Internal Perspectives of Amys Bread Firm - Essay Example

Amy has a slightly higher profit margin with retail sales, but also a waiting customer list of 30 or more wholesale customers. Wholesale provides her steady demand because of lead time in making orders, while retail is essentially walk-in and uncertain.
The secondary problem is how Amy could improve her profit margin. Amy’s Bread’s competitive advantage lies in its manual baking process. This causes it to incur higher manpower costs and keeps the profit margin low. Amy has not made any cost or price analysis, or comparison with competitors, but only charges what she feels is right.

External perspectives
Amy’s Bread was established in 1992 and is located in Manhattan. It serves 50 regular wholesale customers with a waiting list of more than 30 wholesale customers, all quality hotels, gourmet food shops, and restaurants.
The industry is the manufacture of specialty bread, on a micro-bakery scale, centered in Manhattan. Its industry characteristics are as follows:
• Specialty bread is made primarily for premier hotels, restaurants, and gourmet shops goes for top quality, and is a highly competitive industry.
• Quality is the principal driver of demand.
• Other specialty bread bakeries use mechanized methods and thus have lower operating costs than Amy. Alternatively, hand-made bread is labor intensive, thus payroll expenses rise with sales volume.
• Micro bakeries directly competing with Amy’s Bread are steadily increasing.
As to competitiveness, Amy’s competitive advantage is in her hand-baking method, which produces excellent bread of high quality that could otherwise not be attained. She has also been given excellent press and the reviews have improved her track record and clientele. Furthermore, the competitive advantage also resides in Amy’s dedicated and engaged baking staff who has been trained well, and who remain loyal to the business.

Solutions
The solution to the main problem is to expand, since Amy’s Bread has already reached full capacity, and its potential wholesale market will assuredly bring sales to almost twice the former wholesale volume (additional 30 customers to the existing 50). Amy must expand to capture the large wholesale demand and to try to attain economies of scale.
It is recommended that Amy should acquire the building she could renovate for $300,000, then move all the wholesale production facilities there and operate the present location for retail. In that manner, Amy could expand both her wholesale and retail businesses. This way she assumes only the additional capital expenses she could afford ($300,000 versus $500,000), and she does not acquire additional extra space she does not need (6,000 versus 7,500 sq feet, for a needed space of only 3,000-4,000 sq ft), and she gets to own the building rather than just lease the space. Most importantly, and she puts her main concentration on her strategic strong point – wholesale bread making.
The possible problem with this is that she loses the opportunity to have a new location for her bread that would be good for retail. However, it may not impact too badly, as choosing the other alternative (7,500 sq ft space, $500,000 lease) would eat into the expected margin because of the discount in giving slightly reduced prices, as well as increased costs ($200,000 extra) which would also deplete extra profits.
The secondary problem – to increase profit margins – may be solved by Amy conducting a realistic cost-revenue analysis and market analysis to determine a better price at which she should sell her bread, or where she could reduce direct costs. The problem with this is that Amy may have to raise prices or find that she should mechanize at least a portion of her production process, so a possible trade-off of the process for profit might be considered.