Reverse logistics

Case Study: SmartphoneCo

Case Introduction

SmartphoneCo is a major Austrian mobile network operator. Its product portfolio includes mobile communications, broadband and TV services.

SmartphoneCo has a total of 5 million mobile customers between consumers and enterprises. Consumers are served through either its country-wide shop network (50 shops) or its e-commerce website. Enterprises are supported by a professional sales team. All channels, shops, website and enterprises are delivered by a central warehouse placed in Vienna.

Last year SmartphoneCo purchased 200 different smartphone models from 8 different vendors for a total value of 240 million EUR. During the year they measured a smartphone out-of-stock rate of 20%. Moreover, the company held an average stock value of 40 million EUR, of which around 10% is obsolete.

SmartphoneCo vendors have a lead time between 4 and 6 weeks. To compensate this long lead time the central warehouse of SmartphoneCo holds an average stock coverage of 8 weeks of demand.

To reduce this high investment in working capital, the central warehouse team of SmartphoneCo has been doing, on its own, a demand forecast per SKU (but not per sales channel), once a quarter, with a 6-month horizon, based on total consumption data. Unfortunately, the regular price increase of smartphones in the last 5 years, political disputes between US and China, the continuous life cycle reduction for some models (from 18 months down to 6-9 months) and the quick promotion policy of the company have negatively impacted the demand forecast accuracy of SmartphoneCo, leading to higher out-of-stocks and obsolete stocks.

Shops and enterprises, as well as consumers over the internet, order their smartphones directly to the central warehouse, which delivers within 48 hours. Consumers going to shops demand 100% availablity. Over the internet as well as B2B customers accept a maximum delivery time of 48 hours.

SmartphoneCo would like to improve the performance of its smartphone business by finding ways to increase the effiectiveness of their purchasing and inventory decisions.

Questions

1. Identify the main problems and their root causes for the current situation of SmartphoneCo
2. Describe the changes you would introduce in the current SmartphoneCo supply chain strategy to improve the performance of its smartphone business

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