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1
A. PRIORITIZATION AND APPROACHES
The major issues which the CeeCee Management Board (CCMB) faces are shown in
priority order as follow
1. Distributor strike
CeeCee’s business is all about quick response, whether or not it can provide customers
with the newest clothes in the shortest time. As CeeCee has only worked with one big
distributor, any problem happened to that sole distributor could be life-threatening to the
whole business model of CeeCee.
In this case, EIT, CeeCee’s sole distributor, is facing a serious problem which causes a
severe disruption in delivery for CeeCee. It is estimated that the problem would last for
10 weeks with the substantial loss in profit of €189m (sales loss €316m respectively).
Appendix 7 shows calculations in support of these figures. Moreover, the loss of any
bad reputation cause to brand value will be unable to estimate. Therefore, it is
recommended that CCMB should concern solving this problem with the highest priority.
There are two possible scenarios.
Firstly, should CeeCee rely solely on the act of EIT in dealing with the strike, it's most
likely that CeeCee will suffer a great loss shown above. Besides, shops have to deal
with overwhelming inventory and outdated product lines (average 3 new product lines
released within 9 weeks). To reduce the loss, it is recommended that CeeCee
temporarily cut back its production until delivery recover and inform its
customers about this sudden incident. Notifications for delay of new products for (at
least) 5 weeks should be posted clearly on CeeCee’s website and shops. Moreover,
CeeCee should also send notification through mail and e-mail to all of its customers
together with a coupon or voucher (value of coupon or voucher based on customers’
loyalty). After 5 weeks, when the amount of delivery is still limited, it is further
recommended that CeeCee utilizes its IT system to monitor what is selling and
2
what is not and only deliver products that are in the highest demand first.
Delivery items among shops rather than from one distribution centre should be
considered as a smart choice since it help sell better but need less manpower.
When the crisis is over, there is possibility to consider doing media advertising, which is
not what CeeCee is used to, as CeeCee should inform a large amount of customers
about its full recovery (recommended social media advertising for cost-effectiveness).
Secondly, CeeCee can reduce its sales loss by looking for alternative
distributor(s) (one or more distributors depends greatly on CeeCee’s needs and the
real situation, hereunder, for simplicity, regarded as “a distributor”) during the disruption.
As the “work to rule” to begin immediately, it is obvious that the longer it takes to find
alternative distributor, the more severe the damage is. Supposed that CeeCee is able to
have full delivery to its shops in the start of 3rd week, the loss in profit will only be 9.45m,
compared with the substantial loss of €189m if it don’t have an alternative distributor.
Therefore, it is strongly recommended that CCMB appoint Jim Bold (Head of
logistics) to set up a negotiating section with relevant stakeholders from EIT to
propose a crisis response plan with the following main terms as soon as possible
EIT will focus on service and repair its vehicles and will only start delivering for
CeeCee when possible. CeeCee will incur all losses due to the delay in delivery.
As CeeCee will try to find an alternative distributor during crisis, EIT’s duty is to
cooperate with CeeCee to give training to the new distributor to make sure it can
provide delivery as usual in the shortest time.
To express its goodwill, CeeCee commits to keep on long term partnership with
EIT after the crisis. However, when new distributor is found, CeeCee will adjust
the amount of services provided by EIT and its new distributor to an appropriate
ratio since CeeCee want to reduce the risks of having the same incidence happen
again in the future.
The criteria recommended selecting an alternative distributor are
3
Alternative distributor is competent and is capable of implementing delivery
contract with CeeCee as soon as possible
Alternative distributor appreciates and practices ethical behaviors in delivery
business
Alternative distributor is willing to sign a long term contract with CeeCee
The first two criteria must be complied strictly whereas the last criterion is preferred. The
new distributor must have the capacity to replace EIT’s delivery soon enough, and must
be an ethnic-complying firm. As CeeCee is depending on just a single distributor, it
could be the right time for CeeCee to diversify its distributors and reduce the risks of
disruption in supply chain in the future. Moreover, hiring a company on a long term
basis will earn CeeCee a better price.
2. IT failure
The newly launched online shopping system, while is easy to use, contained a fatal flaw
in the payment process. This resulted in products worth €6m had been sold without
payment. Therefore, CCMB’s objective is to minimize financial and reputation loss.
In this particular issue, the later the company responds, the harder it is able to collect
this money. Thus it is essential that the management must immediately decide whether
to hire an outside agency to recover the money or leave the task for the Finance
department. Appendix 5 provides calculations in support of following figures.
1st scenario: CCMB outsource the collection task to an outside agency, it will be
able to recover €3m out of the total €6m
2nd scenario: CeeCee’s finance department staff reclaims the money themselves,
only can collect €2.7m out of the total €6m
The first method is more effective in financial aspect. However, as agency want to
collect money from many customers as they can in a shortest time, it can make their
4
manner when dealing with CeeCee’s customers possibly turn negative and hence,
affect CeeCee’s customer philosophy.
The second method can maintain CeeCee’s excellent customer care, but it is less
effective in regard of finance and cause unnecessary stress to CeeCee’s “already
overstretched” staff.
3. Expansion into the jewellery range
Market research shows that the EU is the second largest market for jewellery. Despite
being weakened in 2008 by the economic crisis, the jewellery market is expected to
grow again in 2010. Consumers now tend to turn away from precious jewellery towards
silver and costume jewellery, regard good design and affordable price more important
than the intrinsic value of a jewellery piece, and this motto suits CeeCee very well.
On the other hand, CeeCee is a clothing-centric retailer. Therefore, the expansion into a
new jewellery business (mid-range jewellery) could be regarded either as an opportunity
or a threat. CCMB must consider carefully the market’s suitability, the
acceptability, and the feasibility of the project to make the right strategic
decision.
The jewellery is the highly competitive market as there are many competitors
competing in and brand identity is one of the most important factors. Appendix 2
provides analysis of the competitiveness of jewellery market. Mid-range jewelers and
better quality department stores could be beaten in the short run. But in a longer run,
with the fast, increasingly growth of lower end jewelers and the change in customer
behaviors, competition would be much tougher for non-specialized firm like CeeCee.
In the regard of 5 years expansion plan, the NPV of the project is about €10
million that ensure the project will bring benefit to CeeCee’s shareholders. The
initial investment needed reaches roughly €6.7 million to cover cost such as upgrading
5
shops and enhancing security systems etc. If being implemented, the project will
generate cash flow of over €5 million since the second year to CeeCee. Appendix 6
provides calculations in support of these figures.
However, since CeeCee has been facing the liquidity problem with the deficit of
€10 million of its net working capitals, the initial investment for the project of €6.7
million should be concerned properly. CeeCee may resolve its liquidity problem by
taking a long term loan or issuing more stock to the market. Financial summary on
liquidity and loan could be found in Appendix 3.
4. Celebrity marketing
The marketing manager J.Lespere is proposing an endorsement plan. The chosen
celebrity is Kool, a rock star, and his agent proposes 2 methods of payment. The first
method is that CeeCee pays a fixed payment of €50,000 with a bonus of €150,000
should incremental sales reach €2m. The second method is CeeCee makes a payment
of 5% of all incremental sales revenue.
The two ways suggested will cost equally when sales increase by €1m and €4m,
however the possibility of the latter is rather small (only 10%). The comparison of cost
between the two methods can be described as followed. Appendix 4 provides
calculations in support of following figures.
If incremental sales is lower than €1m or from €2m to €4m , method 2 is more
economical than method 1
If incremental sales is from €1m to €2m or higher than €4m, method 1 is more
economical than method 2
However, this marketing concept has several flaws. First, it is proved that CeeCee’s
original marketing strategy, which relies on centralization of shop window
displays and interior presentations in using the shops to promote its market
image, is highly effective associated with its business model whereas media
6
advertising seems to be more costly and less effective. Furthermore, CeeCee
main customers are considered to be young professional women, and a rock star
doesn’t seem to fit that style.
B. ETHICAL CONSIDERATIONS
1. Child labour accusations of suppliers
Child labour in manufacturing garments for CeeCee in many Asian suppliers has been
spotted by a local agent. As those Asian suppliers are proven to be using underage
labour, they have apparently disqualified the criteria that CeeCee requests from
suppliers.
Therefore it is recommended that CeeCee discusses with these Asian suppliers
and give them a certain amount of time – around 3 weeks (referring to SA 8000
standard) to solve the problem. The head of environmental impact Jeroen de Joost is
recommended for this task, as he has lots of experience in dealing with the company’s
CSR. If any suppliers who are not willing to comply, CeeCee should consider not
signing new contract with them. In the long term, it is essential that CeeCee should
publish a new Guidebook to the Code of Conduct, including SA 8000 standard which
specifies requirements for social accountability, including child labour issue. Only those
suppliers who follow this code should CeeCee consider signing a contract with. See
Appendix 8 for SA 8000 standard procedure for dealing with children and juvenile
labour.
2. Ethical aspect of distributor’s strike
Even though the drivers' strike poses a significant threat to CeeCee's business,
CeeCee should take the ethical aspect of EIT’s strike seriously according to its
CSR rules and regulations. It is recommended that CeeCee resolve the problem
base on following ethical criteria
7
CeeCee supports three unlucky drivers and the process of implementing “work to
rule” as much as it can. It is recommended that CeeCee should solve the
problem in a cooperative manner with EIT.
CeeCee should not demand any kind of financial penalty or impose any legal
pressure on EIT. It should be clarified that the fact that CeeCee intends to find a
new distributor is not because of the strike, but it is a part of CeeCee’s long term
strategy to reduce risks in its supply chain, which should be implemented
regardless of the problem with current distributor EIT.
Despite the urgency of the problem, it is strongly recommended that CeeCee
should NOT hire distributors who do not comply strictly ethical standards, even
on a short term basis, as it may contaminate CeeCee image as an irresponsible
firm.
C. RECOMMENDATIONS
1. Distributor strike
Crisis can take any business down, but if crisis is handled wisely, it could also be
regarded as an opportunity. If CeeCee put all of its effort in resolving the problem in a
right way, it will help CeeCee not only minimize the loss, but also overcome its own
weaknesses, and add more value to the brand CeeCee in the eyes of its customers,
and partners.
As the disruption start “immediately” and the process of hiring a new alternative
distributor would possibly take time, it is recommended that CCMB consider
implementing simultaneously two solutions as suggested above. The first action
is implementing the solution package of reducing loss and regaining sales after
crisis by optimizing delivery system as well as launching marketing campaign
with the aim of retaining customer and creating awareness. The second action,
which must be done simultaneously, is seeking for a new, competent, and ethical
8
distributor based on a long term contract. This will eliminate CeeCee’s biggest
weakness and bring it a less risky business model.
CeeCee is now having only one distribution centre in Northern Europe. Therefore, it is
further recommended that CeeCee should invest in opening a new distribution
centre in Western Europe in the near future as it would increase the safety of CeeCee
supply chain significantly. If there is any strikes happen, lead to lack of delivery, the fact
that CeeCee have two distribution centres could cut down the delivery time needed and
hence, greatly lower the damage of the crisis. Moreover, having two distribution centres
also avoids the risk of losing inventory “all at once” due to any unexpected event such
as fire or natural disasters…
2. IT failure
It is recommended that CCMB outsources the money recovery task to the outside
agency. Choosing the agency not only guarantees that more money of €300,000 will be
recollected, but also free CeeCee’s staff from being overstretched. However, it is
advised that CeeCee give the agency’s staff trainings about praticing CeeCee’s
customer service to ensure CeeCee’s excelent customer care is maintained throughout
the task. It is recommended that CeeCee have the agency send out feedback
forms to collect customers’ opinion about the service of the agency for further
evaluation.
A further step to be taken is to recheck all the IT system, including CCIPL and
CCF. Any errors if identified, must be corrected right away. The payment problem
had gone for three months, yet CeeCee audit staff could not discovered. Therefore it is
recommended that CCMB establishes a training programme on detecting faults in IT
system for its internal auditors and raise the frequency for external audit.
3. Expansion into a jewellery range
9
It is recommended that CCMB should not accept the proposal. The major reason
is the harsh competitions in the jewellery market awaiting CeeCee in the long
term. In bad situation, CeeCee could lose competitive advantage to its rivals not only in
its jewellery business but also in its clothing retailer industry. Moreover, the current
difficulty in liquidity is also a real obstacle. CeeCee may not issue more stocks to
draw more capitals as it will make the return of current shareholders diminish. On the
other hand, it may be hard to receive any long term loan from banks as CeeCee has
already received two loans.
It is further recommended that CeeCee use their resources to take initiative based
on their solid business model. CeeCee should use its capitals to invest in either
unexploited market in Europe, where it has existing well-working business model, or a
new distribution centre which can cut down delivery time and reducing risks significantly
to the supply chain. CeeCee’s fast fashion business model is unique and hard to
replicate. By and only by focusing to its unique feature, CeeCee could never lose its
image and be outstandingly competitive in the market.
4. Celebrity marketing
It is recommended that CeeCee management reject the celebrity endorsement
plan. There is no concrete figure of the increase in revenue if CeeCee accepts the plan,
except the estimate of Juliette Lespere herself that incremental sales are not likely to
exceed €2m. Besides, image of a rock star doesn’t suit the company’s target customers
– young professional women. It is recommended that CeeCee focus on enhancing
quality of advertising on its prime location shop by developing a customer-oriented
system to identify more precisely market’s needs.
10
D. CONCLUSION
The critical issues facing CeeCee are to:
1. Take immediate actions to reduce the loss caused by the problem with EIT –
CeeCee’s only distributor. Some further methods should also be dealt with in
order to prevent future similar problem.
2. Recover the money lost by the error in IT system.
3. Consider whether to accept the jewellery expansion plan.
4. Evaluate the payment to Kool and the suitability of the marketing endorsement.
The logic behind the prioritization process is two criteria: level of urgency and scale of
the issues. Therefore the unavailability of CeeCee distributor must be the first priority.
This problem caused huge damage to the company, in both terms of revenue and
business model, and need immediate remedy. Of the two proposals that CCMB has
been offered, the expansion plan should be considered with more caution, since it could
be a part of company’s long term strategy and require a lot of investment.
11
APPENDIX
12
Appendix 1
SWOT ANALYSIS
Strengths
The major strength of CeeCee, definitely, is its “Just in Time” business model which is
built upon the well-developed corporate culture, the effective IT system, and the group
of young, well-trained, and innovative designers. This unmatched feature, together with
the prime locations for all of its shops, is the key factor that gains CeeCee an
irreplaceable competitive advantage from all of its rivals. Thanks to its strict criteria and
audit used in the selection of its suppliers and distributors, CeeCee has been
cooperating well with the most suitable suppliers and distributor (those who met
CeeCee’s strict criteria and have been proved to perform well over a long time) and
hence, ensure the success and competitiveness of the JIT business model.
Weaknesses
The major weakness is that CeeCee only has one distribution center and depends
heavily on one distributor. Even though it helps CeeCee follow the fast fashion supply
chain, there are huge risks associated with just one center and one distributor. If there
is a power shortage, strike or even a natural disaster in the area it will be sure to affect
CeeCee dramatically.
CeeCee is now facing the liquidity problem of its financial condition. Its net working
capital is currently suffering the €10 million deficit in the year ended 31 December 2008
with < 1 current ratio. As long as CeeCee do not take a proper action, there will be a
huge threat that CeeCee may face a financial broken-down and is forced of going
bankruptcy which should be not likely to happen with a highly profitable and potential
company like CeeCee.
13
Opportunities
There are several opportunities that CCMB will need to pay attention to. Firstly, there is
the opportunity to expand to new market either inside or outside of Europe. At the
moment, all of CeeCee’s sales come from Europe and entering the unexploited, but
promising market like China, Japan, India, and the United State… could give CeeCee a
big surge in revenue to become the number one clothing retailer.
Another opportunity for CeeCee is its ability to expand and focus on developing a wider
range of product, such as, jewellery, accessories and furniture. These ranges contain
high risks but also high returns, especially in the brighter economic condition.
Last but not least, the nonstop evolution of digitalization could provide the unique
solutions for retailers like CeeCee to access the low-cost and effective sales and
marketing strategies through online shopping and social media branding.
Threats
The intense competitions from other retailers still remain CeeCee’s major threat today.
Among those, “value” retailer with their extremely low prices is, expectedly, the huge
threat that can CCMB cannot ignore. The economic downturn and the fact that these
competitors (value retailers) are taking more and more market share, demand high
street retailers like CeeCee to take immediate actions to re-position their brand,
differentiate, and retain their customers.
Another threat to CeeCee could be, as mentioned before, any unexpected event like a
power shortage, strike or a natural disaster happen to the sole distribution centre or the
sole distributor. In that case, CeeCee’s revenues could almost tank overnight. That is
the reason why long term investors may prefer to stay away from CeeCee.
14
Appendix 2
5 FORCES ANALYSIS JEWELLERY INDUSTRY IN EUROPE
Competitive rivalry (Inter-firm rivalry): medium to high
Brand identity is extremely important
Main rivals which are mid-range jewelers and better quality department stores.
Although they seem to not upgrade shopping experience regularly and lack for
contemporary ranges, getting customers from them is not easy.
Wide range of rivals: harsh competition from imitation jewellery makers to high-
end jewelers
Industry growth is stable
Supplier power: high
In jewellery industry the main suppliers are South Africa, India, UAE, Australia,
US, Congo, Botswana, Russia…
New and fashionable design requires high skilled labour and competent suppliers
Buyer power: medium
Price sensitivity is low
Specific customer: medium to high income customers
There are several alternatives buyers can choose from
Threats of substitutes: medium
Substitutes are gold, real assets, stock market, & bank deposits & mutual fund
investment and other types of jewellery like imitation jewellery, stone jewellery…
Threats of new entrants (barriers to entry): low to medium
Skilled manpower is essential
Advanced technology required
15
Appendix 3
CeeCee’s financial summary on liquidity and loans
1. Liquidity (€ million)
Liquidity Ratio 2008 2007
Net working capital = Current Assets – Current Liabilities
(negative working capital => firms unable to meet its short-term
liabilities with its current assets)
-10 -143
Current Ratio =
(A lower ratio indicates less liquidity, implying a greater reliance
on operating cash flow and outside financing to meet short -
term obligations)
0,98 0,75
Quick Ratio =
(low quick ratio => low liquidity) 0,53 0,34
Cash Ratio =
(liquidity in crisis) 0,49 0,30
2. Loans
Current loan
Loan amount Annual interest rate End date of loan
€200 m 12% Oct 2014
€100 m 8% July 2016
Total finance cost each year: €32m
Planned loan
Loan amount Annual interest rate Start date of loan
Unknown yet Unknown yet 2014
16
Appendix 4
ANALYSIS ON CELEBRITY MARKETING PLAN
Incremental sales Payments to Kool
Method 1 Method 2
€ 1,200,000 € 50,000 € 60,000
€ 1,400,000 € 50,000 € 70,000
€ 1,600,000 € 50,000 € 80,000
€ 1,800,000 € 50,000 € 90,000
€ 2,000,000 € 200,000 € 100,000
Break-even sales volume considering 2nd method
Incremental sales x
Cost $ 50,000
Margin x- 50000
Tax 0.3(x- 50000)
Break even:
x - (50000 + 0.3(x-50000))
= 0
x = 50000
Sales where both payments method are both costly
Incremental sales < 2000000
50000 = 0.05x (x < 2000000)
x = 1000000
Incremental sales 2000000
200000 = 0.05x (x 2000000)
x = 4000000
17
Cost comparison between 2 methods
Incremental sales More beneficial method
Below 1m method 2
From 1m to 2m method 1
From 2m to 4m method 2
Above 4m method 1
Appendix 5
MONEY COLLECTION PLAN ANALYSIS
Lost sales (orders) 50000
Average value € 120
Total sales lost € 6,000,000
1st Scenario: Outside agency to collect money
Fee: €14/person
5% of recovery (amount of money can collect)
Money recollected
6000000 0.6 6000000 0.6 0.5 50000 0.6 14 € 3000000
2nd Scenario: Finance department to collect money
Money recollected
0.45 6000000 € 2700000
18
Appendix 6
CASH FLOW INVESTMENT MODEL OF JEWELLERY EXPANSION
INNITIAL INVESTMENT
Glass display € 4,800,000
Lifetime of the investment (year) 5
Working Capital € 1,920,000
Total € 6,720,000
2010 2011
forecast
2012
forecast
2013
forecast
2014
forecast
2015
forecast
Cash out
Staff training 0 € 800,000 € 320,000 € 320,000 € 320,000 € 320,000
Working
Capital 0 0 € 1,280,000 0 0 0
Loss of other
products 0 € 288,480 € 1,250,080 € 1,250,080 € 1,250,080 € 1,250,080
Cash Outflow
€ 1,088,480 € 2,850,080 € 1,570,080 € 1,570,080 € 1,570,080
Cash in
Increased
revenue 0 € 1,824,000 € 7,904,000 € 7,904,000 € 7,904,000 € 7,904,000
Cash Inflow
€ 1,824,000 € 7,904,000 € 7,904,000 € 7,904,000 € 7,904,000
Initial
Investment € 6,720,000 0 0 0 0 0
Cash flow € (6,720,000) € 735,520 € 5,053,920 € 6,333,920 € 6,333,920 € 6,333,920
NET PRESENT VALUE € 10,093,384.49
19
Appendix 7
Estimated loss from distributor’s strike
Estimated sales per week: €57.4m
% sale lost per shop Sale lost (m) Lost profit (m)
0.10 € 5.74 € 3.45
0.20 € 11.48 € 6.90
0.30 € 17.22 € 10.35
0.40 € 22.96 € 13.80
0.50 € 28.70 € 17.25
0.60 € 34.44 € 20.70
0.70 € 40.18 € 24.15
0.80 € 45.92 € 27.60
0.90 € 51.66 € 31.05
1.00 € 57.40 € 34.50
Total € 315.72 € 189.75
20
Appendix 8
SA8000 Standards: Procedure for dealing with children & juvenile labour
1. Purpose
To meet the requirement of SA 8000:2001 standard and the guide about how to deal
with situation of children and juvenile labour in the company.
2. Scope
This procedure applies to the children and juvenile labour working in the company,
office or in the garment factory’s area.
3. Definition
3.1. Children labour is the under 15 year old employee.
3.2. Juvenile labour is the not yet enough 18 year old employee.
3.3. The discoverer is the related division or personnel inside or outside the company
who discovers any case of children or juvenile labour.
3.4. Suitable work to children or juvenile is the work that doesn’t have any impact on
their physical development, not dangerous and the total time of working and studying is
no more than 10 hours a day or 42 hours a week.
3.5. The children ’s family representative: parents, grandparents, brothers or sisters,
uncle and aunt or the conservator.
4. Content
The company forbids all the staffs to participate in or approve the use of children &
juvenile labour in the company. If any case is found, do as the following procedure:
21
4.1. When discover the use of children & Juvenile labour, the Discoverer must report to
the Administrative Department the name and department where the child is working in.
4.2. The Administrative Department has responsibility to cooperate with other related
departments and employees to check the true age of the suspected. This check will
base on methods such as direct interview with the employee, check the ID card or
citizen record, birth certificate or even ask for help from the employee’s hometown. In
addition, also check the education level, temporary place and the office where that
employee is working in.
4.3. When find out about the true age, the Administrative Department informs the
suspected and other people (if concern) and make a report to the board representative
to carry out corrective actions as follows:
AS FOR CHILDREN LABOUR
The Administrative Department discusses with the chief of the office where that
employee is working in to assign him (her) a suitable job in the waiting-to-
negotiate period. This period is normally no more than 3 weeks.
The personnel manager will discuss with the child’s family representative about
sending the child to school. The company will pay for the tuition, book….. The
family representative must guarantee that he (or she) will go to school.
Each quarter, the company will contact the family and school to update the
inspecting sheet. As for health status, it will be updated every 6 months
When the child is enough 15 years old, the company will invite the child to work
in the company. If he (or she) doesn’t agree, then the relation between him and
the company ends. If agree, then applies the procedure for juvenile labour. The
period that the child works for the company will be reserved for later regimes
(such as social insurance, working seniority, compensation….) as regulated by
the company.
22
AS FOR JUVENILE LABOUR
The head of Administrative Department must discuss with the chief of the office
where that employee is working in to assign him (or her) a suitable job.
When the employee is enough 18 years old, the Administrative Department will
remove the name of that employee out of the list of juvenile labour and inform the
concerning parties, then update the inspecting sheet and make a record.
The period that the juvenile employee work for the company will be reserved for
later regimes (such as social insurance, working seniority, compensation….) as
regulated by the company.
The Administrative Department has responsibility to inspect that employee and
update the inspecting sheet of juvenile labour.
THE END