Decision Analysis of N&F Company - Case Study Example

Decision Analysis N&F is a company that was founded at the end of 1981 based at a single site in Sheffield, manufacturing and distribution. From this modest start in 1981, the number and geographical spread of the customers has increased rapidly in part as a result of the company starting to sell directly to customers over the internet in 2003. This rapid growth has caused problems both in the distribution of goods to the customers, warehousing and transport Task 1 The diagrams below show the analysis of product range and profit analysis of area one and area two respectively. Diagram 1 Diagram 2 Interpretation From the diagrams, we can infer that region one performed higher than region two. That is; Region one totals Products range -131 Profit -10,419 Region two totals Products range -112 Profit -8,413 The percentage difference is 85.5 % and 80.7% respectively. This means that a lot has to be done so as to improve the production rate of region two. (Dewhurst, 2002) Task 2 Sales forecast A sales forecast can be defined as a prediction made based on the previous sales performances and analysis of market condition expectations. A good thing about conducting a forecast is that it enables one to look at the figures of the company objectively. A company that takes into account past records is always aware of the future and constantly uses those records to determine what the future holds. Looking into various methods and techniques of forecasting, I choose to apply the quantitative approach. (Skinner, A 1999) In lay man’s language, the word Quantitive means an indefinite amount of anything. Quantitive method of forecasting primarily relies on figures to predict sales. These figures are then correlated, added or multiplied and then placed in a formula to calculate the company’s future sales. When the demand of products being sold is highly stable and predictable, the forecast comprises of inflation to predict the future sales and the past sales. Simply; Sales Forecast = Percentage of Inflation Factor + Past Sales The sales manager should ensure that she analyzes monthly sales however small. This will enable her to see the distribution rate of sale over months and thus making annual analysis easier. However, my advice to the sales manager is not to limit herself into one forecasting method. This is because the market behavior keeps on changing and becoming less predictable. The use of more complex and diverse methods of forecasting is necessary as technology also chips in. Basing on the results obtained from the task 1 analysis; we can easily conclude that sales in the north are more than the sales in the south. I would recommend that some of the sales data be divided to the southern region so as to lift up its profits. However, a carefully designed plan should be used in order to avoid failure. Sales forecast in the next five years. Year Sales in North Sales in South Total 2007 20238 19182 39420 2008 26309 24937 51246 2009 34202 32418 66620 2010 44463 42143 86606 2011 57802 54786 112588 2012 75142 71222 146364 Assuming the percentage of inflation factor is 30%, and using the formula Sales Forecast = Percentage of Inflation Factor + Past Sales Task 3 Location Demand (‘000 items) Deliveries From Coventry(miles) From Preston(miles) Birmingham 4000 2 13 Bristol 2000 11 24 Cardiff 1500 16 23 Carlisle 1000 34 12 Hull 1000 27 13 Leeds 4000 14 13 Liverpool 3000 23 12 London 8000 16 25 Manchester 5000 14 7 Newcastle 3000 18 12 Reading 1500 4 16 Southampton 2000 6 30 Stoke 1000 6 6 Sunderland 2000 21 9 The company apparently uses trucks to transport its goods from warehouses. I would recommend that the company considers using other means of haulage such as sea freight or air. (Curwin et al, 2002) This is because road haulage has proved to be difficult for many manufactures, with many of them having reports of bankruptcy due to intense competition. Task 4 Researchers have strongly indicated that the feasibility study of capital investments in many companies today is mainly based on a cost benefit analysis that is usually conducted using capital investment-appraisal techniques (CIAT). (Anderson, et al 2001) The commonly used methods of appraisal include accounting rate of return (ARR), payback period (PP), internal rate of return (IRR) and the net present value (NPV). NPV is believed to be more difficult and is not commonly used. Payback period This technique can be defined as the periodic time that is required to compensate for the investment expenditure by use of the money flowing in to the company produced by the investments. If the company chooses the PP method of investment appraisal, they will tend to accept the many short lived machines and reject the many long-lived machines. This literary means that machines that bring about faster profit realizations will be favored. After the initial investment is compensated, the gains generated by the reuse are ignored. This means that the reuse of the services is not fully accounted for. Considering the shortcomings of PP, it is an adequate technique of conducting appraisal. In the cases of major investment decisions, the company should not solely depend on the results inferred from PP. Accounting Rate of Return (ARR) This technique can be defined as the difference between the annual gains and the amount of investment money put to purchase the machines. The annual gain is measured by the annual income after tax or by the cash flow. This technique is more adequate than PP because it puts into account the total lifecycle of the investment. On the other hand, as with PP, the money time value is not taken into consideration. Menace can be penetrated into the appraisal to a definite degree by amending the impediment by which the services are moderated, but this is not useful when dealing with mutually exclusive machines. The Internal Rate of Return (IRR) This tries to correlate the rate at which the present value of the money out-flows equals the present value of the investment’s money inflows after the machines are purchased. This technique takes into consideration the time value of money by introducing a discount factor. The use of the discount factor is a major development though there are several disadvantages; The IRR gives the result in a percentage making it difficult to compare services that fluctuate substantially in size and outcome. If this method is applied as a selection tool for mutually exclusive machines, the risks are not accounted for. It’s deficient in the possibility of entering risk-levels into the selection. The Net Present Value (NPV) This method computes the present value of the investment money flows by use of a discount rate. Compared to the IRR, diverse rates can be used to reflect the risk levels of common exclusive investments. This method is theoretically more superior. Decommissioning the machine Following the health and safety assessors comments, I suggest that the intent is to try and recover anything that is valuable from the machine before decommissioning it. First of all, the company should try and see whether there are other companies who can possess the machines. (Decommissioning a Machine, 2010) Alternatively, they should keep the machine typically for non-production use e.g. testing. But before doing that, the machine should be prominently labeled so that it is not unintentionally surplused. With the cost of 10,000 dollars per machine, I would recommend that the money be used to fund the above suggestions. Reference: Anderson, R., Sweeney, J. and Williams, T, (2001) Quantitative Methods for Business, Salt Lake City: West Publishing Company, page 23 Business services industry, retrieved from http://findarticles.com, on January 7th 2010 Curwin, J and Slater, R., (2002), Quantitative Methods for Business Decisions, Towcester: Thomson Reuters, page 36 Decommissioning a Machine retrieved from www.math.uwaterloo.ca, on January 7, 2010. Dewhurst, F, (2002), Quantitative Methods for Business and Management, New York: McGraw Hill, page 67 Goodwin, P and Wright, G (2009), Decision Analysis for management Judgment, New Jersey: Wiley, Page 126 Lewis, L and Traill, A (1999), Statistics Explained, Boston: Addison Wesley, page 12 Skinner, A (1999), Introduction to Decision Analysis, Netherlands: Probabilistic Pub, page 56. Quantitive techniques for management retrieved from www.srid.com on January 7th, 2010 Read More