Cos-Designer Warehouse: Cheap Costume Rental Cos-Designer Warehouse (CDW) offers costume-rental services for customers temporarily looking for outfits to wear at parties or other occasions but not wanting to spend lots of money buying a new one. To rent costumes, customers visit CDW’s website to browse available costumes and check corresponding rental prices. Once they find the costume they want, they can place an order online. On average, CDW receives 300 rental orders per day. Two-thirds of customers rent a single costume per order, while the remaining third rent two costumes per order (the maximum allowed per order according to CDW’s rental policy). Once a customer places a rental order, one or two costumes (depending on the customer’s request) are shipped to them via UPS next-day delivery. CDW pays for the $3 shipping fee per order. Customers have ten days to hold onto the costumes before returning them in a pre-labeled UPS package. Return shipping also takes one day and costs $3 per order, which CDW also bears. Due to the high demand for costume rentals and various costume preferences, CDW needs to maintain a large inventory of costumes to ensure that customers can find the outfits they need. On average, CDW has around 2,000 costumes ready for rental (as known as Rental-Ready Inventory). Once customers return their rented costumes to CDW’s fulfillment center, they are inspected and sorted into two categories: good or damaged. CDW hires workers to perform these tasks manually, and on average, 60% of returned costumes are in good condition and require only basic cleaning. These costumes are sent to General Laundry, located next to CDW’s fulfillment center; the costumes are cleaned for a fee of $5 per costume. After cleaning, the costumes are immediately sent back to the Rental-Ready Inventory. If a costume is damaged, it requires more extensive cleaning or repair. CDW sends these costumes to Laundry Expert, which is located farther from CDW’s fulfillment center but specializes in cleaning and repairing costumes. Due to the far distance, CDW batches multiple damaged costumes before sending them to Laundry Expert. The cost for thorough cleaning and repair at Laundry Expert is $10 per costume. Once the costumes are cleaned and repaired, Laundry Expert also batches them and sends them back to CDW until the batch size achieves a certain amount. CDW then puts the costumes into the Rental-Ready Inventory. To meet the need for costumes in current fashion trends without wear and tear, CDW regularly purchases new costumes and writes off old ones. The cost of purchasing an average new costume is $650, a substantial discount from the average retail price of $1,000. A new costume has an average lifespan of 100 days, That is, it can be used in CDW’s rental business for 100 days. To take it into account, CDW depreciates the cost of a new costume over its 100-day lifespan using a straight-line method. This means that CDW incurs a cost of $6.5 per day on each costume it owns ($650/100 days). Additional Information: An internal audit conducted by CDW uncovered the following information about internal processing at the fulfillment center. 1. w CDW charges the costume rental in the following manner: a. One costume in an order: $12 per day, and thus $120 for a 10-day rental. b. Two costumes in an order: $18 per day, and thus $180 for a 10-day rental. CDW hires 30 workers to inspect the returned costumes. On average, each worker can inspect 15 costumes per day, and their wage is $100/day. Based on the capacity, the average flow time in the inspection station is 0.5 days. General Laundry takes 0.5 days to perform basic cleaning of a returned “good” costume. Costumes identified as damaged need to wait before they are sent to Laundry Expert due to batching. On average, there are 200 damaged costumes waiting to be sent to Laundry Expert. Laundry Expert takes an average of 2.5 days to repair and clean damaged costumes. The cleaned costumes also need to wait before shipping back to CDW due to batch delivery, and there are 200 such costumes at Laundry Expert waiting to be sent back. The time to ship costumes to/from General Laundry is negligible, but it takes one day to ship costumes to/from Laundry Expert after batching. There is no shipping cost associated with sending costumes to/from General Laundry and Laundry Expert. Please submit a group write-up addressing the following questions about the case: Draw a detailed process flow diagram that captures all the places where the Cos-Designer Warehouse has the inventory of costumes. If there is any buffer inventory, please also elaborate on it. Hint 1: Please review all underlined words carefully. Hint 2: Some (but not all) of the steps below should be considered in your diagram. Feel free to rename these steps or add any other steps if necessary. Waiting to be sent back from General Laundry Shipping back from Laundry Expert Held by customers Rental-ready inventory Waiting to be Sent back from Laundry Expert Shipping to Laundry Expert Staying in UPS Inspected by workers Shipping back from General Laundry Placing orders on the website Waiting for inspection Browsing the website Waiting to be sent to General Laundry Return shipping from customers Shipping to customers Making payment Waiting to be sent to Laundry Expert Cleaned by General Laundry Shipping to General Laundry Cleaned by Laundry Expert 2. Please calculate and provide the following numbers: a. The average number of costumes that customers hold b. The average days the costumes need to wait to be sent to Laundry Expert c. The average days that damaged costumes take to be cleaned and returned to CDW after the inspection d. The total average number of costumes that CDW owns to do business (i.e., the total average number of costumes in CDW’s process) 3. What is the utilization of workers in the inspection station? If CDW wants to reduce the number of inspection workers, what is the minimum number of workers required to ensure the capacity is sufficient? Complete the profit and loss statement using your answer to Questions 1 & 2. What is CDW’s daily profit (including depreciation)? (NOTE: the profit can be negative.) A transportation service provider offers CDW a contract with the unlimited shipment of the costumes to/from Laundry Expert. With such a service, batch delivery is not required for the shipment between CDW and Laundry Expert, but it still takes 1 day to ship costumes. The transportation provider asks for $2,000/day to provide the service. Should CDW accept the contract? Why?