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Alternative Distribution for SSI

Sugar Sweets, Inc. (SSI) has started research and analysis into ways that they can widen

their scale of selling product to retailers while also increasing profits. Historically, SSI utilized a

“middle-man” type distributor called candy and tobacco jobbers to help move their product to

retailers. The company was losing these distributors for different reasons to include larger

distributors dominating the market and the growth of wholesale stores where smaller stores

would buy product from directly for resale. Due to these issues, SSI looked into alternative

options that they could sell their products in a positive manner. Their plan included retail stores

that they did not deal with normally but felt they could target for sales increases. To begin this

process, SSI would contact as many potential stores as possible with the hope to garner interest

and analyze the results after a year when they could potentially target more stores based on

(hopeful) positive results. To implement this plan, a research team was tasked to answer five

questions which would help in their analysis (Bowersox, 2013).

Question 1: Determine the total number of retailers in the program initially as well as after

the trial period.

Based on separate regions, there would be a total number of retailers to target at

820,000 between the Eastern, Midwestern, and Western regions. The goal for this would be to

contact 20% of these retailers which would be 164,000 stores. From there, 30% of the stores for

initial contact will participate in the trial program which would be 49,200 retailers. The

expectation is that 55% of these stores would continue after the 6-month trial period for a total

number of 27,060 stores.

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 Question 2: Determine what the average retailer will sell on a daily basis as well as

annually. Provide sales in terms of unit and dollar amounts. (Assume 260 business days

per year, with 5 business days each week.)

On a daily basis, the average retailer will sell 1.12 units to 10 customers per day resulting

in 11.2 units sold per day and $14 per day. Annually, those numbers would be 2,912 units and

$3,640. This is based on an estimate of 100 potential customers per day with 10% of those

customers purchasing product. Also, each customer purchase would result in an average of

$1.40 per transaction.

Question 3: Translate the annual sales for an average retailer into the number of large

packs that retailers will order per year. Repeat for the small pack order. Include the initial

order in the calculation.

With annual unit sales of 2,912, there would be slightly over 16 (16.18) large packs and

slightly under 32 (31.65) small packs per year. This is based on a large pack holding 180 units

and a small pack holding 92 units.

Question 4: Calculate the orders for the 6-month trial period if 45 percent of retailers

exclusively order/reorder large packs and the remaining retailers exclusively order/reorder

small packs. Calculate the second 6 months accounting for the dropout. Assume the

“performer” ratios remain the same after the trial period.

Based on a total of 49,200 retailers participating in the six-month trial period, if 45% of

those order/reorder large packs (based on SSI’s new assumption of high/medium/low performers)

there would be 70,848 orders for high performers, 26,568 orders for medium performers, and

35,424 orders for low performers. This results in a total of 132,840 large pack orders for the first

six months. For small pack orders based on 55% of retailers ordering/reordering small packs,

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 high performers would order 173,184 small packs, medium performers would order 64,944, and

low performers would order 86,592 small packs in the first six months. This would be a total of

324,720 small pack orders for the first six months. After the trial period with SSI’s projections of

55% of retailers remaining, there would be a total of 73,062 large pack orders and 178,596 small

pack orders in the second six months.

Question 5: Assume retailers pay $205 for a large pack and $115 for a small back. On the

basis of the first year’s sales calculated in question 4, determine the profit to SSI if three

distribution centers are used. Repeat for the four-distribution center network. Which

network, if either, should be used? What factors aside from cost/profit might influence the

network decision?

If three distribution centers are used, there would be a total profit of $4,474,707 based on

large and small pack orders. To get to this math the total number of small packs ordered at a

profit of $6.89 per pack and total large packs ordered at a profit of $4.89 per pack. If four

distribution centers are used, there would be a total profit of $4,803,007 based on large and small

pack orders. Based on these numbers with a larger estimated profit of almost $330,000 per year

and a faster service time, the four-distribution network would be more beneficial for SSI to

utilize.

Conclusion

SSI would benefit greatly from the alternative distribution plan if it worked out based on

the analysis of overall numbers. This is based on only the numbers with the alternative plan and

not the current profit numbers but almost $5,000,000 in profit annually seems to be a positive

outcome. However, a lot of these numbers are based on assumptions and estimates so there

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 could be many other variables that work against these numbers. Overall, the alternative

distribution plan seems to be beneficial to the company.

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 Reference

Bowersox, D. J., Closs, D. J., Cooper, M. B., & Bowersox, J. C. (2013). Supply Chain Logistics

Management. New York: McGraw-Hill.

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