BUS 301
ASSIGNMENT 1
SEMESTER 1 2015
LACHLAN MILLER
22086430
As a firm selling and servicing agricultural machinery in Armidale you first must understand the ways and reasons that value can be perceived. Firstly value is an amount of money a consumer is willing to pay for a specific good or service. (Baker). These values which can be added or subtracted take the form of attributes and create increased costs for the items which the customer is willing to pay for. In an enterprise such as the agricultural machinery distributor described the costings of stocks will be very high to the consumer, and the profit margins to the firm will be high, but the rate that the distributor sells, or the turnover, will be relatively low as an
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As a further example a 10ft air seeder will sell for approx. $69,000 brand new but if the distributor were to offer immediate delivery, delivered on site and 3 free annual services, as well as a guarantee or similar the cost could be increased to over $70,000 given that the costomer finds these extra services or value there for increasing the net income of the product.
Other forms of value adding could be the dealer purchasing the product in a bulk order from the wholesaler or the producer in order to pay less variable costs. This method of value adding could prove risky in a market such as this with the variability of annual sales. Given this method of value adding the potential also arises for increased costs if the product isn’t sold. As an example if a manager were to preorder and have 10 John Deere 1590 direct drill air seeders delivered, the firm might be able to pay less for a bulk order but will incur increased storage costs and faces the risk of having to reduce the price to sell whatever stock is leftover at the release of the next years model in order to, not only make more room at the storage site but also to recover the expenditure that came with overinvesting in a product that didn’t sell.
Other considerations for this particular line of enterprise is
Investing and Financing. Firms must finance inventory, usually with a combination of supplier and bank financing. The risk of inventory obsolescence is somewhat high if the product offerings in a particular season do not sell. Firms tend to rent retail space in shopping malls, so they need to engage in extensive long-term borrowing.
The customers, wholesalers and retailers may order in large quantities with the expectation that they will receive a greater allocation of products that are in short supply. The impact on the supply chain is significant as the forecasted demand is greatly, and unrealistically, increased with these inflated orders. Eventually orders disappear and cancellations pour in, making it impossible for the manufacturer to determine the real demand for its products
Schenck, J., McInerney, J. 1998. Applying vendor-managed inventory to the apparel industry. Automat. I.D. News 14(6) 36-38
The options available for this company involve looking at different inventory models in order to allow this specialist the ability to produce outside high demand windows of opportunity. Initially this company began using the MRP system which enevitably helped to reduce the company’s inventory and at the same time improved their on-time delivery numbers. Currently the process has allowed the Space Age company to maintain a cost of $1.25 per week to store their Gemnini and $1.50 per week to store each of their Saturns that sat in inventory.
My inventory control procedures provided both increased revenues and cost savings. Quite simply, I ordered adequate levels of products which were in high demand, I was able to better meet customers’ needs, and my revenues increased. The cost savings I experienced as a result of my inventory control procedures were a bit more complex. First, in establishing a routine schedule for ordering, I was able to reap the benefits of lower shipping costs. Because I had a routine schedule, I could
• At the maturity stage, the extra cost, although very small, can be a real disadvantage because during this period, the market becomes very competitive and many players enter the same field causing price to drop. Customers also become more price-sensitive. However, the benefit of better forecasting demands significantly helps lower the level of inventory.
Calculating the benefits of vendor managed inventory in a manufacturer-retailer system (Bookbinder, Gumus, & Jewkes, 2010)
Because the product was leaving the warehouse and getting to stores quicker, I was able to reduce the storage space which was an initial problem so the increase of costs because of it decreased. The stores showed a moderate increase in profit.
The first tool to compensate demand fluctuation is building inventory as given in the case text. Quantitative trade-off of this tool is basically the opportunity cost of holding inventory which is given as $8 per unit per month. In addition, keeping products for long time intervals in inventory could lead them to hold outdated products which can be though both quantitative and qualitative trade-off. Considering that these aspects should have been included in the inventory holding cost; no additional modification related to these trade-offs are considered.
John Deere Component Works (JDCW), subdivision of John Deere and Co. was in charged specifically of the manufacturing of tractor component parts. The demand for JDCW’s products had problems due to the collapse of farmland value and commodity prices. Numerous and constant failures in JDCW’s competition for bids, alerted top management to start questioning their current costing methods. As an outcome, the analysis has to be guided to research on the current costing methods with the intention of establishing legitimacy and to help the company in adopting a more appropriate costing system.
Produce more products so there is less restocking issues but not more than the market calls for (supply and demand),
A company must pay attention to the number of days of its sales it holds in inventory to determine the amount of time it will take to convert the inventory on hand into sales (Gibson, 2011). As shown in Exhibit 3, 3M increased from 81.74 days of sales in inventory in 2007 to 82.20 days in 2008. At face value, an increase suggests a slight negative trend for 3M as it is holding onto more inventory, taking longer to sell
John Deere Component Works (JDCW), subdivision of John Deere and Co. was in charged specifically of the manufacturing of tractor component parts. The demand for JDCW’s products had problems due to the collapse of farmland value and commodity prices. Numerous and constant failures in JDCW’s competition for bids, alerted top management to start questioning their current costing methods. As an outcome, the analysis has to be guided to research on the current costing methods with the intention of establishing legitimacy and to help the company in adopting a more appropriate costing system.
Bodie Industrial Supply, Inc is a full service distributor of top line, brand name, new and used certified machine tools, maintenance parts and related equipments for the construction, utility and farming markets. The demand for equipment is relatively cyclical, with Bodies having a slight increase in sales to farming markets in the summer. Bodie’s has seen a huge sales growth increase in 2003-2004 of 72% and 29% in 2004-2005. This is mostly due to an increase in net sales and keeping a constant level of costs of goods sold.
Furthermore the U.S. market is now the target for most of the globe’s auto makers since the economy is steadily improving and consumers are much more inclined to replace or buy a new vehicle with the latest estimates for auto sales in 2014 expected to reach the 16 million vehicle range. However, finished goods inventories management is still a big problem and many automotive OEM’s such as GM are now considering even more investments in added capacity.