Acme Apparel Case: Acme Apparel Supply Chain Logistics Dilemma Acme Apparel is a $150 million manufacturer and distributor of basic apparel items such as underwear, panties and socks. Acme sells through mid-tier retail chains and is trying to break into the major “big box” retailers. It sells private label programs under its own label, and manufactures a small amount for other apparel suppliers. The global market for apparel is extremely price-competitive, forcing suppliers into relentless efforts to drive down their costs. Among these efforts is global sourcing to take advantage of imports from low wage economies and regions, including Asia. Acme has struggled in recent years, and witnessed three years of declining profits due to price compression and difficulty reducing their cost structure. In response, the Board of Directors brought in new President Gerald Jeffs, with industry experience and an impressive turnaround background. After reporting to work (once he was safely on board), the Board briefed Mr. Jeffs on the challenge before him. They explained the “rest of the story”. In addition to a high cost structure, Acme suffered from historically weak performance from its supply chain. Specifically, inventory turns were too low, manufacturing schedule and shipping performance averaged 80 – 90%, waste and off-quality were too high versus their benchmark group, and distribution and logistics costs were high at over 6% of revenue dollars. The new President would have to act quickly to resolve these problems and get the firm back on track to profitable growth. The First 90 Days Shortly after his arrival, Mr. Jeffs evaluated his new organization and decided to make 4 key hires (see Appendix): 1. VP of Sales, reporting directly to the President. Hired Ron Washman, a strong sales manager hired from a competitor with solid contacts in the retail industry. 2. Director of Logistics, reporting to COO. Hired Scott Mink, who had implemented strategic logistics transformation for a major office supply company. 3. Director of Sourcing, reporting to VP-Supply Chain. Hired Connie Mack, an industry veteran with an extensive global industry network. 4. Director of Purchasing, reporting to VP-Supply Chain. Hired James Lehman, who had a strong record leading and transforming global purchasing organizations. Mr. Jeffs made sure each of his new hires was properly oriented and grounded in his new Supply Chain strategy, which he summarized into these key points: 1. Sell more by penetrating key retailers with programs that Acme can support profitably and successfully, meeting retailer expectations and requirements. 2. Reduce cost structure as quickly as possible to increase profit margins. Use global sourcing and global purchasing leverage to reduce the cost of supply. 3. Increase customer service and on-time shipments through standardized global transportation and logistics processes. Also, use logistics excellence to reduce shipping costs, incre.

1. Acme Apparel
Case: Acme Apparel Supply Chain Logistics Dilemma
Acme Apparel is a $150 million manufacturer and distributor of
basic apparel items such as underwear, panties and socks. Acme
sells through mid-tier retail chains and is trying to break into
the major “big box” retailers. It sells private label programs
under its own label, and manufactures a small amount for other
apparel suppliers.
The global market for apparel is extremely price-competitive,
forcing suppliers into relentless efforts to drive down their
costs. Among these efforts is global sourcing to take advantage
of imports from low wage economies and regions, including
Asia. Acme has struggled in recent years, and witnessed three
years of declining profits due to price compression and
difficulty reducing their cost structure. In response, the Board
of Directors brought in new President Gerald Jeffs, with
industry experience and an impressive turnaround background.
After reporting to work (once he was safely on board), the
Board briefed Mr. Jeffs on the challenge before him. They
explained the “rest of the story”. In addition to a high cost
structure, Acme suffered from historically weak performance
from its supply chain. Specifically, inventory turns were too
low, manufacturing schedule and shipping performance
averaged 80 – 90%, waste and off-quality were too high versus
their benchmark group, and distribution and logistics costs were
high at over 6% of revenue dollars. The new President would
have to act quickly to resolve these problems and get the firm
back on track to profitable growth.
The First 90 Days

2. Shortly after his arrival, Mr. Jeffs evaluated his new
organization and decided to make 4 key hires (see Appendix):
1. VP of Sales, reporting directly to the President. Hired Ron
Washman, a strong sales manager hired from a competitor with
solid contacts in the retail industry.
2. Director of Logistics, reporting to COO. Hired Scott Mink,
who had implemented strategic logistics transformation for a
major office supply company.
3. Director of Sourcing, reporting to VP-Supply Chain. Hired
Connie Mack, an industry veteran with an extensive global
industry network.
4. Director of Purchasing, reporting to VP-Supply Chain. Hired
James Lehman, who had a strong record leading and
transforming global purchasing organizations.
Mr. Jeffs made sure each of his new hires was properly oriented
and grounded in his new Supply Chain strategy, which he
summarized into these key points:
1. Sell more by penetrating key retailers with programs that
Acme can support profitably and successfully, meeting retailer
expectations and requirements.
2. Reduce cost structure as quickly as possible to increase profit
margins. Use global sourcing and global purchasing leverage to
reduce the cost of supply.
3. Increase customer service and on-time shipments through
standardized global transportation and logistics processes. Also,
use logistics excellence to reduce shipping costs, increase
delivery reliability and hold supply plants (owned and sourced)
accountable for meeting on-time production and shipping
schedules.
The First Year

3. All of the new hires were integrated quickly into the company
and began the work of reviving their respective functions. Ron
Washman reorganized the sales group along a key account
focus, to drive his reps to work at breaking into the major retail
accounts. Ron traveled heavily, meeting with customer senior
management and assessing which relationships were solid and
which needed work. He identified and brought back several
promising retail program opportunities, but was concerned
about the supply chain’s ability to deliver. He knew Acme must
demonstrate near-flawless performance on these initial
programs, or there would be no second chance.
In Sourcing, Connie Mack quickly identified some programs
which were internally manufactured at low profit margins that
could be sourced at lower cost. She began working with the VP-
Operations and Purchasing to convert these programs from
“make” to “buy”. The company had little experience importing
from Asia, but Connie put basic processes in place, training her
staff while developing the necessary business processes.
In Purchasing, James began a departmental “transformation”.
He reorganized his department along a category management
structure. He implemented “crash” training for his staff on the
basics of category management and procurement excellence. He
met with senior management from key suppliers to evaluate and
strengthen these relationships. To supplement Acme’s legacy in-
house ERP system, he acquired new applications for Spend
Management and E-Procurement. He was frustrated with
difficulty in “proving” the resulting cost savings through
Acme’s aging financial application systems, but was beginning
to show progress.
In Logistics, Scott Mink quickly determined that he needed to
rationalize his transportation network around one or at most two
global logistics providers, or “GLP”s. After an RFx process run

4. by Purchasing, he decided to award the business to AB Global
Logistics, and began converting all Acme shipments to use
ABGL booking and transportation. This had two major benefits
– the lower rates AB quoted (based on consolidating all of
Acme’s transportation volume), and the use of AB’s information
visibility solution, “Global Eye”. For the first time, Acme had
visibility to all its global shipments through a central database
and powerful reporting provided by the “Eye”.
The Dilemma
Sizing up progress during his first year in the job, Mr. Jeffs felt
confident that things were moving in the right direction, until
he read his email, which included the following:
Date: June 22. 2007
TO: Gerald Jeffs
From: James Lehman
Subject: Master Supplier Contracts
Gerald, as an update, we are making progress on the rewrite of
the master supplier contracts that we discussed last month. A
draft agreement has been reviewed by Legal, and we are
preparing to implement it at the Supplier Conference we’re
planning for next quarter. This will get us on common terms and
conditions with all suppliers, and provide consistent “rules of
engagement” to help manage any potential disputes that may
emerge. This proved critical in my last company, and I am
confident it will protect us in the same way.
Date: June 24. 2007
TO: James Lehman

5. From: Scott Mink
Cc: Gerald Jeffs
Subject: Master Supplier Contracts
James, I just finished reading your new master agreement.
Overall it looks good, except for one big issue. You included
language requiring that suppliers be capable of supplying
product to Acme on a DDP basis from any global location.
You are familiar with all the work my organization has invested
in our new global logistics network. If suppliers are required to
ship DDP, they control the transportation and delivery to the
destination port, including clearing customs. This will
circumvent our global network – probably at higher cost. If they
are shipping LCL, we lose any consolidation opportunities.
Finally, we lose visibility of the inbound shipment, which will
not show up in the “Eye” reporting. We need to remove this
provision from the master agreement. Keeping suppliers on FOB
terms ensures that we control the inbound logistics for
purchased materials, not the suppliers. For us, control means
low cost and inventory visibility, both of which are key to our
strategy.
Date: June 24. 2007
TO: Scott Mink
From: James Lehman
Cc: Gerald Jeffs
Subject: Master Supplier Contracts

6. Scott, I read your email and I am concerned. We seem to have
an alignment problem. My direction is to ensure the lowest
possible cost of supply from our global supplier network. In
order to do that, I need to develop our supply base, including
the capability to deliver their materials into the domestic
transportation network at their expense. As a bonus, they get the
burden of clearing customs, further saving Acme that expense
and trouble. DDP terms reduce our workload, cost and
responsibility, which is exactly what Gerald hired me to do.
Date: June 26. 2007
TO: James Lehman
From: Scott Mink
Cc: Gerald Jeffs
Subject: Master Supplier Contracts
James, I think you have the alignment problem. Gerald hired me
to reduce logistics cost. DDP supplier terms will undo all the
work we have done to build a global logistics network, and raise
cost too. Have you done a total cost of ownership (TCO)
analysis on DDP vs. FOB terms? Where is the lowest total cost?
I think we need to take this to Gerald. I am sure he’ll
understand my position.
Date: June 27. 2007
TO: Scott Mink

7. From: James Lehman
Cc: Gerald Jeffs
Subject: Master Supplier Contracts
1. The end state is for procurement to provide a VMI solution to
the manufacturing operations to support the Lean pull-
initiatives.
2. To support the above, all key suppliers (who have the
volumes to ship full container loads) must have the ability to
ship in-country and own the inventory.
3. It’s a step-wise approach that we get the suppliers to develop
the capabilities to ship in region (CIF to port of entry) and then
to country (DDP).
4. If the above is accomplished, then the supplier would take
ownership of the components instead of Acme during transit and
buffer inventory.
a. 1-2 weeks transportation (China -> SE Asia)
b. 2-3 weeks of buffer inventory at our plants
5. The above translates into 4-5 weeks of inventory off of Acme
books.
6. If we are currently turning 2.6, that’s about 20 weeks of
inventory. If we can take 4-5 weeks out, that’s a 25%
improvement on turns.
7. This is not a one-size fits all solution and it’s more than just
cost of the transportation. This is about supporting the supply
chain objectives. I’m surprised to find that there are still
comments made about purchasing simply looking at the
component costs.
8. There will be two scenarios to consider: 1) loose components
that cannot fill a full size container which will require
consolidation and 2) regular shipments that will fill a container
which we can move to VMI system much quicker.
9. Until we can figure out how to price mask the deals with the
3P logistics providers, we need to balance and get our suppliers

8. up to capability. How to Respond?
Pondering this exchange, Mr. Jeffs realized he needed some
background on some of the issues and terms contained in the
emails. Then, he needed to provide clear leadership and
resolution of this issue to these two key managers.
1. Give a complete synopsis of the case. Consider these terms
and issues for your background discussion:
· Incoterms: DDP, CIF, FOB etc.
· TCO (Total Cost of Ownership)
· LCL (Less than Container Load), FCL (Full Container Load)·
Port of Entry (Duties/Tariffs, Infrastructure, transportation
available)
· Free Trade Zones (FTZ)
· Consolidation / Deconsolidation· GLP (Global Logistics
Providers)
· Global logistics visibility
· Logistic Cost Trade Offs
· Supply Chain Risks
· Vendor Managed Inventory (VMI)2. In your opinion, who has
the stronger fundamental argument: Mr. Mink or Mr. Lehman?
Make sure to substantiate your answer with consideration of the
issues/terms in Question 1.
3. How could each executive prove his strategy was the best for
the organization?4. Are there any organizational changes that
Mr. Jeffs should consider? Please spell out in detail in your
opinion what Mr. Jeffs should and how should he implement his
actions. 5. What specific direction should Mr. Jeffs provide to
Scott and James?
Appendix
Acme Apparel
Partial Organization Chart
Gerald Jeffs

9. President
Ron Washman
VP-Sales
Open
VP-Supply Chain
Mike McMichael
VP-Opns & COO
James Lehman
Director
Purchasing
Scott Mink
Director Logistics
Connie Mack
Director Sourcing
John Jacks
VP – Human
Resources
Jerry Cash
CFO
Key Financial Metrics ($M)
Sales
$152
Average Inventory
$58
FG
$43
WIP

10. $6
RM
$9
Cost of Sales
$122
SG&A
$22
Earnings (Gross)
$30
Earnings (Net)
$8
8
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Company Name
Department Name�
Name
Title
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Title
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11. Acme Apparel
Partial Organization Chart�
Gerald Jeffs
President
Ron Washman
VP-Sales
Open
VP-Supply Chain
Mike McMichael
VP-Opns & COO
James Lehman
Director Purchasing
Scott Mink
Director Logistics
Connie Mack
Director Sourcing
John Jacks
VP – Human Resources
Jerry Cash
CFO
PowerPoint on 1. Ethics and Manager. See: www.ACMA.org or
www.AIMA.org
Worth 5 % of your total Grade in the Class

12. PowerPoint A: Grading Rubric
Used to Determine Your Grade
Out of 5 Points
Criterion
Unsatisfactory
Satisfactory
Exceptional
Score
In Points
1.PowerPoint is at least 5 slides long, not including title page
and references
Does not meet the requirement
Meets the requirement
½ pt
2. PowerPoint includes at least two peer-review scholarly
journal articles to support the ethics in this case
Does not meet the requirement
Meets the requirement
1 pts
3. INTRODUCTION-
Slide 1: a. Discussed the ethical issue central to problem
Below the requirement.
Meets the requirement
Exceeds the requirement and is well supported.
1 pt
4.BODY AND PRESENTATION:
b. Slide 2: Identified advantages to not reporting the inventory
as obsolete

13. c. Slide 3: Identified the disadvantages of reporting the
inventory as obsolete
d. Slide 4: Answered correctly the question: According the
IMA’s Statement of Ethical Practice, would it be ethical for
Perlman not to report the inventory as obsolete?
5.CONCLUSION:
e.. Slide 5: Provided your opinion of what the manager is trying
to do andyour conclusion regarding ethics.
Demonstrates a level of knowledge that is below the
requirement.
Meets the requirement.
Exceeds the requirement.
2 ½ pts