CASE STUDY a MANAGING GROWTH AT SPORTSTUFF.COM In December 2000, Sanjay Gupta end his management team were busy evaluating the performance at SportStuft.com over the previous year. Demand had grown by 80 per cont, This growth, however, was 2 mixed blessing, The venture capitalists supporting the company were very lessee with the growth in sales and the resulting ‘ncroase in revenue. Sanjay and his tear, however, could clearly see that cosis Would grow faster than reveauss if demand continved to grow and the supply chain network ‘was not redesigned. They decided to analyze the perfor mance of the current network to 3¢¢ how it could be redesigned to best cope with the rapid growth anticipated vor the next three years. SPORTSTUFF.COM Sanjay Gupta founded SporcStuffcom in 1995 witha mit tion of supplying parents with more affordable sports ‘equipment for thei: childzea, Pereats complained about having 1a discard expensive skates, skis jackets, ard shoes. Docause chilézen outgrew them rapidly. Sanjay's initial plan was for the company to purchase: used equipment land jeckets from families anc) any surplus equipment from manufacturers and retzilers and sell these over the Internet. The idea was very wel received in the market- place, demand grew rapidly, and by the end of 1996, the company had sles of $0.8 million. By this time 2 variety ‘of new and used products were being sold and the com- ‘any received significant venture capital support. ‘In Juno 1996, Saajey leased part of a warehouse in the outskirts of St, Louis to manage the large amount of product being sold. Suppliers sent their product to the warehouse. Customer orders were packed andhipped by UPS from there. As demand grew, SportSiuffcom leased more space withia the warchouse. By 1999, ‘SportStuftcom leased the entire warshowse and orders ‘were being shipped to customers all over the United States, Management divided the United States into six ‘customer Zones for planning purposes. Demand from ‘exch customer zene in 1999 was as showa in Table 5-15, Sanjay estimated that the next three years would see a prowih rate of about 80 percent per year, after which, ‘demand wold level of THE NETWORK OPTIONS Sanjay and hie management toam could sce tht they need more warehouse spec o cope wich the anckipted {rovth, One option was to esre more warehouse space in St Lotisiuolf Other options includ lasing warehouses allover the county Leasing warehouse ivolve tied eats band on the size of the warehouse and variable cots that veried withthe quantity shipped trouh the ware™ hovse Fouryoteatia locations for warehotses Were fent- fied in Denver, Sent, atlanta, and Philadalphia. Waze- houses eased could be sithor sal (about 1ODCC0 sqft) ‘or large (200,000 sq. ft.), Small warehouses could handle a flow of up to2 milion usps year, whereas age Water howsescouldhendls low of upto milion units or Yea. Trecartent warehouse in St Lous ass Te fied and veritble corte of small and large Warehovsos in different Jocation are sown in Table 516 Northwest 320,000 Southwest 200.009 Upper Midwest 160,000 Lower Midnest Northeast Southeast Variable Coss ‘Peeed Cont Variable Cort Fixed Cost Location S/year) (SiUnit Plow) (year) (ini Fiow) ‘Seaitle 00,00 020 500,000 02 Detiver 250.000 0.20 420,000 02 St.Louis 220000 020 375,000 02. ‘Atlante 220.000 020 375,000 02 Philadelphia 240000 020 400.000, 02. Upper Midwest Lover Midves!_—— Northeast Sousa Seite 200 $259 $550 400 $500 $530 Deaver 25 22 250 $300 $400 $430 ‘Setows 35 $950 250 $250 $00 $3530 (alonta 3400 3400 $5.0 $2.50 $3.00 $250 fPamicpnin sas 500 a0 $20 25400 Sanjay estimated thatthe inventory holding cost at warchouse (excluding warchouse expense) was about “Gaon Fwhere Fis the amber of nt lowing thro the warehouse per year Thus, a warehouse handling 1,000,000 units per year incurred an inventory holding cost of $50.00 in he couse ofthe year If your ves tr Excel has problems sclvog the nonlinear ebjectve finction. toe the following inventory cats Range of F Inventory Cast 0-2 million $250,000 +-0310F 2-4 million $530,000 40.1708 <6:million $678,000 + 0133F Over6 million $798,000 + 0.113F QUESTIONS 1 What is the cost SportStufticom incurs if all ware~ houses leased are in St. Louis? ‘fyou can handle only a single near inventory cost, you should use $475,000 + 0.165F, SporiStuff.com charged a flat fee of $3 per ship- ‘ment sent to a customer. An average customer order contained four units. SportStufl com in turn contracted with UPS to handle all its outbound shipments UPS charges were based cn both tke origin and the destin. tion of the shipment and are showa ia Table 5-17, Management estimated that inbound transportation ‘costs for shipments from suppliers were likely to remain. ‘unchanged, no matter what warehouse configuration ‘was selected, 2. What supply chain network configuration do you recommend for Sper:Stuffcora?