Executive Summary
Business operating in the United States are increasingly facing stiff market competition owing to the sprout if new business entities. In this accord, it is vital that business explore available strategies and alternatives that would be instrumental in yielding optimal business performance. In a bid to demonstrate how the proposed business can sustain lucrative performance amid fierce competition, this paper analyses the current performance of the establishment, and analysing the impact of the implemented change on the performance of the business. As a means to demonstrate how change is business strategies improve overall performance, this paper focuses on a scenario whereby, the business sales three types of bicycles which include Mountain 100, Road 250, and Road 450. The first performance optimization intervention is the improvement of the efficiency of the supply chain in terms of minimizing the cost of transport, and reducing damages incurred by the inventory while on transit from the manufacturer to the business residence. The results of the project denote that changing the delivery service, specifically opting for a courier service that is cost effective and safety conscious reduced the cost of operations incurred by the establishment and drove up the gross and net profits.
Descriptive Analysis of the Business
The business under review is Bikes Incorporated. The hypothetical business is situated in the outskirts of New York city due to cost efficiency of rent and operational cost advantages. The business is not a manufacturer, rather a retail business specializing in the sale of high-end bicycles for a broad array of the consumer population. The bikes range from sporting bikes to luxury bikes. In this accord, it is notable that the entity is focussed on expanding its customer base. The expansion of the customer base can be achieved through reducing operational cost incurred from discrepancies and glitches in the supply chain.
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The products sold by the company are Mountain 100, which is a line of luxury and fat tire bikes that are mostly used during leisure and riding for cite seeing purposes. The other type is Road 250, and 450, which are lines of bikes that are tailored for sporting services. The springs and suspension of the bikes is convenient for both off road and riding in mountainous terrains. The versatility in the types of bikes sold by the establishment is a deliberate corporate decision designed to attract customers who have different tastes and preferences. Undeniably, the vastness of a firm’s consumer base is instrumental in driving an increase in the profits accrued by the business.
The sales volume enjoyed by Bikes Inc. would markedly increase upon an increase in the advertisement budget. Moreover, reduction in the cost of operations can be achieved through improving the efficiency of the supply chain. Proficiency in supply chain management would promote the identification of a cost-friendly courier services and diminishing the propensity of bikes getting damaged while on transit to the business premises.
In a bid to increase the gross and net profits accrued by the company, it is vital that the advertising budget is increase to $80,000. Although that will imply that the operational cost will surge by $80,000, the projected increase in the sales volume will be worth it ( Assaf et al., 2015) . The other rational intervention in the business should be a reduction in the cost incurred in the supply chain. Approaches that should be adopted to make the supply chain and logistics cost effective include shifting to a different courier services that will guarantee minimal damage to the inventory in transit, and charge a relatively low amount as opposed to the expenses currently incurred by the business in transportation of bikes ( Almaktoom, Krishnan, Wang, & Alsobhi, 2016) .
Selecting Scenario
In the first financial year, the business is operating on a very tight budget. Therefore, the company could not put together a decent budget for advertising and other sales promotion approaches. Therefore, the sales volume, as can be expected was relatively low for the first financial years. The projected sales in the subsequent financial years will be relatively higher because the business will have gained an extended reach. From the revenue tables labelled figure 1 and figure 2 demonstrate the performance each of the bike models. Figure 2 show the net profit accrued by the establishment per unit sold. For Mountain 100, the net profit of $50 is earned. In the case of road 250 and 450 bike models a profit of $24 and $9 was earned per unit sold. It can be deduced from the data obtained from the sales and profit findings that the firm enjoys a relatively slim profit margin. The thinness of the profit margin increases the volatility of the investment and reduces the returns earned on investment.
Cumulatively, the business enjoyed a net profit of $29,020 from all the three models. Although the business is making a profit, the net profit is still relatively small hence resulting in a state of business uncertainty. Also, it is point worthy to note that the performance of the entity’s sales was somewhat irregular across the twelve months period. Figure 3 shows the monthly sales realized by the establishment in each model. In general the sales volume is relatively small, hence necessitating the introduction of interventions designed to increase the company’s consumer base and the sales volume.
In a bid to reduce the cost of operations, maximize profits, and increase the company’s sales volume, a myriad of interventions ought to be considered. Firstly, the company should switch to a more sustainable transit or courier service to reduce the per unit cost incurred in transporting bikes and increase the budget set aside to fund advertising and sale promotion efforts. Both interventions will be crucial in salvaging Bikes Inc.’s profitability.
In conclusion, the low profits and the small sales volume experienced at the organization guarantees a low return on investment. Since the chief objective of the company is to expand its operations and increase profits amassed, it is vital that more money is injected to the firm to finance sales and promotion efforts geared towards creating brand awareness among the target consumer population.
Optimization Analysis
In a bid to demonstrate the success of the performance optimization model adopted for Bikes Inc. just one bike model was used. Based on the recent sales and revenue statements recorded from the first year of operations, a myriad of financial computations were undertaken to demonstrate the potential benefits of increasing advertisement efforts and reducing the transportation cost incurred ( Kim & Hanssens, 2017) . Part of the supply chain managerial intervention adopted for this project was abandoning a local supply that was availing bikes at a relatively high price and invoking the services of a Chinese company will to avail quality bikes at almost half the price. Upon the arrival of the goods on the United States’ a cheaper courier service that will warrant little damage to the bikes will be used to deliver the inventory to the business premises ( Cooper, 2017) . Although the quantity, sale promotion, and cost optimization efforts have only been applied to one model out of the three bike model sold by the establishment, it is evident that new strategies will warrant an increase in the profits accrued as demonstrated in figure 4, figure 5, figure, 6, and figure 7.
In a bid to vividly demonstrate the eminence of the cost and operational optimizations invoked on the case scenario on the financial performance of the establishment, one bike model was used to make the financial forecast. The non-optimized cost incurred for the sale of 500 Mountain 100 is $800,000.00 while the cost of 1500 Mountain 100 is $1,950,000.00 after optimization. An 18% change in the cost per unit was attained. Marketing optimization efforts resulted in an increase in the Mountain 100 units sold from 500 units to 1500 units.
In conclusion, it is evident that the marketing and operational optimization efforts were feasible and effective in reducing the cost incurred per unit. Therefore, I recommend that a similar optimization design is rolled out to improve the market performance and revenue generated from the other two models.
References
Almaktoom, A. T., Krishnan, K. K., Wang, P., & Alsobhi, S. (2016). Cost efficient robust global supply chain system design under uncertainty. The International Journal of Advanced Manufacturing Technology , 85 (1-4), 853-868.
Assaf, A. G., Josiassen, A., Mattila, A. S., & Cvelbar, L. K. (2015). Does advertising spending improve sales performance?. International Journal of Hospitality Management , 48 , 161-166.
Cooper, R. (2017). Supply chain development for the lean enterprise: interorganizational cost management . Routledge.
Kim, H., & Hanssens, D. M. (2017). Advertising and word-of-mouth effects on pre-launch consumer interest and initial sales of experience products. Journal of Interactive Marketing , 37 , 57-74.
