BLUEBIRD OFFICE PRODUCTS LTD CASE ANALYSIS NAME: INSTITUTION: SUBJECT: DATE: Bluebird Office Product Ltd offers a range of office chairs at three different brands. The Company is facing a predicament of making a decision on whether to adopt various operational strategies with the aim of increasing its earnings before investment and tax (EBIT) and increase its performance…
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Speed delivery is at the core in this case. The three branded products had a sales figure of in 6,000,000 Euro 2011. The company’s operating costs stands at 5,500,000 Euro. This figure is projected to increase in the either option advocated for. The level of quality stands at 10% of the operational costs i.e. 550,000 Euro. The Company has a lead time of 12 weeks which it meets 80% in a year. The lead time could be modified to meet delivery speed for the customer. The advocated strategies from the marketing team are outlined below: Option 1 – FINBAR Ltd The customer has a colour that is expected to remain consistent although it will be placing orders according to customer specification. An increase in sales of 1,000,000 euro is projected from the sale of 2000 chairs at 500 euro. This sale is expected at one in every three months. Therefore the projected annual sales will increase by 1,000,000 euros. The impact of adopting the quality need specifications will generate an addition operating expenses. This stands at 825,000 euro. The level of quality maintenance cost is 82,500 euros. Earnings Before Investment and Tax of the company is expected to increase by 175,000 euros. Option 2 – Classy Ltd Classy Ltd will be ordering 500 chairs at 1500 euro generating sales of 750,000 euro. The projected operating expenses will increase by 550,000 euros and the level of quality will cost an extra 55,000 euros. An extra investment in this is needed for 50,000 euros. A total cost increase of 600,000 euros is projected. An increase in earnings before investment and tax is expected to be 150,000 euros. Current performance of the company stands at annual sales of 6,000,000 in 2011 and operating expenses of 5,500,000. The level of quality is maintained at a cost of 10% of the operating costs i.e. 550,000. The present earnings before investment and tax are 500,000 euro. An increase of 35% in earnings before investment and tax is projected if option one is adopted i.e. the Finbar Ltd customer specified products. On the other hand, an increase of 30% in earnings before investment and tax is projected in the coming year if the Classy Ltd strategy of delivery in terms of speed and quality of the products. The company is faced with the situation where it will introduced innovative ideas as well as theme changes in product manufacture process. The time-based delivery aspect for strategy 2 i.e. Classy Ltd will call upon adjusting the lead time of the company to meet the speed at which the customer gets his products. Option 2 has an increase of 55,000 euros in maintaining quality while that of option 1 stands at 82,500 euros. Bluebird is faced with new product development as their case is change in theme but the original product. On the contrary, Classy aims for innovative ideas hence results to new product introduction by the Company. Finbar Ltd might bring a challenge of increasing the product line to meet the increased 2000 chairs production. With the consideration that the supervisor and wages expenses are not increased, this implies that the quality may be compromised in either case if care is not observed. Classy Ltd stands to bring an increment of 30% of the company’s EBIT which is less than 5% that of Finbar Ltd. This option however calls for a fewer number of products. The level of quality maintenance is lower by 27,500 euros. To meet the customers’
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