cooperates supplier factories in China to reach the goal of 20% t with its top 2
ID: 350389 • Letter: C
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cooperates supplier factories in China to reach the goal of 20% t with its top 200 , Walmart energy efficiency improvement. crcury Marine, the large boat-engine producer, uses the Internet to enhance design with builders and engine dealers as it fights off competition from Honda, Yamaha, and Volvo. Umifi, the leading U.S. maker of synthetic yarn, shares daily production-scheduling and Bever ags Chemical Food quality ty-control information with raw materials supplier DuPont As Table 11.1 indicates, a huge part of a firm's revenue is typically spent on purchases, so pply chains are a good place to look for savings. Example 1 further illustrates the amoun Metais available to the operations manager through the supply chain. 79 icate the strong role that supply chains play in potential profitability. Effective cost cu y help a firm reach its profit goals more easily than would an increased sales effort. 62 xample 1 T sUPPLY CHAIN STRATEGY VS. SALES STRATEGY TO ACHIEVE A TARGET PROFIT Hau Lee Furniture, Inc., spends 60% of its sales dollars in the supply chain and has a current gross profit of S 10,000. Hau wishes to increase gross profit by $5,000(50%). He would like to compare two strategies: reducing material costs vs. increasing sales. APPROACH Use the table below to make the analysis. SOLUTION The current material costs and production costs are 60% and 20%, respectively, of sales dollars, with fixed cost at a constant $10,000. Analysis indicates that an improvement in the supply chain that would reduce material costs by8.3% ($5,00iS60 000) would produce a 50% net profit gain for Hau; whereas a much larger 25% increase in sales ($25,000 SI 00,000) would be required to produce the same result. SALES STRATE Sales Cost of materials Production costs Fixed costs Profit CURRENT SITUATION $100,000 60,000 (60%) $20,000 (20%) $10,000 (10%) $10,000 (10%) SUPPLY CHAIN STRATEGY 100,000 $55,000(55%) $20,000 (20%) $10,000 (10%) $15,000 (15%) $125,000 $75,000 (60%) $25,000 (20%) $10,000 (8%) $15,000 (12%) INSIGHT Supply chain savings flow directly to the bottom line. In general, supply chain costs need to shrink by a much lower percentage than sales revenue needs to increase to attain a profit goal. Effee- tive management of the supply chain can generate substantial benefits. LEARNING EXERCISE IfHau wants to double the original gross profits (from S10.000 to$20,000. what would be required of the supply chain and sales strategies? [Answer: Supply chain strategy - 16.7% redaction in material costs, sales strategy--50% increase in sales. RELATED PROBLEMS 1 1.3, 11.4 s strive to increase their competitiveness via product customization, high quality, cost LO1 Explain the and speed to market, added emphasis is placed on the supply chain. Through long-term strategic importance of ationships suppliers become "partners'" as they contribute to competitive advantage. the supply chain re that the supply chain supports a firm's strategy, managers need to consider the supply shown in Table 11.2. Activities of supply chain managers cut across accounting, f nd the operations discipline. Just as the OM function supports the firm's overall strate- ly chain must support the OM strategy Strategies of low cost or rapid response demand ngs from a supply chain than a strategy of differentiation. For instance, a low-cost strat- requires suppliers be selected based primarily on cost. Such suppliersExplanation / Answer
a) when profit is 25,000 i,e, increases by 10,000 over supply chain strategy (15000 profit), cost of material decreases by equivalent amount
Therefore, cost of material is 55000 -10000 = 45000
It is an improvemet of (10000)/55000 = 18.18% improvement over supply chain strategy
b) New profit = 25000
Fixed cost = 10,000
Now, Fixed cost + Profit = 20% of sales
Therefore, sales = (10000+25000 )/0.2 = $175000
It is an improvement of (175000-125000)/125000 = 40% over the sales strategy
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