supply chain managment

BlueGestus Cosmetic Ltd. MANAGING BUSINESS GROWTH

November’22

David Argilés is the owner of BlueGestus Cosmetic Ltd. A company that produces and distributes cosmetic and parfum products all along the world.

In fact, BlueGestus has been growing a lot for the past 5 years, and now, David and his team are facing an issue that need to be addressed carefully.

The issue is that the site where they are based at this moment is too small to cope with the increase of production and sales they are expecting.

Bluegestus goal in this growth project is to align the expected growth and needs with the design and sizing of the site.

Manuel, the head of the Sales area has been doing a big effort on explaining the strategy to all our big and medium customers, and he foresees a 2023 sales increase of 30% versus 2021 sales figure, which was 1.000.000 units. Current sales in 2022 are 1.050.000 units and will remain like this till the end of the year. Previous year’s sales picture:

Year Sales (units) % Increase Sales (€) 2018 700.000 10.000.000 2019 725.000 3.6% 13.000.000 2020 825.000 13.8% 15.000.000 2021 1.000.000 21.21% 18.000.000 2022 1.250.000 25% 20.000.000

David is happy on how the plan is working and in order to secure the mid and long terms he meets the marketing team in order to follow up on all the new product launches that should be ready between 2024 and 2026. Four projects are in the pipeline and the plan is as follows:

Project Year Launch # of countries Expected Total sales (units)

Expected sales (€)

Summer lipstick 2024 8 200.000 1.000.000 Powder chic 2025 10 500.000 2.500.000 Winter eyeliner 2025 8 250.000 1.250.000 Eau de Parfum Xmas 2026 12 1.000.000 3.250.000

There is a project that is already developed and is in the process of being produced and shipped to the warehouse in order to be stored and ready to be sold now in 2023. This is the main challenge to Manuel’s team as he needs to make sure customers are going to take the new product in 2023. They are working on getting firm orders for the product to be bought. They expect to sell 75.000units in 2023.

George is the head of Logistics, and he is struggling to find a warehouse that fits the increasing demand of space they have for the coming months. The goal for George and David is to buy a new place. Renting is not an option for them. They are in deep talks with different banks. Discussions though, are led by Ferdinand, the head of Finance, who is worried about how all this growth will affect the net working capital of the company.

BlueGestus Cosmetic Ltd. MANAGING BUSINESS GROWTH

At this time of the year, the balance sheet of the company shows the following picture:

ASSETS LIABILITES Long Term assets Long Term liabilities

Building 20.000.000 Equity 22.500.000 Machines and means 1.500.000 Banks 4.500.000 Total 21.500.000 Total 27.000.000

Short Term assets Short Term liabilities Cash 5.000.000 Debt 500.000 Accounts Receivable 1.000.000 Accounts Payable 1.500.000 Inventory 1.500.000 Total 7.500.000 Total 2.000.000 TOTAL ASSETS 29.000.000 TOTAL LIABILITIES 29.000.000

The budget for the new warehouse is 50.000.000€. It must be bought before the end of the year. The financial plan for that is that BlueGestus will use its cash to pay the 10% of the building and the bank will lend the other 45.000.000€ to BlueGestus as a long-term debt. On top of that we are negotiating to get another 1.500.000€ from the bank before 2022-year end, in order to buy more machinery and means. Those 1.500.000€ will be as a short-term debt. Apart from the changes above, Ferdinand does not expect to have any change in any other account within the balance sheet before the end of 2022.

Even having this big project ahead, David cannot forget about the current daily activity of the business. He has had a meeting with both the head of Customer Service, Cesar, and George, Logistics guy. It looks like customers are experiencing issues with the deliveries. For the past 3 months we have had 150.000 shipments to customers. Even having an increase in the incidents report, we had never had more than one issue in a shipment complaint. The goal is to reduce the number of issues. The main issues encountered in this period are as follows:

Issue # of times occurred € total lost € lost per one issue Damaged boxes 100.000 1.000 0.01 Delivery late 50.000 15.000 0.3 Wrong product delivered 15.000 200.000 10 Delivered in wrong address 500 2.000 4 Damaged product 10.000 150.000 15 Customer not getting answer 3.000 15.000 5 Complains in social media 5.000 1.000 0.2 Customer lost 100 10.000 100

David is very worried about the situation and has challenged both George and Cesar to come up with solutions and a plan to tackle and mitigate the situation. Besides, from now on, they will have a daily meeting to follow up the plan and its results. Unless we revert this situation soon, we could damage the big plans we have for 2023.