Supply Chain Management - Sportstuff Company

1. MANAGING GROWTH AT SPORTSTUFF.COM

In December 2000, Sanjay Gupta and his management team were busy evaluating the performance at SportStuff.com over the last year. Demand had grown by 80 percent over the year. This growth, however, was a mixed blessing. The venture capitalists supporting the company were very pleased with the growth in sales and the resulting increase in revenue. Sanjay and his team, however, could clearly see that costs would grow faster than revenues if demand continued to grow and the supply chain network was not redesigned. They decided to analyze the performance of the current network to see how it could be redesigned to best cope with the rapid growth anticipated over the next three years.

SPORTSTUFF.COM

Sanjay Gupta founded SportStuff.com in 1996 with a mission of supplying parents with more affordable sports equipment for their children. Parents complained about having to discard expensive skates, skis, jackets, and shoes because children outgrew them rapidly. Sanjay's initial plan was for the company to purchase used equipment and jackets from families and any surplus equipment from manufacturers and retailers and sell these over the Internet. The idea was very well received in the marketplace, demand grew rapidly, and by the end of 1996 the company had sales of $0.8 million. By this time a variety of new and used products were sold and the company received significant venture capital support.

In June 1996, Sanjay leased part of a warehouse in the outskirts of St. Louis to manage the large amount of product being sold. Suppliers sent their products to the warehouse. Customer orders were packed and shipped by UPS from there. As demand grew, sportStuff.com leased more space within the warehouse. By 1999, SportStuff.com leased the entire warehouse and orders were shipped to customers all over the United States. Management divided the United States into six customer zones for planning purposes. Demand from each customer zone in 1999 was as shown in Table. Sanjay estimated that the next three years would see a growth rate of about 80 percent per year, after which demand would level off.

THE NETWORK OPTIONS

Sanjay and his management team could see that they needed more warehouse space to cope with the anticipated growth. One option was to lease more warehouse space in St. Louis itself. Other options included leasing warehouses all over the country. Leasing a warehouse involved fixed costs based on the sized of the warehouse and variable costs the varied with the quantity shipped through the warehouse. Four potential locations for warehouse were identified in Denver, Seattle, Atlanta, and Philadelphia. Warehouses leased could be either small warehouses could handle a flow of up to 2 million units per year whereas large warehouses could handle a flow of up to 4 million units per year. The current warehouse in St.