Company’s product line is well known in the market, and it has agood brand image that drives company’s revenues. However, beyond its good financial standing, thecompanyis experiencing some major problems in supply chain, logistics, increasing lead time, poor fill rate and increasingcost of logistics. Hence, it is recommendedto the company that firstly, it should take theform of strategic purchasing unit that could prepare a purchasing plan for the company through selected suppliers in the market over the short-term period to benefit from the market trends and negotiate over the price due to economies of scale. Secondly, thecompany should form a perfect sales management team that could prepare, plan and forecast the sales through utilizing the marketing intelligence data.
It would help thecompany to reduce the low moving inventory, eliminate thecaring cost of inventory and better management of inventory. On the other hand, thecompany would be able to increase its sales and improve the fill rate in the market. Meanwhile, the strategic purchasing unit would be responsible for providing material at possible lower rates through negotiating with the supplier mutually. Furthermore, it would be able to form new strategic alliances in the market to enhance its distribution channel and to place its products in the market strategicallyin order to compete with the rivals by cost controlling and increasing proficiency in operations. Indeed, thecompany would be able to manage all its issues at first glance. Therefore, thecompany should take a step towards forming two different strategic business units.
|Balance Sheet||Years Ended June 30|
|Long -term-debt, including current portion||$225,655||0%||$225,951||-3%||$233,802|
|Income statement||Years Ended June 30,|
|Cost of Goods Sold*||$666,157||59%||$550,478||58%||$509,174|
|Income (loss) from operations||$74,006||7%||$68,257||7%||$78,533|
|Debt extinguishment charges||$ –||0%||$758||0%||$ –|
|Net income (loss)||$37,334||3%||$32,794||3%||$37,604|
|Net income (loss) attributable to common shareholders||$37,334||3%||$32,794||3%||$37,604|
*Net Sales – Gross Profit = Cost of Goods Sold
**Gross Profit – Net Income = Operating ExpensesThe company has manual purchasing process with no proper planning and forecasting.Therefore, the technique that the company is using has avariability of 30%. On the other hand, as we have gone through the company’s financial statements,(See Exhibit 1, 2)which clearly state that company’s net income has not increased although the net sales increased in 2007. Meanwhile, the operating cost and cost of goods also increased with thesame pace as in previous year. That shows that company has good strength to operate in the market and its products could be the competitive advantage for the company. Our analysis shows that company has no strategic purchasing managementHowever, the company’s purchasing management is very weak and has no efficiency in managing the inventory effectively resulting in high inventory turnover and slow moving units which is result of lack of forecasting and planning in the company. Similarly, the company’s cost of caring inventory is also increasing,which shows that slow moving inventory is increasing. On the other hand, company’s increasing logistics cost indicatesthat thecompany has no strategic purchasing management which has resulted in increased cost of material and cost of doing business. It also has increased the lead time for the company………………………
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