Pepe Jeans Case Study

Submitted by:
Pranay Ambulkar
Section: C
Roll no.: 30
 RECOMMENDATION 1

Reduce the lead time with the existing agent to six weeks

Advantages
No initial investment. (No investment so no payback period is calculated)

Disadvantages
1. Additional cost every year
2. Significant increase in costs (almost 30%)

• Currently yearly cost of sales = £ 80 000 000 (40% of £ 200 M)

• 30% increase in cost = 0.3 * £ 80 000 000M = £ 24 000 000

• Approximate increase in the PBT due to increase cost: £ 6,400,000 (10% of

PBT)
• Therefore, the cost surpass the profit by £ 17,600,000.
 RECOMMENDATION 2

Setting up a finishing operations in UK

Description Amount
Initial fixed cost for equipment £ 1,000,000
Renovations £ 300,000
Total Initial cost £ 1,300,000
Operations costs £ 500,000
Current COS (200M*40%) £ 800,000
Lead = 6 weeks (6/52 X £ 80,000,000) £ 9,230,000
Inventory carrying cost is £ 2,769,000
(30%x £ 9,230,000)
Total recurring cost = Iinventory carrying cost + £ 3,269,000
Ooperations costs ( £ 2,769,000 + £ 500,000)
 RECOMMENDATION 2

Advantages Recommendation 2
• 2 day response time to retail stores. Sales 220,000,000
• Basic jeans costs reduced by
Cost of sales (72,000,000)
10% due to high volume
• Lead time reduced from 6 to 3 Gross Profit 148,000,000
months Operating expenses (61,600,000)
• Inventory carrying cost increased by
(2,769,231)
£3,269,000 Inventory holding
• Increased PBT is £83,130,000 costs
• Extra Bbenefit = £83,130,000 –
Facility operating
£64,000,000 = £19,130,000 (500,000)
costs
• Fixed investment = £ 1,300,000, hence the
Profit before taxes 83,130,769
payback period is (1.3/19,130,769) x 52 =
3.5 weeks.

Disadvantages
• It require a significant initial investment.
 RECOMMENDATION
Solution 3: 3 RECOMMENDATION
Solution 4:
4
NEW SUPPLIERS LOCAL MANUFACTURERS
Find other suppliers in China, Vietnam, Hong Find new cloth manufacturers in UK who are
Kong, Thailand, India and Bangladesh who supplying to other brands in the country
manufacture apparels.
Advantages Advantages
• A greater number of suppliers results in more • A significant reduction in lead time.
variety and greater negotiating power, which can • Decrease in costs
enable them to demand faster delivery of goods
• Reduction in transportation cost
to retailers.
Disadvantages
• A significant reduction in lead time.
• Decrease in costs thus increase in profits Pepe • Getting same quality of products can be
Jeans difficult
Disadvantages • Difficult to find new suppliers
• It may be challenging to implement quality
control procedures with new manufacturers.
• New business relationships and new supply
chains will have to be established, and that may
be expensive.
 Solution 6:
RECOMMENDATION 5 RECOMMENDATION
Solution 5: 6
ERP MANUFACTURE GOODS
• With departmental integration, the merchants will be • Owing to a solid financial situation and no
able to put their orders in the ERP system and, debt, this idea is feasible
therefore, ensuring the person responsible receives it. • Firms can establish operations in places
• In addition, the same tool is capable of immediately where labor costs and taxes are cheap, such
sending request to another individual in the supply as China, Hong Kong, Vietnam, and others.
chain without delay.
• Everyone engaged in the supply chain will be
Advantages
reminded of the procedure as the system works as a • No middle man, full control on the supply
constant reminder of it. chain
• They are in a better position to expand
operations and export goods
Advantages • Guarantee overall quality
• A significant reduction in processing time of orders.
• Store shelves never run out of inventory Disadvantages
• A large initial expenditure is necessary.
Disadvantages
• While installing it and training your employees is
costly, the system's price may be staggering because
of the large number of retailers that will need to use
it.
 COMPARATIVE ANALYSIS

Recommendation 1: Reduce the lead time with the existing agent to six weeks
Recommendation 2: Setting up a finishing operations in UK

Old Model Recommendation 1 Recommendation 2

Sales 200,000,000 220,000,000 220,000,000

Cost of sales (80,000,000) (104,000,000) (72,000,000)

Gross Profit 120,000,000 116,000,000 148,000,000
Operating expenses (56,000,000) (56,000,000) (61,600,000)

Inventory holding costs

(2,769,231)

Facility operating
(500,000)
costs

Profit before taxes 64,000,000 60,000,000 83,130,769