forecast may be high, however, cost of handling stock outs is usually much higher than that of an accurate forecast. Another way to prevent stock outs is to have a good purchasing and supply schedule as stock out can be resulted from a bad schedule. Cheezy Wheezy can do an investigation on their schedule making process in order to prevent delay of schedule. Material Resource Planning is one the efficient scheduling ways. If schedule is on track, the chance of having stockout will be much lower After Stockouts When customers are ordering, the company can ask their customers if they would accept any alternative in case their desired products are out of stocks. If yes, the company can replace the out-of-stock products with alternatives. In this way, the orders can also be fulfilled if some of the products are out of stocks. If customers dont accept any alternative, then, the company needs to consider the trade-off between customer service level and profit. If the company doesnt want to displease their customer and want to save companys reputation, they can directly buy from their competitors so as to deliver the orders on time. However, the costs of doing this is obviously very high and the costs may not be even covered by the profit. If the company doesnt want to lost profit, it can simply delay the orders and if customers cant tolerate this, they will cancel the orders. The company wont have any loss financially in this way but the high customer service level is scarified. 2. In such cases, the shipped products may be missed or customers complain may be just because they want to get their goods earlier. In order to solve this problem, it is suggested to establish a tracking system. Each order will be assigned a number. Customers can check the condition of their orders like if their products are being shipped? or still processing? Customers can also check where their purchased products are and how long it takes to get their products in hand. With this system, the percentage of delivery errors can be greatly decreased as the company and

customers can track the delivered products and their conditions. One of the worlds largest package delivery companies UPS also provides tracking service. Customers can simply type in their orders number in UPSs website and then the condition of parcels will be clearly shown. [1] This tracking system can help to reduce customers worries too so that they will not complain irrationally and company can use less resource to handle these unnecessary complaints. 3. Use of postage-paid is obvious that it is easier and convenient for customers to response. Besides, if your response rate is high, there will be a discount offered by postal service providers. However, this will bring the company extra cost as most postal service providers will charge you processing fees. [2] While for asking customers to add a first-class stamp, this is not customer-friendly and this will affect the customer response rate badly. However, this will not bring the company extra cost. In case of Cheezy Wheezy, it should use the postage-paid method if it expects a high customer response rate. If their response rate is high enough, the money saved by discount can compensate the processing fees required. Besides, use of postage-paid method can also encourage customers response too. Therefore, Postage paid type is definitely better for Cheezy Wheezy if its market is large enough. Otherwise, asking customers to prepare their own stamps is a more suitable way. 4. It is suggested to charge packaging fee by pounds per package. That is for different pounds, there would be a corresponding fee. The following table is an example. Pounds per Package 1 2 Packaging fee($) 0.5 0.7 Pounds per Package 3 4 Packaging fee($) 0.85 0.95

If the amount of pound is not integer like 2.5pounds, then the packaging fee would be counted as that of 3 pounds. In this way, the packaging fee is easy for customers to understand and the company can charge enough to cover the cost of packaging and extra transportation cost due to the weight of packaging. This is much fair for customers as they really get 3 pounds of cheese but not 14 ounces of cheese and 2 ounces of packing material. In addition, this pricing system can also minimize the impact on both packaging and transportation cost if customers order, say 4 pounds of cheese and want to pack it into 2 pieces of 2-pounds cheese. As the packaging fee is charged per package, the packaging fee of 2 pieces of 2-pound cheese would be 2x0.7 =$1.4 but not $0.95. 5. It is suggested to charge transportation cost by absorbing the costs into product

price and charging by money value of order. For example, over a certain amount of money value of order, say $19.9, customers need not to pay extra transportation costs. Over $19.9, savings due to larger shipment size will be able to absorb the transportation cost as well as variations due to differences in location(tapers). While for orders under $19.9, customers need to pay an extra fee to cover the transportation costs. A cheese company in USA also uses similar pricing system to charge customers transportation costs. [3] This pricing system is simple and easy for customers to understand. It can minimize the problem of tapers as well. Most importantly, it can encourage customers to purchase more. 6. Types of Shipping Cost Packaging costs Cover the cost of packaging material and its extra burden on transportation Charged by Pounds Per Package ( See Table in question 4) Examples: One 4-pound Cheese : $0.95 Two 2-pound Cheese : 2x0.7 = $1.4 Charged by money value of orders: - Free for order value over $19.9 - $5 for order value below $19.9 Nature Ways of Charging

Transportation Cover the delivery cost, order costs processing cost and other overheads of products

7. The online order form will be more detailed than the printed and mailed one. The printed and mailed one is made as simple as possible because customers will feel confused and inconvenient it is too detailed and complicated. However, for the on-line one, customers can read the detailed information and proceed one page by page easily without any confusion. Besides, in the internet, there is no problem like taking up valuable selling space. In order to be customer-friendly and save space for advertisements, the shipping cost charging system is simplified as mentioned in question 4 and 5. However, if internet is used for a platform of ordering, the above problems can be avoided. Customers can simply input their orders and address and then the computer can calculate the shipping costs for customers. The tapers will not be a problem anymore and customers need not to read those complicated maps and tables anymore too. References: [1] UPS official website - http://www.ups.com/asia/hk/hkgindex.html [2] United States Postal Service - http://www.usps.com/replymail/rates.htm [3] The Cheese Big A Cheese Company in USA - http://www.thecheesegig.com