1624 Words7 Pages

CRU Computer Rentals
(Operational Management Assignment)
Executive Summary
CRU is one of the two national computer rental companies. They purchase CPU, monitor, printer and other peripherals and rent them out for long term leases and short term rentals. The case covers the problem faced by the company in 1997 when the rental market started to decline and the efforts by the company to bring up the sales plunged the company to losses.
Problem Statement
In 1996, they had a revenue of 15 million$ and the average number of units that were on rent was at 1000 units per week.
But at the beginning of 1997, the rental market began to decline and the demand fell down to 600units per week at CRU. This was a matter of grave concern to CRU*…show more content…*

1) As part of 1997 sales drive, 800 units were given out for rent at a rate of 35$ per week and also 600 units were given out for rent at a rate of 30$ per week. * Revenue per unit that is given out for 4 weeks = 35 * 4 = 140$ * Cost per unit that is given out for 4 weeks. * Cost of a part that got returned as faulty = 25 + 25 + 4 * 1000/156 + 150 = 225.64 * Cost of a part that got returned fine = 25 + 25 + 4 * 1000/156 = 75.64 * Considering that (70 – 10.5)% units return as faulty and (30 + 10.5)% units returned fine, the average cost per unit given out for rental is ~139$ * Contributed Margin is just 1$. Again, with more units given out for rent, the total number of items in inventory rises as the flow time is kept constant. This adds to average depreciation cost and net effect will be a loss. Hence the reduction in rental rate of 4 week unit from 40$ to 35$ was not correct. Going by the actual rental rates of each unit, * Average profit per week per unit that goes for a 4 week rent = (40*4 – 139)/4 ~ 5$ per week * Average profit per week per unit that goes for a 4 week rent = (30*8 – 164.41)/8 ~ 9.45$ per week * Average profit per week per unit that goes for a 4 week rent = (25*12 – 190.05)/12 ~ 9$ per week This shows that more reduction in rate is possible for an 8 week or a 12 week CRU unit when compared to a 4 week unit. So, mere increases in utilization rate alone won’t be a performance measure if

1) As part of 1997 sales drive, 800 units were given out for rent at a rate of 35$ per week and also 600 units were given out for rent at a rate of 30$ per week. * Revenue per unit that is given out for 4 weeks = 35 * 4 = 140$ * Cost per unit that is given out for 4 weeks. * Cost of a part that got returned as faulty = 25 + 25 + 4 * 1000/156 + 150 = 225.64 * Cost of a part that got returned fine = 25 + 25 + 4 * 1000/156 = 75.64 * Considering that (70 – 10.5)% units return as faulty and (30 + 10.5)% units returned fine, the average cost per unit given out for rental is ~139$ * Contributed Margin is just 1$. Again, with more units given out for rent, the total number of items in inventory rises as the flow time is kept constant. This adds to average depreciation cost and net effect will be a loss. Hence the reduction in rental rate of 4 week unit from 40$ to 35$ was not correct. Going by the actual rental rates of each unit, * Average profit per week per unit that goes for a 4 week rent = (40*4 – 139)/4 ~ 5$ per week * Average profit per week per unit that goes for a 4 week rent = (30*8 – 164.41)/8 ~ 9.45$ per week * Average profit per week per unit that goes for a 4 week rent = (25*12 – 190.05)/12 ~ 9$ per week This shows that more reduction in rate is possible for an 8 week or a 12 week CRU unit when compared to a 4 week unit. So, mere increases in utilization rate alone won’t be a performance measure if

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