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  Dilbert's Diversified Distribution Co. ("3D") is a $1B wholesaler that operates 4 warehouses (Los Angeles, Chicago, Houston, and Atlanta) servicing multiple manufacturers and retail outlets across 3 key lines of business: Infant and Children's Merchandise, Home Furnishings and Accessories, and Consumer Electronics.

• For the most part, 3D pays for all its inventory in full within 30 days of receipt and invoices its customers at the time of shipment, although it has for certain strategic retail customers entered in to a scan-based trading (SBT) relationship wherein 3D manages the retailers’ inventory and only invoices the customer for what it actually sells, after the retailer has sold it. 3D also occasionally consigns inventory at its Houston warehouse for various apparel manufacturers.

• Over the past several years 3D has witnessed a steady erosion in operating profits, to the point where it now banks less than 1% of annual sales ($6M before taxes).  Management frankly can’t pinpoint the root cause of the performance problems, although it has definite awareness of some troublespots, and suspicions of others:

• It is a long-known fact the Atlanta warehouse is unprofitable. The Atlanta warehouse, 3D's original location from which it began operations some 75 years ago, grew up in tandem with the bustling Furniture manufacturing business in the Southeastern US, and as partners’ fortunes rose together, so they fell together under pressure from Asian competition. Management has frequently deliberated closing the warehouse entirely and re-engaging the Retail Furniture market via its much larger, modernized Los Angeles facility, as a volume supplier of lower-cost Asian products. Still, Atlanta, even though slightly unprofitable, represents only 10% of the company's business, and closing down the original location and severing long-standing relationships is sentimentally difficult.

• Management suspects that certain product lines in the Electronics family are unprofitable due to low gross margins and high shrink (loss and damage). They have frequently debated eliminating these product lines, or increasing prices, but, in the back of their minds, question if they have all the facts needed to make such decisions.

• Management is also weighing several potential moves to grow revenues. A couple of those decisions involve pricing changes.  One example: A marketing study performed by one of 3Ds suppliers shows that a 10% price cut on a new "Smart" Appliance (a Microwave oven with the capability of measuring both the internal and surface temperature of a piece of meat being cooked, with the ability of self-adjusting to attain the perfect internal / external temperature) would lead to a 50% surge in volume and revenue, maximizing the revenue potential of the new appliance.

• Also, given its unique position of being a distributor of both Childrens Clothes and popular consumer GPS technology, 3D is considering converting part of its Chicago warehouse into a simple bundling / assembly operation for a promising new innovation – GPS-enabled children's shoes! (Know where the kids are at all times, and locate their shoes when they lose them!)  The new business would involve inserting low-cost transmitters into a slit in the tongue of the sneakers.  Marketing consultants have forecast promising volume and price-premiums for the innovative new line.   

• Which of these decisions make sense? All of them? None of them? Are there potentially other actions that 3D could take to improve its position, and if so what are they?  Finally, which combination of actions would have the greatest impact?

• Attend FE’s VDDW Primer course to immerse yourself in 3Ds full suite of operational and financial data, and arm yourself with the tools and skills required to shed light upon these questions and others like them.