home / study / business / operations management / operations management question

Question

home / study / business / operations management / operations management questions and answers / Last Year Acme Anvil Co. Had Their Best Year Ever. Sales Targets Met, Manufacturing Productivity ... Your question has been answered Let us know if you got a helpful answer. Rate this answer . Question: Last year Acme Anvil Co. had their best year ever. Sales targets met, manufacturing productivity ... Last year Acme Anvil Co. had their best year ever. Sales targets met, manufacturing productivity and quality improved. This year sales are even better and manufacturing is still improving operations. At the end of last year, Elmer the sales manager agreed to 90-day (previously 30-day) payment terms for 6 of the largest customers. This was strategy was adopted to beat the competition. These 6 customers account for over 40% total sales dollars. Jessica the CFO has just informed the COO that she cannot meet payroll this week – there is insufficient cash on hand. The COO and CFO take a quick look at the details – comparing last year’s data to this year’s YTD data, double numbers they double checking the numbers, which look pretty good. They jump to the conclusion that someone has defrauded Acme (sales great, operations under control). Where is the cash? What other ‘financial’ explanation could there be? What numbers should they look at? How could this catastrophe have been prevented?What actions do they need to take to meet payroll? 250 words or more

Explanation / Answer

Considering the firm is doing well in terms of meeting sales target, manufacturing productivity and quality improvement, the cash crunch that Acme was facing is due to the credit sales where some of the customers who were given 90-day period to pay the amount have taken complete advantage of it resulting in delayed payments. In some cases, the customers exceed the credit period which they bargain as grace period.The COO and CFO need to look at the amount that needs to be returned by these customers and amount pending as per the credit period in comparison with amount of cash required to fulfill the payroll of the firm.

The catastrophe can be prevented by reducing the credit period in the payment terms and offering slight discounts to the customers viz. 1 % of total sales if they pay the amount within 10-15 days of receiving the product. Also, other options to increase customer satisfaction is through improvement of product quality, timely delivery etc.

In addition, the cash returned need to be immediately available to meet payroll and other operating expenses and the rest need to be deposited for interest, which takes care of minor expenses.

Related Questions

Navigate

• Browse (All)
• Browse H
• Subjects

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.