When one considers that the aforementioned modifications to Colleen's system have certainly benefited the customer, it becomes apparent that it is only solid business sense to make adjustments that will benefit *****. The principle area in which the company can decrease costs is by changing its policy in regards to re-handled orders. Again, it is noteworthy to mention the fact that the number of these orders has been substantially decreased -- from 40,000 to 10,000 orders per year -- meaning Colleen is only losing 1,500 customers as opposed to 6,000 on an annual basis. However, ***** should certainly revise its re-handling policy in light of the boons its 98% fill rate are giving customers. Ideally, the company will want to modify the numbers that its 8,500 customers who need an order reshipped will receive.
In the old model, those numbers include a $15 re-handle charge to the company on a per order basis. Additionally, Colleen decreases the invoice value of re-handled orders by $30 -- which substantially cuts into her profit per order of $90. Currently, those two figures total $45, which is too high in light of the recent changes Colleen provided for the customer and to her company. Those numbers should be reduced by $15, or by 33%. Virtually any combination of reducing these numbers is sure to suffice. However, it will probably be most advantageous for Colleen to decrease the amount of the invoice value to $20, instead of $30, on re-handled orders....
That way her profit for such orders will be $70 (as opposed to just $60 under the old model). Simultaneously, she should also make some adjustments to lower re-handling costs for orders so that they cost the company only $10 per order, as opposed to $15. Perhaps the new stock locater system, increased inventory, and new carrier contracted will already produce such an effect. In the event that this cost proves immutable, then the invoice value for re-handled orders should be reduced to $15 instead of $30.
Again, it should be emphasized that this decrease in customer retention methods for re-handled orders is justified due to the other measures in which the proprietor of ***** increased costs to raise the level of customer satisfaction in the form of filled orders from 92% to 98%. Those costs which nearly totaled two million dollars significantly reduced the number of customers that will have issues with Colleen's company. Although the margin of profit was substantial at $780 million dollars, that profit becomes even more substantial if Colleen does not have to spend as much money on re-handling unfilled orders the second time around. With this occurrence affecting fewer customers, it is acceptable to lower the costs of the company for re-handling such orders.
References
Armstrong, D. (2013). "Strategic profit model." Inventory Curve. Retrieved from http://www.inventorycurve.com/Strategic_Profit_Model.html
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