This case study is about Louis Borders' Webvan which had an extravagant and glamorous start in 1999 and then filed for bankruptcy in 2001. It covers how, why and what happened during these 2 years before it went bankrupt. It serves as a cautionary tale for companies worldwide.
Manzana Insurance is the second largest insurance company founded in California in 1902. • They operated through a network of autonomous branch offices in California, Oregon and Washington. Each branch is treated as a separate profit and loss centre. • Manzana does not directly interact with public but instead has its 2000 agents who represents Manzana. • Fruitvale was one of the Manzana’s smaller branches, with 3 underwriting teams and 76 agents. Our case concern is the falling performance and hence the profitability on Property Insurance for this branch.
Challenges
Inaccurate forecasts of retailer demand has become a major issue at Obermeyer. The two major factors that made this task more difficult was the increase in product variety and intense competition in market. Second challenge the company had faced was to allocate production between Hong Kong and China. Although Obermeyer had 1/3 of Parka production in China for 1992, this year the organization insisted on increasing the sales to half. There was difference in quality and labor rate at China and Hong Kong which made allocation decision more difficult.
Another challenge the company faced was the larger lead time. The company had supplies of raw materials from various countries which resulted in delayed production time. Organization challenges along with competition from competitor companies were major challenges the company had faced.
Analysis
From the sales predictions that the six managers forecasted, a coefficient of variation (COV) was determined, which indicated the level of spread of the forecasted data. The COV values were broadly divided into two levels, the low risk group and the high risk group. Every value below 0.2 were considered to be among the lower risk items and all the items above COV value of 0.2 were considered to be of higher risks. Once the risk levels of each item were determined, the quantities of items to be produced in first and second production cycles could be calculated with least risk. 70% of the entire sales forecast for the lower risk items were ordered to be produced. Only 30% of higher risk items were ordered to be produced in the first production cycle. The quantities which amounted to 1200 were manufactured in China and that which were close to 600, were manufactured in Hong Kong in the first production cycle.
Once the 80% of the orders were received from the retailers from the Vegas show, a clear picture of the demand forecast could be obtained, according to which the rest of the items could be manufactured either in China or Hong Kong. Referring to exhibit 1, the four products to be produced in China in the first production cycle are: Assault, Seduced, Entice and Electra. These four products have COV less than 0.2. However Gail, Daphne, ISIS, Anita, Teri, Stephanie are produced in Hong Kong for the first production cycle as they have a high level of risk associated with it.
Conclusion
Short term operational changes
o Decrease lead time by obtaining raw materials from geographically closer locations to ensure timely delivery
Long term operational changes
o Cross scaling Chinese labors which would help the company produce quality and reliable goods at a cheaper price
Questions list.
1. Summarize the proposal that Tahki Yazzie submitted to the board.
2. Do a SWOT analysis relating to her proposal.
3. Propose another solution that relies on the reduction of costs and not rebranding the product.
4. Identify the areas that costs can be reduced effectively and calculate the impact it will have on profitability.
Though the outcome is now known, our report examines the environmental, industry and firm factors that drove HomeGrocer's spectacular rise and the decisions that led to its failure.
Supply Chain of Dell Inc.
Covering the foll. topics:
- Overview
-Value Chain
-Pull/Pull view
-Responsiveness v/s efficiency
-strategic fit
-Drivers of supply chain
-Distribution
Manzana Insurance is the second largest insurance company founded in California in 1902. • They operated through a network of autonomous branch offices in California, Oregon and Washington. Each branch is treated as a separate profit and loss centre. • Manzana does not directly interact with public but instead has its 2000 agents who represents Manzana. • Fruitvale was one of the Manzana’s smaller branches, with 3 underwriting teams and 76 agents. Our case concern is the falling performance and hence the profitability on Property Insurance for this branch.
Challenges
Inaccurate forecasts of retailer demand has become a major issue at Obermeyer. The two major factors that made this task more difficult was the increase in product variety and intense competition in market. Second challenge the company had faced was to allocate production between Hong Kong and China. Although Obermeyer had 1/3 of Parka production in China for 1992, this year the organization insisted on increasing the sales to half. There was difference in quality and labor rate at China and Hong Kong which made allocation decision more difficult.
Another challenge the company faced was the larger lead time. The company had supplies of raw materials from various countries which resulted in delayed production time. Organization challenges along with competition from competitor companies were major challenges the company had faced.
Analysis
From the sales predictions that the six managers forecasted, a coefficient of variation (COV) was determined, which indicated the level of spread of the forecasted data. The COV values were broadly divided into two levels, the low risk group and the high risk group. Every value below 0.2 were considered to be among the lower risk items and all the items above COV value of 0.2 were considered to be of higher risks. Once the risk levels of each item were determined, the quantities of items to be produced in first and second production cycles could be calculated with least risk. 70% of the entire sales forecast for the lower risk items were ordered to be produced. Only 30% of higher risk items were ordered to be produced in the first production cycle. The quantities which amounted to 1200 were manufactured in China and that which were close to 600, were manufactured in Hong Kong in the first production cycle.
Once the 80% of the orders were received from the retailers from the Vegas show, a clear picture of the demand forecast could be obtained, according to which the rest of the items could be manufactured either in China or Hong Kong. Referring to exhibit 1, the four products to be produced in China in the first production cycle are: Assault, Seduced, Entice and Electra. These four products have COV less than 0.2. However Gail, Daphne, ISIS, Anita, Teri, Stephanie are produced in Hong Kong for the first production cycle as they have a high level of risk associated with it.
Conclusion
Short term operational changes
o Decrease lead time by obtaining raw materials from geographically closer locations to ensure timely delivery
Long term operational changes
o Cross scaling Chinese labors which would help the company produce quality and reliable goods at a cheaper price
Questions list.
1. Summarize the proposal that Tahki Yazzie submitted to the board.
2. Do a SWOT analysis relating to her proposal.
3. Propose another solution that relies on the reduction of costs and not rebranding the product.
4. Identify the areas that costs can be reduced effectively and calculate the impact it will have on profitability.
Though the outcome is now known, our report examines the environmental, industry and firm factors that drove HomeGrocer's spectacular rise and the decisions that led to its failure.
Supply Chain of Dell Inc.
Covering the foll. topics:
- Overview
-Value Chain
-Pull/Pull view
-Responsiveness v/s efficiency
-strategic fit
-Drivers of supply chain
-Distribution
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2. Background
• Webvan was an online credit and delivery grocery business
• Founded in the heyday of the dot-com bubble in 1996
• Founder: Louis Borders (also a co-founder of Borders Bookstore in 1971).
• Headquarters: Foster City, California (near SiliconValley).
• Delivered groceries to customers’ home within a 30 minute window of their
choice.
• At its peak, it offered service in 10 U.S. markets.
• It went bankrupt in 2001
3. The Funding
• Raised approximately $1.2 billion dollars from private investors and IPO.
• Investors:
• Goldman Sachs
• Yahoo
• CBS Inc
• Knight – Ridder Co
• Softbank Co
• Benchmark Capital
• Sequoia Capital.
4. The Strategies that they thought would work
• The company expected to have only about 900 to 1,000 employees per
center, compared with about 2,200 to 2,700 for the supermarkets.
• The company kept real estate costs low by having only one large site per
metropolitan region, and the sites were located in low-cost industrial areas
rather than in high-priced residential neighborhoods.
5. The Expectations
• To offer the best quality products at the cheapest price by click of a button.
• Hiring high profile employees from companies would lead the company to
success.
• To deliver goods within a 30-minute window selected by the customers in
that week.
• Basically, presenting an unprecedented hassle free approach to allow
customers to do grocery shopping while sitting in front of their computers.
6. The Challenges
• Grocery businesses have a tiny profit margin of about 1-2%.
• Web retail sales involve delivery several days after order, but grocery orders
contain spoilables and must be shipped right away.
• Customers expect high quality but are unwilling to pay extra for
convenience.
• Customers also want to inspect groceries before purchasing.
7. The Infrastructure
• Distribution Centers of about 350000 sqft each.
• Fleet of delivery trucks.
• Highly automated information systems for warehouse management,
routing, scheduling and communication with suppliers.
• Website for ordering.
8. The Information System
• During the ordering process, the customers selected an open 30-minute
delivery time slot during the next seven days.
• A delivery optimizer marked slots as reserved if they had already been
reserved.
• The order was electronically transmitted to the relevant warehouse.
9. The Information System
• The software devised an optimal picking plan, the number of containers
required, the type of packaging as well as when to start loading the
containers for timely shipping.
• The containers were shipped via truck to a specific transfer station near the
delivery address and then delivered by delivery trucks.
• GPS and route planning software was used to map the most efficient as
well as alternative routes for delivery trucks.
10. The Information System
• Webvan determined what to order from its suppliers based on actual and
expected demand.
• If an item was not available at the warehouse when a customer ordered it,
suppliers were automatically informed using a communication website.
• The process of sorting received goods was also automated.
• However, Webvan was too small to force its suppliers to invest in supply
chain technology.
11. Where it went wrong
• Infrastructure Cost far exceeded sales growth.
• Huge upfront investment.
• Bechtel Corporation hired in July 1999 to construct 26 Distribution Centers of about
350000 sqft each across the USA at a cost of $1B.
• An in-house engineering team working with Optimum Inc. ofWhite Plains, NewYork,
to design and build systems for warehouse management, routing and scheduling, and
for communication with suppliers.
• The company had only started operations in June 1999.
• Recruited a dream team consisting of senior executives which had no
management experience in e-commerce.
12. Where it went wrong
• Acquired HomeGrocer in June 2000, despite both Webvan and HomeGrocer
operating with severe losses.
• Expansion into Atlanta, Sacramento, Chicago, New Jersey without breaking
even or at least minimizing losses at existing centers.
• Customers unwilling to sacrifice the ability to inspect groceries before
payment.
• Average order by the end of 2000 was $81, significantly lower than the $103
required forWebvan’s sustainability.
