case analysis:
Length: 487 words (1.8 pages)
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Case Analysis
For the past two months our sales on copper fitting has almost doubled due to the increasing demand from the market and the competitors・ unsuccessful selling promotion. However, the problem rises from the overwhelming demand. Many back orders are just piled up on the warehouse manager・s desk, and some of the customers lost their patience with us.
What we really need right now is to limit or reduce the abnormal demand from the customers by raising the price of our products, but to gain a reputation from our customers, we should consider completing all the backorders with a original price. In a long term, the solution to solve this inventory shortage still relies on sufficient and on-time supply from our supplies.
The main reason causing this tremendous and unusual high demand from the customer is the loosing market share of our competitors. Also, there is a possibility that some customers have the false expectation about the future price of the market. They heard the rumor about the cost of raw copper material might go up, so they predict that the price of the copper fitting should go up as well. Consequently, they start to make more purchases and store more inventories more than usual to save some money after the price of copper rises.
After a serious discussion with our marketing and warehouse managers, we found a strategy to solve this inventory shortage crisis. We can purchase overstocked merchandises a very low cost from our competitors, since their business is slow, and they do not have enough cash flow. Since most of our competitors are local, we can save a bundle from the shipping and handling if we buy their products. But the disadvantage of this is that it might confuse our customers, because the products we purchase from other companies have their own logos. It might become an opportunity for our competitors to get free advertisement on their products through our market chain. We can also begin placing big orders to our supplier to prevent future shortage. However, downside of this is the risk for overstock inventory. The price of copper fitting is very hard for us to foresee, if the price of fitting drops due to other companies・ new wave of promotions or other macroeconomic influences, then it will slow our sales down as well as our cash flow. It might place us at a more difficult situation since we input too much money on our inventory.
The alternative I suggest the most is to increase our products at twenty percent base on the original price. By accomplishing this, it can definitely minimize our costumers・ purchase qualities. It gives us an opportunity to fulfill all the backorders by using the extra products we have. With the increased price, the profit wouldn・t be decreased because of selling the less products, also we can avoid the risk of investing too much money on the inventory.
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