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NORTON AUTO SUPPLY CASE

Executive Summary

The main issues we will address are related to the firm’s current planning and controlling techniques
and how they are not optimal for the firm’s future. Firstly, we need to deal with and analyse their
current inventory methods in regard of their safety stock policy, which leads to a high amount of stock
inventory and high costs in the distribution system. Then, we will concentrate on the consequences
of implementing the new policies suggested by Monica Davis in order to minimize further issues.

Our solution consists on providing a new protocol of procedures that will reduce costs related to the
inventory system and consider the uncertainty of the demand process. To do so we intend to increase
the fill-rate of Regional Distribution Centers (RDCs) to 97.5% while decreasing that of the Central
Distribution Center (CDC) to 99%. We also intend on using overnight shipping for valves, seat cushions,
engines, and hood ornaments. With those recommendations implemented, Norton Auto supply chain
will increase its performance and ensure coordinated and optimal practices at reduced costs.

Problem Analysis

Norton Auto Supply is currently facing a system in which demand for automobile parts is uncertain.
The firm must then find a way to correctly estimate the projected demand of parts in order to
replenish its inventory both in their 20 Regional Distribution Centers and in their Central Distribution
Center. Currently, the company seems to tackle this situation with high conservatism as it fears to run
out of stock when the demand will suddenly rise. To address this situation Norton Auto Supply is
assuring safety stocks equal to two weeks worth of demand in its Regional Distribution Centers and 4
weeks worth of demand in its Central Distribution Center. Consequently, the average fill-rate for all
parts is of 99.92% for the CDC and of 94.39% for the RDCs, while only seat cushions and valves account
for a fill-rate of less than 100%. This means that there is way too much safety stock carried in the
inventory for all parts, which leads to excessive costs in regard of inventory holding. In fact, inventory-
carrying cost is valued at 26% of the amount of goods in inventory, which explains the high costs and
why this current policy must change. Norton Auto Supply must ensure lower inventory stock and
different fill-rates to be able to reduce the distribution system costs. Furthermore, this situation can
be related to the company’s objective in regard of delivering service. Norton Auto Supply desires its
inventory to be able to support 98% of all dealer part requests, which can explain why the firm puts
so much emphasis on holding high inventory. However this goal can be misleading because
information is hard to gather, which means that the firm cannot verify if the quota is reached. New
priorities have to be implemented to enable the firm to find balance between proper customer
services and lower distribution system costs. Hence, the problematic lies in choosing the right fill-rate
that will meet those new priorities.

Moreover, Monica Davis must find a solution to this main issue while dealing with some restrictions.
One day per week are designated as ordering day for each Regional Distribution Centers, which is
answered within one week from the ordering date. This means consequently that by lowering the
amount of stock in each RDC, Norton Auto Supply is confronted to a higher risk of shortage as
emergency or pick in demand will need at least one week to be met. Monica is thinking about using
emergency overnight shipments to create a more flexible and reliable service while holding less
inventory. While this solution seems effective it needs to be carefully analysed in order to prevent
further issues.

Ultimately, Norton Auto Supply did not correctly analyse the differences between each of the parts
they sold in order to improve their operations. By treating them in a similar manner it is dismissing
the opportunity to take advantage of their particularities and to find new creative ways to modify their
inventory system. By using Monica Davis new strategy, those particularities will be taken in
consideration as overnight shipment costs are based on the weight of the items being shipped.
However, it will be important to manage the different categories of parts that the company is
producing in order to minimize shipment costs. The feasibility of this proposition must be clearly
assessed in order to keep high service standards.

Recommendations

The case questions brought us to conclude the Central Distribution Center’s (CDC) fill-rate should be
brought down from 99.92% to 99% and Regional Distribution Centers’ (RDC), up from 94.39% to
97.5%. In the case of valves, engines, seat cushions, and hood ornaments, the decrease in inventory
amounts will be compensated by the use of overnight shipping provided by Federal Express. As a
matter of fact, current inventory levels are too high, which translate in disproportionate carrying cost.

First, reducing the CDC’s fill-rate to 99% would allow for Norton Auto Supply to reduce its total
inventory cost by an overall 93% (from $3,246,000.80 to $222,450.12). In the same way, increasing
RDCs’ fill-rate to 97.5% will diminish the total safety stock cost by 79% (from $35,050.08 to $7,302.31).

Total Cost Safety Stock Cost Safety Stock Cost


Part
Total Cost (99.92%) (99%) (94.39%) (97.5%)

Oli filter $ 112 740,00 $ 14 102,91 $ 1 859,00 $ 40,45

Oli case $ 110 400,00 $ 14 300,16 $ 1 820,00 $ 95,60

PVC valve $ 21 979,20 $ 5 886,10 $ 346,32 $ 4,90

Trans. filter $ 141 600,00 $ 17 828,22 $ 2 340,00 $ 405,38

Fuel filter $ 85 440,00 $ 12 583,44 $ 1 404,00 $ 97,95

Calibrator $ 1 560 600,00 $ 71 957,19 $ 19 500,00 $ 2 674,98

Hood
ornament $ 33 880,00 $ 7 298,80 $ 416,00 $ 113,90

Engine $ 1 165 000,00 $ 72 816,97 $ 7 280,00 $ 3 629,15

Seat cushion $ 13 512,00 $ 4 946,42 $ 83,20 $ 232,97

Valve $ 849,60 $ 729,92 $ 1,56 $ 7,02

Total $ 3 246 000,80 $ 222 450,12 $ 35 050,08 $ 7 302,31

In the first case, this is due to a reduction in Safety Stocks (SS), which would drop from 278,664 units
to 4,406 units as well as in the average Reorder Point (ROP), from 35,466 units to 8,040 units. In the
second case, savings come entirely from the reduction in Safety Stocks.
Part SS (99.92%) SS (99%) Part ROP (99.92%) ROP (99%)

Oli filter 104000 1040 Oli filter 130000 27040

Oli case 56000 832 Oli case 70000 14832

PVC valve 48000 416 PVC valve 60000 12416

Trans. filter 24000 728 Trans. filter 30000 6728

Fuel filter 24000 416 Fuel filter 30000 6416

Calibrator 20000 736 Calibrator 30000 10736

Hood ornament 2000 118 Hood ornament 3000 1118

Engine 640 102 Engine 1600 1062

Seat cushion 16 10 Seat cushion 40 34

Valve 8 8 Valve 20 20

Total 278664 4406 Average 35466 8040

Part SS (94.39%) SS (97.5%)

Oli filter 2600 57

Oli case 1400 74

PVC valve 1200 17

Trans. filter 600 104

Fuel filter 600 42

Calibrator 500 69

Hood ornament 50 14

Engine 16 8

Seat cushion 0,4 1

Valve 0,2 1

Total 6966,6 385

Secondly, if Norton Auto Supply further wishes to lower its inventory costs, Federal Express’ overnight
shipping services could be used for four auto parts: engines, seat cushions, valves, and hood
ornaments. The entire demand for them could be met in 24 hours, as it is less than the 3% service
level (0.718%+0.230%+0.006%+0.003%=0.957%). Furthermore, in the four cases, shipping costs equal
(engines) or are lower than the carrying costs. Lastly, valves, hood ornaments, and seat cushions are
“C” items, which means it would not be a catastrophe if they went out of stock for one day, as they
do not represent an important proportion of Norton Auto Supply’s activities.

Limitations

Since all numbers and statistics in regard of Norton Auto Supply were given in the case, we are
comfortable that our estimations and calculations match with the current situation faced by the
enterprise. However, it might be possible that the data given responds to changes and fluctuates
through time. For example, weekly demand information on parts were based on only one year from a
representative average RDC, which means that demand might varie from year to year depending on
the economic environment in which the firm is operating or from one representative to another.

Furthermore, some information had to be assumed in order to assess our recommendations. For
example, on one hand, we assumed a fixed shipping rate of $1 per lb, while in fact Federal Express’s
pricing system is not directly proportionate to the weight of the parts. Also, this price may not actually
represent the economic cost of using Federal Express’ services, as if they were not used, Norton Auto
Supply could have to do emergency shippings through its own central distribution system.

On the other hand, we chose to leave out the “Drop-Off Discount” while Norton Auto Supply could
clearly be eligible for it. Other fixed fees were also left out of the equation, for example for
“Surveillance Service”, but will have to be taken into consideration when our recommendation will be
implemented.

It is also to note that Norton Auto Supply will probably be able to palm off a portion of these fees to
its customers. In that sense, we may be overestimating the shipping costs to Norton Auto Supply.

Then we expect the consumers of auto parts to positively react to our new systems. However, it might
be the total opposite since we have no information to properly understand the behaviour and the
targeted market of Norton Auto Supply.
QUIET LOGISTICS
1. Describe the market that Quiet Logistics serves? Will this market continue to grow in the
future?

The market Quiet Logistics specialize in is high-end clothing apparel. This market is expected to grow
as the U.S. retail e-commerce of appeals and accessories reached $38 Billion in 2012 and expected to
reach $86 billion in 2018. The company had chosen to focus on clients with high growth potential, but
they are not interested in working with larger companies that make a lot of special service demands
with extreme discounts.

2. How does the Kiva system work? Why does this give Quiet Logistics a competitive advantage?

Kiva system was a robotic device that lifted and moved inbounding/outbounding products around the
Quiet Logistics warehouse while served as a tracking platform at the same time. This series of action
done by Kiva robot can eliminate 70% of workers walking time in the warehouse in result of cutting
down its human labor force and transit to robotic assistance. (Here is a short video on Kiva robotic
system operate in the warehouse)

3. Who are their main competitors? What systems do these companies use to run their
warehouses?

The main competitors to Quiet Logistics are Amazon, DHL, Exel, and are all larger scale order-
fulfillment companies.

DHL/Exel: Use Paragon on routing and scheduling, while using RedPrairie Warehouse Management in
warehouses

UPS: SOFTEON

4. What value added services does Quiet Logistics provide to their customers?

Quiet Logistics had assigned an account manager to each client to improve accuracy in sales
forecasting on clients, they also invited executives to visit the warehouse in order to gain useful
information on whether client operation system had changed or not, and finally high-end apparel
clients were able to instruct warehouse associate on packing the product.

5. What are the top three issues facing Quiet Logistics today?

Growth, labor, and storage of goods

6. What should strategies should they implement to deal with these issues?

Growth: they can research the companies and choose wisely who they go into business with and think
long term instead of how to make the quick buck because as they said in past experience, they dealt
with young startups and those startups would shift from their first fulfillment relationships to a more
professional partner that can help them reach their next growth phase.

Labor: It said the fulfillment of work was hard because workers spent long hours on their feet doing
repetitive tasks, so they can hire more workers to take the load off from other people due to the high
inventory of goods, this is a must.

Storage of goods: It said that companies that were mid sized or big companies would have special
deals or promos to increase revenue which is inevitable but would limit the space for their goods in
the warehouse. As said in the text, Welty said if products were sitting in warehouse they would make
no money they needed to be moved. So if they had a surplus of products due to the special deals the
company offers to consumers, it would be extremely hard to organize that many goods with limited
space. So they should purchase or rent out another warehouse that they can use specifically when
these special deals arise, because more and more companies are utilizing special deals to attract more
customers these days.

FETCHR: A NEW WAY OF LAST MILE DELIVERY

Background

Fetchr is an innovative technological driven courier service company based in Dubai and is
changing the way packages are sent and received. The company was created to grow the package
delivery service in the UAE and Middle East because of the lack of a formal street address system.
With the company’s successful expansion, the company’s CEO and Founder, Al Rifai, wants to expand
Fetchr's business into two new markets but their investors believe they need to solve their operational
efficiency issues at hand first. This puts Fetchr in a situation where they need to decide on gaining
market share or making their existing operations first to be more profitable.

Macro and Micro Environment

In terms of macro environmental factors, the growth and boom of e-commerce has directly
caused a growth in the logistics industry within the UAE and the Middle East. This is due to the fact
that when packages are ordered online, consumers need to actually receive their packages, hence the
logistics industry. This kind of specific industry growth occurred because women were not able to drive
until recently and did a plethora of online shopping to purchase a variety of items, from necessities to
personal care products. In addition, in the UAE regions, the weather tends to have high heat conditions
leading people to spend more time inside than going outside. This social and cultural macro
environmental effect has presented a need for a delivery service such as Fetchr. In regards to
competition, regional companies that are part of the delivery industry such as Fetchr are successful
because typical major competitors in the logistics industry such as FedEx and DHL do not have large
scale operations in the Middle East and North Africa. This is because the delivery process in this region
can be difficult because consumers rely to use cash on delivery (COD) payments instead of credit cards
due to a societal lack of trust in credit cards being secure and without a risk of fraud. Companies like
FedEx and DHL are not on board with COD payments due to a lack of reliability on consumers and a
high risk of delivery failure leading to less complete payments. This lack of reliability and high risk is
associated with the societal factor is that UAE countries have no concrete street addresses for the
delivery person to leave the package to often leaving the package unpaid for, wasting both time and
money for the delivery service.

In terms of micro environmental effects, there are profitability problems with Fetchr and the
company needs to raise at gain at least $40 million from investors to continue to grow and sustain the
business. However, according to the investors, profits need to improve and be geared by the right
direction to ensure stability to investors for Series B. However, the lack of operational efficiencies has
caused a large burn of cash for the business and has left a need for significantly more cost efficiency
in the business’s financial performance. It is stated that “95% of the company’s revenues came from
B2C” (Narayanan and Kuzucu 6) with high revenue but C2C is showing promise as it grows. The C2C is
being used in small to med-size enterprises than individuals which is not treated right by the large
logistics players.

Problem Statement

Fetchr’s leadership needs to decide if they want to expand their business into two new
markets or focus on their current markets and try and maximize market share by continuing to fix all
their current operational problems. In order for them to secure the necessary $40 million in funding
in Series B, the most profitable option is for the company to expand into new markets, specifically into
Jordan and Oman. This will prove to investors, that while Fetchr’s leadership focuses on their current
issues, they have a sustainable plan to keep the business growing over a long period of time with
future profitability but ultimately, Fetchr must show promise in the future.

Alternatives For Addressing The Issue

As the case study suggests, some potential alternative solutions that Fetchr can do to make
the necessary impact on the expansions into two new markets which are Jordan and Oman. However,
Fetchr should do more than just expand into these markets. In Jordan, a strategy that Fetchr can go
about is the implementation of a drop box location that will diminish delivery failure and provides a
solution to the company's operational problems. In Oman, a strategy that Fetchr can go about is a
joint venture with Oman Post which also fixes Fetchr’s operational problems and provides a low cost
option for the company. These strategies are further expanded on in the “Analyzed Alternatives”
section. There will be low competition in these locations which means Fetchr can control the markets
and have long term profitability by owning the markets. In addition, the joint venture in Oman can be
implemented with a company that is already in the market. To show capability to their investors, there
will be a long term goal for how Fetchr is going to maintain a profitable and expanded business plan.
The first step to achieve the expansions is to start off with the solutions Fetchr made in current
markets, start strong in the implementations to gain profits early on, and finally, this expansion will
be considered a long term payoff. The B2C service for Fetchr can be a success because it ships
internationally and gets better prices. In addition, Fetchr’s cost savings can “decrease international
courier by 20%” (Narayanan and Kuzucu 8).

Analyzed Alternatives and Selection of the Recommended Alternatives

The best solutions for Fetchr is to follow would be to have a Jordan expansion and joint
venture in Omani expansion. Since the Jordan expansion will be something new for Fetchr there will
be a fresh start to implement new ideas. For instance, the company will implement drop box locations
in this new market in the case that a customer is not home during their promised scheduled time. In
the case that this occurs, the customer will be notified via email and in-app notification that they
missed their delivery time and that if they respond to the email/notification with a request to have
the package redelivered the next day (with a new promised delivery timeframe) by a specific time
such as 9:00pm, the package can be redelivered the next day for a small fee. If there is no response,
the package will automatically be left at the nearest central drop box location with no fee for the
customer to pick up at their own time. COD payments will be available within the technology of the
drop boxes as well. In terms of location, the drop off boxes will be placed into common areas like the
supermarkets for the customer to go there to receive it. In addition, another positive factor of these
drop box locations is that no personal addresses will be needed for the delivery. In addition to the
drop box locations within Jordan, Fetchr will start promoting in-app payment that is very secure to
end the stigma around credit card payments and earn the trust of customers. More customers will
eventually be eased into the idea of making on-app payments to avoid the hassle of COD.
To enter their second market, Oman, Fetchr has the opportunity to join a joint venture with
Oman Post. This is a great option because there is low capital investment needed, and since Oman
Post is known and established in the area, the risk is low. Oman Post lacks the technology needed to
elevate the company to the next level, which is why they want to partner with Fetchr. By allowing the
use of our app technology, and location finding, Fetchr would receive a set amount from the deal.
Although one of the downfalls of the joint venture is that Fetchr would have to choose between C2C
or B2C, 95% of their business comes from B2C already. So, since Fetchr runs their business almost fully
on that method, it is actually their stronger option and works in their favor. But to still be cautious
going into a partnership, the joint venture will start off with a five-year contract for the companies.

Metrics to Track Performance

To ensure the Jordan expansion is a success, the percentage of operational effectiveness will
be measured through comparing how efficient deliveries and pickups are in Jordan versus those in
Saudi Arabia. There should be a higher percentage in Jordan because the delivery driver will not take
as much time to find the place and/or send the package back to not waste time. The delivery driver
will be able to move on to the next drop off of packages and continue on which will ultimately go into
the metric of how many daily packages are picked up as known as paid for. The daily packages picked
up should secure the increase profits for the company.

The partnership with Oman Post will be on a five-year contract to see if this joint venture is profitable.
This will be tracked yearly, twice a year, to see if this joint venture is successful.

By not promising anything for longer term, they can see if within the 1st year five years the joint
venture is successful or if they should drop it. The semi-annual check points will help Fetchr decide if
they should expand into new markets. In these meetings they can check on return on investment,
customer satisfaction, and Fetchr brand awareness. By making sure customers have positive
interactions with the brand, it helps with brand security and familiarity. It is very important for Fetchr
to often track these metrics, to ensure that the joint venture is worth their time and money.

Conclusion

In order for Fetchr to secure the necessary $40 million in funding, they should go the route to
expand market share and go into the two new markets. Low competition means they can control the
markets and have long term profitability by owning the markets. Showing a long-term plan to investors
to show they are going to maintain a profitable and expanded business plan.

Fetcher needs to expand to show promise to investors on long term thinking while still implementing
changes.

FASTEN: CHALLENGING UBER AND LYFT WITH A NEW BUSINESS MODEL

What explains the rapid growth of ridesharing companies such as Uber and Lyft?

• The advent of modern mobile smartphone technology gave users access to infinite
information and services at their fingertips

• The rider and driver then rated each other based on any number of subjective and personal
criteria, or the rider’s consideration for the driver’s personal property
• A poaching technique that became a common practice for many ridesharing companies

• Both companies introduced a pricing scheme that would drastically inflate prices at certain
times

• As the US rideshare market developed, Uber and Lyft began to raise the commission they
charged their drivers

2. What explains Fasten’s successful entry into the Boston market?

• Business model: 1) Charging drivers a flat fee rather than a percentage of the ride’s fare not
only supported the company’s vision of transparency and fairness, but also aligned incentives
between drivers, riders, and Fasten’s bottom line by growing the market; 2) The company
didn’t engage in lavish marketing techniques to convince drivers. Expanding rider awareness
was also done with very little investment. 3)They use own advertising agency from Russia –
Rutorika Digital Agency

• Flexibility: Fasten’s driver application process was straightforward

• Transparent & Fair: 1) With Fasten’s app, it showed the instantaneous price meter during the
ride so the fare at the end of the ride was not a surprise to riders. It’s the first and only app
offering this feature at the time. 2) Fasten did offer a similar but arguably fundamentally
different higher-cost, optional feature – Boost. With Boost, if driver supply in an area was low,
a rider could continue to wait and search for drivers at the regular rate or choose to pay a
higher rate to incentivize drivers that were farther away to accept the order and come to their
location

• Competitor discontinue: number-three spot is now open

3. How will the self-driving vehicle technology affect the industry?

• Owning vehicles makes you a car business. It stops being the service software type of business.
It becomes a taxi company

• Fasten: a ridesharing company that provided the mobile platform to connect drivers in their
own personal vehicles with people looking for a fast, convenient ride around Boston with a
single swipe on their smartphones

• Company’s business model: drivers were charged a $0.99 flat fee for each ride they provided,
compared to 20%-30% commission other ridesharing companies charged their drivers

• Rapid decline and exit of Sidecar: intense competition, cutthroat poaching practices, fast-
paced experimentation with new pricing and service offerings, and ongoing legal and
regulatory battles marred the industry

• In Austin, Texas, Fasten immediately entered to fill the void and within 4 months of operating
in its second city, became the first rideshare company to return a profit

• Uber and Lyft: offer pooling services that would require more advanced data analytics and
matching capabilities
History of the US Ridesharing Industry

• The advent of modern mobile smartphone technology gave users access to infinite
information and services at their fingertips

• The rider and driver then rated each other based on any number of subjective and personal
criteria, or the rider’s consideration for the driver’s personal property

• Before ridesharing apps – traditional livery services:

1) Taxicabs

2) Black cars and limousines

• Traditional livery services: usually don’t accept credit card payment

• By 2015: ridesharing industry comprised 3 major competitors: Uber, Lyft and Sidecar

Competition

• Uber:

➢ In 2010, uber want to connect customers in San Francisco looking for a rider from
professional black car services.

➢ In response to the growth of its lower-cost competitor, in 2012 uber presented UberX,
which is a service that connected users with non-professional drivers in their own cars

➢ Uber launched a “Shave the Stache”: urging Lyft customers to try Uber’s service
instead. A process “Operation Slog”: recruited drivers from Lyft

➢ In 2013, to recruit new drivers, Uber initiated Xchange Leasing – a partnership


between Uber and care companies. This allowed Uber to directly lease cars to its
UberX drivers and offered discounts on their monthly payments.

• Sidecar and Lyft: in 2012, service that connected passengers with drivers in their personal
vehicles looking to make some extra money

• A poaching technique that became a common practice for many ridesharing companies

• Both companies also reportedly hired contractors to sign up as riders and then request and
cancel thousands of rides on the competitor’s app, dragging drivers away from real requests,
only to be subsequently dropped.

Dynamic pricing

• Both companies introduced a pricing scheme that would drastically inflate prices at certain
times

• Uber’s Surge pricing and Lyft’s Prime Time pricing went into effect during peak demand

• In order to increase driver supply, enticing drivers to either come online or relocate to the
Surge or Prime Time areas

• Both companies introduced another lower-cost alternative for their riders. They give users the
option to request a ride and be paired with another rider heading in the same direction
Driver commission

• As the US rideshare market developed, Uber and Lyft began to raise the commission they
charged their drivers

• Uber: charged new drivers from 20% at launch to 25% in the most major cities in 2015

• Lyft and Sidecar charged for new drivers to 25% in the ensuring months

Fasten

• The ridesharing concept became well established as a result of the economic downturn in
1991

• Fasten cofounder Lvov launch the first successful and consolidated transportation network
company in the world – Saturn, for 17 years in Russia before envisaging Fasten

• In 1998, Saturn introduced a new model into the Russian ridesharing market - automated taxi-
dispatching system. Using statistical analysis and optimized processing power, the new system
allowed operators to rapidly estimate how quickly a taxi could arrive at a passenger’s location

Fasten’s business model and vision

• Initially, to attract drivers, Fasten offered drivers a guaranteed hourly payment, as long as they
remained logged into the driver app

• Fasten would charge a float $0.99 from every ride and drivers would pocket the rest

• Fasten also charged riders a ride fee of $1.50 per ride

• Charging drivers a flat fee rather than a percentage of the ride’s fare not only supported the
company’s vision of transparency and fairness, but also aligned incentives between drivers,
riders, and Fasten’s bottom line by growing the market

• They take less in the middle. The more drivers drive, the more they make

• People ride more, drivers make more, and the company, because it’s based on a flat fee per
ride, makes more

• The company didn’t engage in lavish marketing techniques to convince drivers. Expanding
rider awareness was also done with very little investment.

• They use own advertising agency from Russia – Rutorika Digital Agency

Initial challenges

• Technology development hurdles

• Developing the sophisticated back-end application capabilities

• Fasten hired a team of qualified Russian-based developers

• Fasten’s system was based in Service-Oriented Architecture from the beginning


Driving for fasten

• Fasten’s driver application process was straightforward

• For drivers, flexibility was a key attribute to the mobile ridesharing system

Riding with fasten

• Transparent: With Fasten’s app, it showed the instantaneous price meter during the ride so
the fare at the end of the ride was not a surprise to riders. It’s the first and only app offering
this feature at the time

• Fasten did offer a similar but arguably fundamentally different higher-cost, optional feature –
Boost. With Boost, if driver supply in an area was low, a rider could continue to wait and
search for drivers at the regular rate or choose to pay a higher rate to incentivize drivers that
were farther away to accept the order and come to their location

Ridesharing Industry Environment

Sidecar Struggles

• In 2015, Sidecar announced it would shift focus away from rides to predominantly offer
delivery services to other businesses.

• Later, the company announced it would discontinue offering rides altogether

• For Fasten, the number-three spot is now open, and it is an opportunity

Other entrants

• Uber responded to these entrants as well by partnering with licensed taxi companies in select
cities to offer UberTaxi, which allowed riders to hail a standard taxi through the app

Taxi opposition

• The most glaring resistance facing new ridesharing apps came from the incumbent taxi
services within cities that feared the new models would encroach on their business

• Proponents of the taxi industry maintained their claims of its superior safety because the
industry had been regulated since its onset

Regulatory opposition

• Mobile-based ridesharing companies were confronted with regulatory obstacles from their
inception

• For Fasten, Uber have done a really good job in progressing the legal field. They had fought as
stepping-stones for their own entry

Driver employment

• Fasten believed that drivers valued the flexibility that had in working fore more than one
company
Autonomous vehicles

• Advanced software and electrical systems had paved the way for innovative car technology
capabilities

• Uber and Lyft began investing heavily in autonomous vehicle technologies

• Owning vehicles makes you a car business. It stops being the service software type of business.
It becomes a taxi company

• You don’t get a lot of margin in either

Evolving offerings

• Uber and Lyft continued competition on price and services

• Updated eliminated Surge pricing terminology

• Pre-matching
SUSTAINABILITY AT IKEA GROUP
Executive Summary

To fulfil their objective of doubling sales to €50BN by 2020 while established markets are not expected
to grow much, IKEA plans to enter emerging countries. At the same time, the company is applying
more and more stringent sustainability standards to its value chain, especially for wood procurement.
How should IKEA proceed to build efficient, reliable and sustainable wood supply chains in countries
which often lacked well-developed wood markets? Are these efforts compatible with the retailer’s
ambitious growth objectives? The assessment of the business and sustainability strategies of IKEA
shows that they are integrated: the efforts are coordinated throughout their value chain, leading to a
more distinctive value proposition and reinforcing the company’s competitive advantage. Focusing on
the sustainability of the wood supply chain will allow IKEA to build long-standing relationships with its
suppliers, negotiate the best prices for raw materials and spread sustainable business practices.
However, we think IKEA has set its sales target too high: the saturation of established markets would
imply an intense market penetration effort, while developing supply chains in emerging countries is
likely to require too much time and resources. We advise IKEA to delay their sales objectives in order
to maximize their achievements in sustainability. IKEA should work on spreading FSC-certification in
emerging markets to indirectly control its new supply chains through IWAY standards, while investing
to increase the share of particleboard used in their products. The two strategies create synergies by
requiring less raw material overall, thus reducing costs. Vertically integrating in forestry management
should be looked into once FSC-certified forest become more widespread. Ultimately, IKEA will need
help from stakeholders: that is why we believe communicating about their efforts will bring support
from NGOs and governments and create positive perceptions from customers.

IKEA’s strategy in 2014


The People & Planet Positive plan

The People & Planet Positive plan can be assessed in light of the Triple Bottom Line:

1) Social bottom line: IWAY standards improve worker’s conditions, protect their rights and prevent
child labour

2) Environmental bottom line: Sustainable sourcing of wood and cotton, usage of


recycled/recyclable materials and turning of waste into resources contribute to a healthier planet

3) Economic bottom line: costs savings in energy and materials and leadership position in home
furnishing market ensure economic performance

The P&PP plan provides IKEA with guidelines to:

• Achieve its objectives of sustainable growth

• Reinforce existing R&Cs and acquire new ones to adapt to change

• Shape the threats and opportunities of the environment to its advantage

Sustainability at the core of strategy:

Sustainability is fully integrated into the company’s strategy:

Integral part of the company’s corporate strategy

• Newly implemented CSO position in the Group Management


• Practices voluntarily challenged by external advisors
Impact on the whole value chain
• Enforcement of suppliers’ compliance to adopt sustainable practices
• Energy efficiency measures in production, distribution and store operations
• Customers encouraged to consume more responsibly (by converting all lighting products to
LED)
Source of competitive advantage
• Whole value chain reworked: tighter fit between activities
• Sustainability helps differentiating from competition
• Cost savings can be passed on to consumers: reinforces value proposition
• Drives product innovation (such as the lighter particleboard)

IKEA works on causes relevant to their value chain and their competitive context and focuses on
activities that create shared value: strategic CSR (Porter and Kramer, 2006)
THE FOCUS ON THE WOOD SUPPLY CHAIN

IKEA is right to focalize efforts on its wood supply chain:

• The company critically relies on wood for its products: irresponsible management could
threaten its existence

• Wood sourcing has negative social and environmental impacts that go against its principles
and goals

• They can build a strong and reliable supplier network, giving them access to a stable supply
of better materials for lower prices, which reinforces their long-term competitive advantage

• Thanks to their R&Cs and expertise, it is the area where they can make the most meaningful
positive changes, incentivizing their suppliers and sub-suppliers to become more sustainable.

CHASING GROWTH AND SUSTAINABILITY

Financial challenges:

• Need for 10% annual revenue growth, but 2012-2013 growth was only 3.2%

• OECD market not expected to grow much, but need to reach roughly 37BN in revenue by
2020: intense market penetration

• IKEA’s first steps in China do not look promising: only 0,74BN annual revenue with 16
stores (compared to 1.96BN with 14 stores in Russia)

Sustainability challenges:

The critical increase in wood sourcing implies securing access to More Sustainable Sources
and addressing the sustainability concerns of wood sourcing

• Obtaining IWAY of enough suppliers in emerging countries might prove difficult due to the
underdeveloped wood market: limited incentives to comply with strict sustainable standards

• China is a key market but suffers from timber trade deficit and has low FSC wood
availability: in the short term, need to import wood from other places

We believe IKEA’s growth plan is too aggressive. The company’s initial efforts in emerging markets
have had little impact on revenue, and the stringent sustainability standards that the retailer imposes
itself would require deploying substantial resources in a limited time frame. Instead, the company
should be willing to tone down or push back their financial ambitions to make sure that the
sustainability plans can be reached by 2020.
The future of the wood supply chain

1: Own more forests

• Ensures sustainable forestry management practices


• Uncertainty of reaping benefits (lease period < rotation period), knowledge of local
regulations
• Need to develop forestry planning capabilities
• Uncertainty of valuation of transparency and traceability by customers
• High capital investments, long legal process

2: Higher procurement standards

• Increase availability of More Sustainable Sources through FSC certification


• Experience in working with certifications organisms
• Adapted to IKEA’s current capabilities while still providing control over forests
• Clear message to customers about sustainability commitment
3: Use more particleboard

• More efficient than solid wood: reduces overall consumption of wood


• Raw material and transportation cheaper
• Need to invest in production capacity in emerging markets
• Perceived by customers as worth less than solid wood
• Particleboard products would be cheaper for customers
4: Use more recycled wood

• Contributes to use of More Sustainable Sources, turns waste into resources


• Cheaper than particleboard, but only in few regions
• Limited geographical scope of implementation
• High investments to adapt plants
The future of the wood supply chain

We believe IKEA should focus on options 2 and 3, as these strategies present the highest potential to
meet the sustainability targets set for 2020 while positively impacting revenue.

By setting higher procurement standards, IKEA indirectly controls forest management through the FSC
certification and its IWAY code of conduct. Since IKEA will use more wood that has to come from More
Sustainable Sources, it makes sense to work on increasing the availability of FSC-certified materials
and leverage the experience acquired from their partnerships with NGOs since 2002. This will result
in the wide availability of products with FSC labels, which gives a strong signal to customers about
IKEA’s commitment to sustainability and positively affects brand image.

On the other hand, using more particleboard allows IKEA to reduce costs in procurement and
transportation, and pass on those savings to customers, which can offset the potential reduction in
WTP. The company has already invested to increase its board manufacturing capacity, so they should
put this capacity to use. What is more, it encourages the company to leverage its design capabilities
by coming up with more innovative and efficient particleboard. […]

The synergy between those two strategies comes from the fact that the yield from raw material to
particleboard is significantly higher than for solid wood: as a result, the company uses less wood
overall, reducing the amount of forests that need certification and putting less pressure on the Earth’s
resources.

Since we doubt that IKEA can reach its sales objective, they have to prioritize their options by choosing
first those that are safest to implement. We believe that broader FSC certification will make owning
forests the next logical step in extending IKEA’s control over its wood supply.

Communicating the efforts

IKEA should undoubtedly communicate about their efforts. Sustainable practices can reduce costs,
improve products and processes, but it does not necessarily mean that sales will go up: if stakeholders,
especially customers, do not know about these efforts, they will still perceive IKEA the same as before
and this will not translate into increased sales.

Instead, communicating about these efforts will allow stakeholders to see IKEA as a model, a
reference in sustainability practices. The transformational changes they will implement in value chain
are unlikely to be perceived as greenwashing and gives them more credibility to work with NGOs and
governments in the future. It is the opportunity to let customers know that their current and future
needs are being answered. IKEA should try to shape consumer expectations and behaviour and make
them consider sustainability aspects in their consumption. Buying from IKEA would mean buying
responsibly produced goods, and this new perception positively affects brand image, which is likely to
increase sales. What is more, if IKEA finds itself forced to increase their prices at some point in time,
they might be able to charge a price premium because consumers would understand where it comes
from and deem it justified.

However, communicating about sustainability is likely to have more impact in established markets like
Europe or the USA, than in emerging countries like Russia, China or India. In these regions, it could be
that sustainability does not influence purchase decisions as much, or that the demand for
sustainability practices from companies is less of a concern for society.