Unilever to Use Direct Store Delivery for New Product
Case Type: operations strategy; supply chain optimization; organizational behavior.
Consulting Firm: Capgemini first round full time job interview.
Industry Coverage: household goods & consumer products.
Case Interview Question #00859: Our client Unilever (LSE: ULVR, NYSE: UN, UL) is a multinational consumer packaged goods company co-headquartered in Rotterdam, Netherlands, and London, United Kingdom. Its products include food, beverages, cleaning agents and personal care products. It is the world’s third largest consumer 
goods company measured by revenue, after Procter & Gamble and Nestle.
The client Unilever is going to launch a new product and need to decide which of two alternative methods to use to go to market. One is the “direct store delivery (DSD)” system, the other is “warehouse delivery”. DSD is a business process that manufacturers sell and distribute goods directly to point of sales or retail stores, while in “warehouse delivery” system manufacturers distribute goods to retailer’s distribution center or warehouse.
Which one should they chose?
Additional Information: to be provided to candidate after relevant questions
Currently both systems are used by 50%.
Per product costs through the value chain for both options:
a. Direct Store Delivery
- Plant: $1.75
- To distribution center: $0.40
- In distribution center: $0.35
- To store: $1
- In store: $1
- SG&A: $0.50
- Total: $5
b. Warehouse Delivery
- Plant: $1.75
- Retailer distribution center: $0.30
- Retailer ships: $0.70
- Store clerk merchandiser: $0.25
- Total: $3
Possible Solution:
Note: Profitability is the main driver. Therefore the candidate needs to compare the cost structures of both delivery options through the value chain and potential revenues. But never forget to consider other issues.
The important point in this case was not to limit the analysis with the profitability per product. There are also qualitative issues (which can be quantified if the interviewer has data) to consider in order to come up with a recommendation.
Candidate: My recommendation to our client will be based on the most profitable delivery system. Therefore I will first compare both systems in terms of costs and revenue potential.
Interviewer: Good. (Then I got the above data).
Per product costs through the value chain for both options:
a. Direct Store Delivery
- Plant: $1.75
- To distribution center: $0.40
- In distribution center: $0.35
- To store: $1
- In store: $1
- SG&A: $0.50
- Total: $5
b. Warehouse Delivery
- Plant: $1.75
- Retailer distribution center: $0.30
- Retailer ships: $0.70
- Store clerk merchandiser: $0.25
- Total: $3
Candidate: So direct store delivery seems more costly. What are the prices we charge for both?
Interviewer: Price per product charged in direct store delivery is $7 and $6 for warehouse delivery.
Candidate: So contribution margin for direct store delivery is $7-$5 = $2 and it is $6-$3 = $3 for warehouse delivery.
Interviewer: So will you recommend warehouse delivery?
Candidate: Not so quick. I presume that direct store delivery might have some advantages over warehouse delivery that affects sales positively. So at the end, direct store delivery may be more profitable.
Interviewer: Like what?
Candidate: We probably attach more importance to keep our products in healthy conditions in our own distribution centers. We can take additional precautions to prevent waste. However the retailers might not be that sensitive because most of the cases they return the waste products to the manufacturers.
Second, we can also ship with less damage, because our current trucks that we use in direct delivery are designed for our own products. However the retailer is carrying lots of stuff.
In direct delivery, our own employees will put our products to the shelves. They take care of shelf design more than the retailer.
All those factors might contribute to the sales increase.
Interviewer: Good. Thank you!