Hello everyone. This is Dr. Yao Zhao. I'm a professor in Supply Chain Management at the Rutgers Business School. In this video, I'd like to tell you the story of VASTA wireless. VASTA is one of the largest telecommunication companies in the United States, selling wireless services such as voice and data and cellphones nationwide. It is known for its best national coverage, highest service quality, and largest national network of retail stores to serve customers. Because of its high quality, its services and handsets are sold at a premium. VASTA runs one of the largest supply chains in the industry, serving the entire US market with three distribution centers, DCs, and more than 2,000 stores. The nation is partitioned into four markets, Northeast / New York, Georgia / South, Midwest / Ohio, and finally, West / Mountain. The DCs are strategically located in Los Angeles, Memphis, and Philadelphia to serve these markets. To sell the services and phones, VASTA use a push strategy or the popular store model where customers buy phones directly from the stores. This strategy is attractive to customers as their needs are met immediately. But it requires a heavy investment of inventory. Indeed, stores carry a huge amount of handset inventory, about 60% of the total $2 billion inventory investment in the supply chain. The inventory investment is a huge liability, because technology advances fast, the cellphone has an average life cycle of only six months. Handsets cost VASTA a great deal to buy-in. For instance, a smartphone costs about $500 on average and a feature phone about $200. But because of the obsolescence issues, VASTA has to sell them at a deep discount or even give them out for free, to customers. Including the recycled phones, VASTA wrote off hundreds of millions of dollars of inventory each year due to obsolescence. Thus, inventory is a timed bomb because if you hold a phone in inventory for half a year, its value may completely vanish, because the next generation of phones is out already. The cost inefficiency is becoming intolerable because of the market trend. The figure shows that the growth rate of the US wireless market in terms of the total revenue, and the number of subscribers is slowing down significantly from double digits in 2006 to 2 or 3% percent in year 2010. Notably, the number of subscribers has reached 280 million in 2010, which is almost 90% of the US population. This implies that the US Wireless Market has grown into a stagnation and there is almost no room for revenue growth unless a company can seize market shares from its competitors. So here is the challenge faced by VASTA, on one hand, the market is increasingly stagnant. On the other hand, VASTA's high quality advantage is diminishing, as the competitors are wrapping up their technologies and expanding their networks. Thus, VASTA is under a heavy pressure to cut cost so it can reduce price to stay competitive. VASTA is facing a paradigm change from the growth model, in which the objective is to grow revenue regardless of cost, to the efficiency model, where the objective is to reduce costs without reducing revenue to be more profitable and competitive. To improve cost efficiency, a new strategy for supply chain was proposed, the Pull Strategy or a Showroom Model. In this model, inventories will be pulled back from the stores to the DCs. Stores will be converted to showrooms and only keep samples for customers to experience the product. Orders placed in the stores will be fulfilled by the DCs via express delivery. The model is used widely in the furniture industry, but rarely attempted for cellphones. The Senior Management's opinion is divided. Supporters argue that the Pull Strategy can reduce inventory investment significantly. Opponents, however, are concerned about the increasing shipping cost, the increasing warehouse order fulfillment cost such as pick and pack. And the cost involved in the conversion of the stores to showrooms such as store remodeling, and employee retraining. More importantly, the Pull Strategy will change the customer buying experience. This is truly a drastic change that can significantly affect every part of the supply chain. Questions are, what is the net impact of the Pull Strategy? For which type of product should we use the Push or Pull Strategy? And finally, will customers accept it? We can sit here arguing for whole day without knowing exactly what to do. So to answer these questions, we must use data and analytics to develop quantitative insights and solutions.