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A. PRIORITIZATION AND APPROACHES

The major issues which the CeeCee Management Board (CCMB) faces are shown in

priority order as follow

1. Distributor strike

CeeCee’s business is all about quick response, whether or not it can provide customers

with the newest clothes in the shortest time. As CeeCee has only worked with one big

distributor, any problem happened to that sole distributor could be life-threatening to the

whole business model of CeeCee.

In this case, EIT, CeeCee’s sole distributor, is facing a serious problem which causes a

severe disruption in delivery for CeeCee. It is estimated that the problem would last for

10 weeks with the substantial loss in profit of €189m (sales loss €316m respectively).

Appendix 7 shows calculations in support of these figures. Moreover, the loss of any

bad reputation cause to brand value will be unable to estimate. Therefore, it is

recommended that CCMB should concern solving this problem with the highest priority.

There are two possible scenarios.

Firstly, should CeeCee rely solely on the act of EIT in dealing with the strike, it's most

likely that CeeCee will suffer a great loss shown above. Besides, shops have to deal

with overwhelming inventory and outdated product lines (average 3 new product lines

released within 9 weeks). To reduce the loss, it is recommended that CeeCee

temporarily cut back its production until delivery recover and inform its

customers about this sudden incident. Notifications for delay of new products for (at

least) 5 weeks should be posted clearly on CeeCee’s website and shops. Moreover,

CeeCee should also send notification through mail and e-mail to all of its customers

together with a coupon or voucher (value of coupon or voucher based on customers’

loyalty). After 5 weeks, when the amount of delivery is still limited, it is further

recommended that CeeCee utilizes its IT system to monitor what is selling and

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what is not and only deliver products that are in the highest demand first.

Delivery items among shops rather than from one distribution centre should be

considered as a smart choice since it help sell better but need less manpower.

When the crisis is over, there is possibility to consider doing media advertising, which is

not what CeeCee is used to, as CeeCee should inform a large amount of customers

about its full recovery (recommended social media advertising for cost-effectiveness).

Secondly, CeeCee can reduce its sales loss by looking for alternative

distributor(s) (one or more distributors depends greatly on CeeCee’s needs and the

real situation, hereunder, for simplicity, regarded as “a distributor”) during the disruption.

As the “work to rule” to begin immediately, it is obvious that the longer it takes to find

alternative distributor, the more severe the damage is. Supposed that CeeCee is able to

have full delivery to its shops in the start of 3rd week, the loss in profit will only be 9.45m,

compared with the substantial loss of €189m if it don’t have an alternative distributor.

Therefore, it is strongly recommended that CCMB appoint Jim Bold (Head of

logistics) to set up a negotiating section with relevant stakeholders from EIT to

propose a crisis response plan with the following main terms as soon as possible

EIT will focus on service and repair its vehicles and will only start delivering for

CeeCee when possible. CeeCee will incur all losses due to the delay in delivery.

As CeeCee will try to find an alternative distributor during crisis, EIT’s duty is to

cooperate with CeeCee to give training to the new distributor to make sure it can

provide delivery as usual in the shortest time.

To express its goodwill, CeeCee commits to keep on long term partnership with

EIT after the crisis. However, when new distributor is found, CeeCee will adjust

the amount of services provided by EIT and its new distributor to an appropriate

ratio since CeeCee want to reduce the risks of having the same incidence happen

again in the future.

The criteria recommended selecting an alternative distributor are

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Alternative distributor is competent and is capable of implementing delivery

contract with CeeCee as soon as possible

Alternative distributor appreciates and practices ethical behaviors in delivery

business

Alternative distributor is willing to sign a long term contract with CeeCee

The first two criteria must be complied strictly whereas the last criterion is preferred. The

new distributor must have the capacity to replace EIT’s delivery soon enough, and must

be an ethnic-complying firm. As CeeCee is depending on just a single distributor, it

could be the right time for CeeCee to diversify its distributors and reduce the risks of

disruption in supply chain in the future. Moreover, hiring a company on a long term

basis will earn CeeCee a better price.

2. IT failure

The newly launched online shopping system, while is easy to use, contained a fatal flaw

in the payment process. This resulted in products worth €6m had been sold without

payment. Therefore, CCMB’s objective is to minimize financial and reputation loss.

In this particular issue, the later the company responds, the harder it is able to collect

this money. Thus it is essential that the management must immediately decide whether

to hire an outside agency to recover the money or leave the task for the Finance

department. Appendix 5 provides calculations in support of following figures.

1st scenario: CCMB outsource the collection task to an outside agency, it will be

able to recover €3m out of the total €6m

2nd scenario: CeeCee’s finance department staff reclaims the money themselves,

only can collect €2.7m out of the total €6m

The first method is more effective in financial aspect. However, as agency want to

collect money from many customers as they can in a shortest time, it can make their

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manner when dealing with CeeCee’s customers possibly turn negative and hence,

affect CeeCee’s customer philosophy.

The second method can maintain CeeCee’s excellent customer care, but it is less

effective in regard of finance and cause unnecessary stress to CeeCee’s “already

overstretched” staff.

3. Expansion into the jewellery range

Market research shows that the EU is the second largest market for jewellery. Despite

being weakened in 2008 by the economic crisis, the jewellery market is expected to

grow again in 2010. Consumers now tend to turn away from precious jewellery towards

silver and costume jewellery, regard good design and affordable price more important

than the intrinsic value of a jewellery piece, and this motto suits CeeCee very well.

On the other hand, CeeCee is a clothing-centric retailer. Therefore, the expansion into a

new jewellery business (mid-range jewellery) could be regarded either as an opportunity

or a threat. CCMB must consider carefully the market’s suitability, the

acceptability, and the feasibility of the project to make the right strategic

decision.

The jewellery is the highly competitive market as there are many competitors

competing in and brand identity is one of the most important factors. Appendix 2

provides analysis of the competitiveness of jewellery market. Mid-range jewelers and

better quality department stores could be beaten in the short run. But in a longer run,

with the fast, increasingly growth of lower end jewelers and the change in customer

behaviors, competition would be much tougher for non-specialized firm like CeeCee.

In the regard of 5 years expansion plan, the NPV of the project is about €10

million that ensure the project will bring benefit to CeeCee’s shareholders. The

initial investment needed reaches roughly €6.7 million to cover cost such as upgrading

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shops and enhancing security systems etc. If being implemented, the project will

generate cash flow of over €5 million since the second year to CeeCee. Appendix 6

provides calculations in support of these figures.

However, since CeeCee has been facing the liquidity problem with the deficit of

€10 million of its net working capitals, the initial investment for the project of €6.7

million should be concerned properly. CeeCee may resolve its liquidity problem by

taking a long term loan or issuing more stock to the market. Financial summary on

liquidity and loan could be found in Appendix 3.

4. Celebrity marketing

The marketing manager J.Lespere is proposing an endorsement plan. The chosen

celebrity is Kool, a rock star, and his agent proposes 2 methods of payment. The first

method is that CeeCee pays a fixed payment of €50,000 with a bonus of €150,000

should incremental sales reach €2m. The second method is CeeCee makes a payment

of 5% of all incremental sales revenue.

The two ways suggested will cost equally when sales increase by €1m and €4m,

however the possibility of the latter is rather small (only 10%). The comparison of cost

between the two methods can be described as followed. Appendix 4 provides

calculations in support of following figures.

If incremental sales is lower than €1m or from €2m to €4m , method 2 is more

economical than method 1

If incremental sales is from €1m to €2m or higher than €4m, method 1 is more

economical than method 2

However, this marketing concept has several flaws. First, it is proved that CeeCee’s

original marketing strategy, which relies on centralization of shop window

displays and interior presentations in using the shops to promote its market

image, is highly effective associated with its business model whereas media

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advertising seems to be more costly and less effective. Furthermore, CeeCee

main customers are considered to be young professional women, and a rock star

doesn’t seem to fit that style.

B. ETHICAL CONSIDERATIONS

1. Child labour accusations of suppliers

Child labour in manufacturing garments for CeeCee in many Asian suppliers has been

spotted by a local agent. As those Asian suppliers are proven to be using underage

labour, they have apparently disqualified the criteria that CeeCee requests from

suppliers.

Therefore it is recommended that CeeCee discusses with these Asian suppliers

and give them a certain amount of time – around 3 weeks (referring to SA 8000

standard) to solve the problem. The head of environmental impact Jeroen de Joost is

recommended for this task, as he has lots of experience in dealing with the company’s

CSR. If any suppliers who are not willing to comply, CeeCee should consider not

signing new contract with them. In the long term, it is essential that CeeCee should

publish a new Guidebook to the Code of Conduct, including SA 8000 standard which

specifies requirements for social accountability, including child labour issue. Only those

suppliers who follow this code should CeeCee consider signing a contract with. See

Appendix 8 for SA 8000 standard procedure for dealing with children and juvenile

labour.

2. Ethical aspect of distributor’s strike

Even though the drivers' strike poses a significant threat to CeeCee's business,

CeeCee should take the ethical aspect of EIT’s strike seriously according to its

CSR rules and regulations. It is recommended that CeeCee resolve the problem

base on following ethical criteria

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CeeCee supports three unlucky drivers and the process of implementing “work to

rule” as much as it can. It is recommended that CeeCee should solve the

problem in a cooperative manner with EIT.

CeeCee should not demand any kind of financial penalty or impose any legal

pressure on EIT. It should be clarified that the fact that CeeCee intends to find a

new distributor is not because of the strike, but it is a part of CeeCee’s long term

strategy to reduce risks in its supply chain, which should be implemented

regardless of the problem with current distributor EIT.

Despite the urgency of the problem, it is strongly recommended that CeeCee

should NOT hire distributors who do not comply strictly ethical standards, even

on a short term basis, as it may contaminate CeeCee image as an irresponsible

firm.

C. RECOMMENDATIONS

1. Distributor strike

Crisis can take any business down, but if crisis is handled wisely, it could also be

regarded as an opportunity. If CeeCee put all of its effort in resolving the problem in a

right way, it will help CeeCee not only minimize the loss, but also overcome its own

weaknesses, and add more value to the brand CeeCee in the eyes of its customers,

and partners.

As the disruption start “immediately” and the process of hiring a new alternative

distributor would possibly take time, it is recommended that CCMB consider

implementing simultaneously two solutions as suggested above. The first action

is implementing the solution package of reducing loss and regaining sales after

crisis by optimizing delivery system as well as launching marketing campaign

with the aim of retaining customer and creating awareness. The second action,

which must be done simultaneously, is seeking for a new, competent, and ethical

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distributor based on a long term contract. This will eliminate CeeCee’s biggest

weakness and bring it a less risky business model.

CeeCee is now having only one distribution centre in Northern Europe. Therefore, it is

further recommended that CeeCee should invest in opening a new distribution

centre in Western Europe in the near future as it would increase the safety of CeeCee

supply chain significantly. If there is any strikes happen, lead to lack of delivery, the fact

that CeeCee have two distribution centres could cut down the delivery time needed and

hence, greatly lower the damage of the crisis. Moreover, having two distribution centres

also avoids the risk of losing inventory “all at once” due to any unexpected event such

as fire or natural disasters…

2. IT failure

It is recommended that CCMB outsources the money recovery task to the outside

agency. Choosing the agency not only guarantees that more money of €300,000 will be

recollected, but also free CeeCee’s staff from being overstretched. However, it is

advised that CeeCee give the agency’s staff trainings about praticing CeeCee’s

customer service to ensure CeeCee’s excelent customer care is maintained throughout

the task. It is recommended that CeeCee have the agency send out feedback

forms to collect customers’ opinion about the service of the agency for further

evaluation.

A further step to be taken is to recheck all the IT system, including CCIPL and

CCF. Any errors if identified, must be corrected right away. The payment problem

had gone for three months, yet CeeCee audit staff could not discovered. Therefore it is

recommended that CCMB establishes a training programme on detecting faults in IT

system for its internal auditors and raise the frequency for external audit.

3. Expansion into a jewellery range

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It is recommended that CCMB should not accept the proposal. The major reason

is the harsh competitions in the jewellery market awaiting CeeCee in the long

term. In bad situation, CeeCee could lose competitive advantage to its rivals not only in

its jewellery business but also in its clothing retailer industry. Moreover, the current

difficulty in liquidity is also a real obstacle. CeeCee may not issue more stocks to

draw more capitals as it will make the return of current shareholders diminish. On the

other hand, it may be hard to receive any long term loan from banks as CeeCee has

already received two loans.

It is further recommended that CeeCee use their resources to take initiative based

on their solid business model. CeeCee should use its capitals to invest in either

unexploited market in Europe, where it has existing well-working business model, or a

new distribution centre which can cut down delivery time and reducing risks significantly

to the supply chain. CeeCee’s fast fashion business model is unique and hard to

replicate. By and only by focusing to its unique feature, CeeCee could never lose its

image and be outstandingly competitive in the market.

4. Celebrity marketing

It is recommended that CeeCee management reject the celebrity endorsement

plan. There is no concrete figure of the increase in revenue if CeeCee accepts the plan,

except the estimate of Juliette Lespere herself that incremental sales are not likely to

exceed €2m. Besides, image of a rock star doesn’t suit the company’s target customers

– young professional women. It is recommended that CeeCee focus on enhancing

quality of advertising on its prime location shop by developing a customer-oriented

system to identify more precisely market’s needs.

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D. CONCLUSION

The critical issues facing CeeCee are to:

1. Take immediate actions to reduce the loss caused by the problem with EIT –

CeeCee’s only distributor. Some further methods should also be dealt with in

order to prevent future similar problem.

2. Recover the money lost by the error in IT system.

3. Consider whether to accept the jewellery expansion plan.

4. Evaluate the payment to Kool and the suitability of the marketing endorsement.

The logic behind the prioritization process is two criteria: level of urgency and scale of

the issues. Therefore the unavailability of CeeCee distributor must be the first priority.

This problem caused huge damage to the company, in both terms of revenue and

business model, and need immediate remedy. Of the two proposals that CCMB has

been offered, the expansion plan should be considered with more caution, since it could

be a part of company’s long term strategy and require a lot of investment.

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APPENDIX

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Appendix 1

SWOT ANALYSIS

Strengths

The major strength of CeeCee, definitely, is its “Just in Time” business model which is

built upon the well-developed corporate culture, the effective IT system, and the group

of young, well-trained, and innovative designers. This unmatched feature, together with

the prime locations for all of its shops, is the key factor that gains CeeCee an

irreplaceable competitive advantage from all of its rivals. Thanks to its strict criteria and

audit used in the selection of its suppliers and distributors, CeeCee has been

cooperating well with the most suitable suppliers and distributor (those who met

CeeCee’s strict criteria and have been proved to perform well over a long time) and

hence, ensure the success and competitiveness of the JIT business model.

Weaknesses

The major weakness is that CeeCee only has one distribution center and depends

heavily on one distributor. Even though it helps CeeCee follow the fast fashion supply

chain, there are huge risks associated with just one center and one distributor. If there

is a power shortage, strike or even a natural disaster in the area it will be sure to affect

CeeCee dramatically.

CeeCee is now facing the liquidity problem of its financial condition. Its net working

capital is currently suffering the €10 million deficit in the year ended 31 December 2008

with < 1 current ratio. As long as CeeCee do not take a proper action, there will be a

huge threat that CeeCee may face a financial broken-down and is forced of going

bankruptcy which should be not likely to happen with a highly profitable and potential

company like CeeCee.

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Opportunities

There are several opportunities that CCMB will need to pay attention to. Firstly, there is

the opportunity to expand to new market either inside or outside of Europe. At the

moment, all of CeeCee’s sales come from Europe and entering the unexploited, but

promising market like China, Japan, India, and the United State… could give CeeCee a

big surge in revenue to become the number one clothing retailer.

Another opportunity for CeeCee is its ability to expand and focus on developing a wider

range of product, such as, jewellery, accessories and furniture. These ranges contain

high risks but also high returns, especially in the brighter economic condition.

Last but not least, the nonstop evolution of digitalization could provide the unique

solutions for retailers like CeeCee to access the low-cost and effective sales and

marketing strategies through online shopping and social media branding.

Threats

The intense competitions from other retailers still remain CeeCee’s major threat today.

Among those, “value” retailer with their extremely low prices is, expectedly, the huge

threat that can CCMB cannot ignore. The economic downturn and the fact that these

competitors (value retailers) are taking more and more market share, demand high

street retailers like CeeCee to take immediate actions to re-position their brand,

differentiate, and retain their customers.

Another threat to CeeCee could be, as mentioned before, any unexpected event like a

power shortage, strike or a natural disaster happen to the sole distribution centre or the

sole distributor. In that case, CeeCee’s revenues could almost tank overnight. That is

the reason why long term investors may prefer to stay away from CeeCee.

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Appendix 2

5 FORCES ANALYSIS JEWELLERY INDUSTRY IN EUROPE

Competitive rivalry (Inter-firm rivalry): medium to high

Brand identity is extremely important

Main rivals which are mid-range jewelers and better quality department stores.

Although they seem to not upgrade shopping experience regularly and lack for

contemporary ranges, getting customers from them is not easy.

Wide range of rivals: harsh competition from imitation jewellery makers to high-

end jewelers

Industry growth is stable

Supplier power: high

In jewellery industry the main suppliers are South Africa, India, UAE, Australia,

US, Congo, Botswana, Russia…

New and fashionable design requires high skilled labour and competent suppliers

Buyer power: medium

Price sensitivity is low

Specific customer: medium to high income customers

There are several alternatives buyers can choose from

Threats of substitutes: medium

Substitutes are gold, real assets, stock market, & bank deposits & mutual fund

investment and other types of jewellery like imitation jewellery, stone jewellery…

Threats of new entrants (barriers to entry): low to medium

Skilled manpower is essential

Advanced technology required

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Appendix 3

CeeCee’s financial summary on liquidity and loans

1. Liquidity (€ million)

Liquidity Ratio 2008 2007

Net working capital = Current Assets – Current Liabilities

(negative working capital => firms unable to meet its short-term

liabilities with its current assets)

-10 -143

Current Ratio =

(A lower ratio indicates less liquidity, implying a greater reliance

on operating cash flow and outside financing to meet short -

term obligations)

0,98 0,75

Quick Ratio =

(low quick ratio => low liquidity) 0,53 0,34

Cash Ratio =

(liquidity in crisis) 0,49 0,30

2. Loans

Current loan

Loan amount Annual interest rate End date of loan

€200 m 12% Oct 2014

€100 m 8% July 2016

Total finance cost each year: €32m

Planned loan

Loan amount Annual interest rate Start date of loan

Unknown yet Unknown yet 2014

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Appendix 4

ANALYSIS ON CELEBRITY MARKETING PLAN

Incremental sales Payments to Kool

Method 1 Method 2

€ 1,200,000 € 50,000 € 60,000

€ 1,400,000 € 50,000 € 70,000

€ 1,600,000 € 50,000 € 80,000

€ 1,800,000 € 50,000 € 90,000

€ 2,000,000 € 200,000 € 100,000

Break-even sales volume considering 2nd method

Incremental sales x

Cost $ 50,000

Margin x- 50000

Tax 0.3(x- 50000)

Break even:

x - (50000 + 0.3(x-50000))

= 0

x = 50000

Sales where both payments method are both costly

Incremental sales < 2000000

50000 = 0.05x (x < 2000000)

x = 1000000

Incremental sales 2000000

200000 = 0.05x (x 2000000)

x = 4000000

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Cost comparison between 2 methods

Incremental sales More beneficial method

Below 1m method 2

From 1m to 2m method 1

From 2m to 4m method 2

Above 4m method 1

Appendix 5

MONEY COLLECTION PLAN ANALYSIS

Lost sales (orders) 50000

Average value € 120

Total sales lost € 6,000,000

1st Scenario: Outside agency to collect money

Fee: €14/person

5% of recovery (amount of money can collect)

Money recollected

6000000 0.6 6000000 0.6 0.5 50000 0.6 14 € 3000000

2nd Scenario: Finance department to collect money

Money recollected

0.45 6000000 € 2700000

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Appendix 6

CASH FLOW INVESTMENT MODEL OF JEWELLERY EXPANSION

INNITIAL INVESTMENT

Glass display € 4,800,000

Lifetime of the investment (year) 5

Working Capital € 1,920,000

Total € 6,720,000

2010 2011

forecast

2012

forecast

2013

forecast

2014

forecast

2015

forecast

Cash out

Staff training 0 € 800,000 € 320,000 € 320,000 € 320,000 € 320,000

Working

Capital 0 0 € 1,280,000 0 0 0

Loss of other

products 0 € 288,480 € 1,250,080 € 1,250,080 € 1,250,080 € 1,250,080

Cash Outflow

€ 1,088,480 € 2,850,080 € 1,570,080 € 1,570,080 € 1,570,080

Cash in

Increased

revenue 0 € 1,824,000 € 7,904,000 € 7,904,000 € 7,904,000 € 7,904,000

Cash Inflow

€ 1,824,000 € 7,904,000 € 7,904,000 € 7,904,000 € 7,904,000

Initial

Investment € 6,720,000 0 0 0 0 0

Cash flow € (6,720,000) € 735,520 € 5,053,920 € 6,333,920 € 6,333,920 € 6,333,920

NET PRESENT VALUE € 10,093,384.49

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Appendix 7

Estimated loss from distributor’s strike

Estimated sales per week: €57.4m

% sale lost per shop Sale lost (m) Lost profit (m)

0.10 € 5.74 € 3.45

0.20 € 11.48 € 6.90

0.30 € 17.22 € 10.35

0.40 € 22.96 € 13.80

0.50 € 28.70 € 17.25

0.60 € 34.44 € 20.70

0.70 € 40.18 € 24.15

0.80 € 45.92 € 27.60

0.90 € 51.66 € 31.05

1.00 € 57.40 € 34.50

Total € 315.72 € 189.75

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Appendix 8

SA8000 Standards: Procedure for dealing with children & juvenile labour

1. Purpose

To meet the requirement of SA 8000:2001 standard and the guide about how to deal

with situation of children and juvenile labour in the company.

2. Scope

This procedure applies to the children and juvenile labour working in the company,

office or in the garment factory’s area.

3. Definition

3.1. Children labour is the under 15 year old employee.

3.2. Juvenile labour is the not yet enough 18 year old employee.

3.3. The discoverer is the related division or personnel inside or outside the company

who discovers any case of children or juvenile labour.

3.4. Suitable work to children or juvenile is the work that doesn’t have any impact on

their physical development, not dangerous and the total time of working and studying is

no more than 10 hours a day or 42 hours a week.

3.5. The children ’s family representative: parents, grandparents, brothers or sisters,

uncle and aunt or the conservator.

4. Content

The company forbids all the staffs to participate in or approve the use of children &

juvenile labour in the company. If any case is found, do as the following procedure:

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4.1. When discover the use of children & Juvenile labour, the Discoverer must report to

the Administrative Department the name and department where the child is working in.

4.2. The Administrative Department has responsibility to cooperate with other related

departments and employees to check the true age of the suspected. This check will

base on methods such as direct interview with the employee, check the ID card or

citizen record, birth certificate or even ask for help from the employee’s hometown. In

addition, also check the education level, temporary place and the office where that

employee is working in.

4.3. When find out about the true age, the Administrative Department informs the

suspected and other people (if concern) and make a report to the board representative

to carry out corrective actions as follows:

AS FOR CHILDREN LABOUR

The Administrative Department discusses with the chief of the office where that

employee is working in to assign him (her) a suitable job in the waiting-to-

negotiate period. This period is normally no more than 3 weeks.

The personnel manager will discuss with the child’s family representative about

sending the child to school. The company will pay for the tuition, book….. The

family representative must guarantee that he (or she) will go to school.

Each quarter, the company will contact the family and school to update the

inspecting sheet. As for health status, it will be updated every 6 months

When the child is enough 15 years old, the company will invite the child to work

in the company. If he (or she) doesn’t agree, then the relation between him and

the company ends. If agree, then applies the procedure for juvenile labour. The

period that the child works for the company will be reserved for later regimes

(such as social insurance, working seniority, compensation….) as regulated by

the company.

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AS FOR JUVENILE LABOUR

The head of Administrative Department must discuss with the chief of the office

where that employee is working in to assign him (or her) a suitable job.

When the employee is enough 18 years old, the Administrative Department will

remove the name of that employee out of the list of juvenile labour and inform the

concerning parties, then update the inspecting sheet and make a record.

The period that the juvenile employee work for the company will be reserved for

later regimes (such as social insurance, working seniority, compensation….) as

regulated by the company.

The Administrative Department has responsibility to inspect that employee and

update the inspecting sheet of juvenile labour.

THE END