Dollar Tree Incorporated

893 words | 3 page(s)

Introduction
Dollar Tree Incorporated is one of the largest chains of discount variety stores in the United States. As can be identified by the name, the company focuses on providing everyday household goods at incredibly low prices through the use of effective supply chain management and cost-cutting measurements undertaken at all levels of the company. However, while the firm is highly effective in maintaining low costs, there are certain inefficiencies within its operation that are capable of increasing prices in the long-term due to the changing nature of the retail market as well as other factors.

In order to counter-act these inefficiencies, a thorough overview of its business model as well as methods of supply chain management must be undertaken in order to determine which parts of the company’s logistical model and operational methods can be altered in order to reap greater costs savings across all company operations.

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Analysis
As the company is highly dependent on its logistical network to maintain low prices and attract customers to its stores, the primary expenditures of such a transportation network on the fuel costs that such a business uses. This has proven detrimental in the short and medium term, as the cost of transportation continues to increase due to the rising costs of resources that facilitate this transportation network. In order to prevent this increasing cost to raise prices across the board for consumers, the company must focus on ways to mitigate and lessen the impact of such price increases on its operations (Laseter, 2008).

Investments in renewable energy, more fuel efficient methods of transportation, and general methods to cut down energy costs for the company would be highly effective in mitigating this cost in the future. As a general trend, the cost of energy will continue to increase due to the higher demand for fossil fuels from the developing world.

Past, Current, and Future Conditions
In terms of energy, past conditions have been optimal for the business model that the company operates. Labor costs were low in developing nations and fuel costs were at the lowest for decades due to abundant supply on the world market. However, such conditions no longer hold true as both of these critical resources have been steadily increasing over the past several decades and will continue to increase in the future (Ballou, 1993). If current trends hold, fuel costs will continue to increase as well as labor costs, which will force Dollar Tree to raise prices across the board in order to match these new realities. As a business model, it will no longer be able to depend on cheap labor from East Asia, unless significant labor investments are made in underdeveloped nations where labor costs remain relatively low.

Cost and Benefit
While there may be some costs associated with this strategy, it is in the best interest of the company to move away from classical methods of transportation to cost-saving forms that involve greater savings in terms of energy costs. Transportation costs will soon become the largest expenditure in the logistical system of dollar tree, and as such the company must adjust to these new macroeconomic conditions (Hummels, 2007).

Due to the state of the technology, upgrading its existing infrastructure will be expensive due to the current state of manufacturing. Much of the expenses will need to gear to upgrading its logistical network to incorporate more hybrid and electric vehicles, as these forms of transportation have sufficient cost savings over traditionally powered vehicles.

Economic Efficiency Impact
The impact of these measures will be great, as it will facilitate a drop in overall costs and allow the company to remain economically competitive in the future. By enacting these reforms, the firm will be able to maintain low prices for which it is known, and continually draw customers to its stores. As the logistical network is the backbone of the company, any and all fuel saving initiatives will have a great impact on the cost of the final good, as most of the expense of the good is generated from the transportation rather the manufacturing part of the supply chain. In the long-run, it is in the best interests of the company to invest in methods that will reduce the cost of transportation.

Conclusion
As can be seen, there are a variety of options for Dollar Tree to increase its overall economic efficiency in terms of its operations. While the analysis determines that the firm has a fairly lean structure, there are still factors that affect the efficiency of the firm that can be compensated though a number of investments in infrastructure as well as the creation of policies that minimize waste produced as a result of its operations. In the long-run, the firm will face increased costs savings due to a number of macro-economic factors that affect its operations such as the cost of transportation as well as various regulatory structures placed upon the operation. Furthermore, the nature of the retail business is changing, and this will factor into the overall savings that the company can expect if it maintains competitiveness within the industry.

    References
  • Ballou, R. H. (1993). Reformulating a logistics strategy: a concern for the past, present and future. International Jornal of Physical Distribution & Logistics Management, 30-38.
  • Hummels, D. (2007). Transportation costs and international trade in the second era of globalization. The Journal of Economic Perspectives, 131-154.
  • Laseter, T. (2008). Dollar Tree Logistics.

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