Baldwin Bicycle Company: Background of the Study

BA-561 MAC Abdulgaffur G. Deki Oscar M. Inocencio Chester V. Lagutin Felomena C. Baal Edsel Cariz J. Tiu 12 October 2012 Baldwin motorcycle Company Background of the Study Baldwin Bicycle Company (BBC) is a full-line bike manufacturing company with 40 years of experience. In 1982, BBC has revenue of oer $10M for 98,791 units produced. BBC joinly distributes through independently-owned retailers, their bicycles are known for their above-average quality. In May 1983, a rapid-growing northwest discount retail chain, Hi-Valu, Suzanne Leister, VP Marketing, proposed a private-label agreement.Under this program, BBC would manufacture the Challenger line of bicycles wholly for Hi-Valu. The Challenger line was to be a low- expensed value bicycle, exchange at retail prices under BBCs normal intersection lines. educational activity of the problem What is the overall impact to the company if BBC go forth accept the suggestion in terms of? a. ) PROFIT b. ) gift ON SALES c. ) RETURN ON ASSETS d. ) RETURN ON EQUITY Objectives 1. To be able to learn and analyze the proposal depending on the result which will be use to serve as a basis for making decisions. 2.To determine the total relevant cost in producing extra orders for Hi-Valu. Areas of consideration 1. BBC gross sales over the next three years would be 100,000 bikes a year if they will forego the Hi-Valu deal. 2. If BBC will accept the offer, 3,000 units will be lost in regular sales volume a year. 3. According to Ms Leister, wickedness President for Marketing, she was acutely aware that the bicycle boom had fattened out, and that ridiculous economy had caused Baldwin sales volume to fall. 4. BBC was currently operating its plant at about 75% of capacity meaning, 75,000 units is currently produced. excess capacity 25,000 units) 5. The cut back between BBC and Hi-Valu is for three years and will be automatically protracted on a year to year basis, unless one party gave mark off that it did not wish to extend the contract. 6. Most of BBC sales were into independently run injects and bicycles shops, BBC had never before distributed to its product to department store. Its BBCs first conviction to deal such client. 7. Hi-Valu wanted to purchase bikes from BBC at lower prices that the sell prices of comparable bikes sold through Baldwin usual channels. 8.If the proposal will lease BBC requirement for purchasing, inventory and production cost will increased. 9. Hi-Valu would hold the units on consignment in its own warehouses and withhold payment until delivery to a specific store. 10. A bicycle would be paid within 30 days once a bicycle was shipped to a specific store or 120 days had elapsed in the regional warehouse. alternative courses of natural process 1. Reject proposal RISKS a. ) BBC whitethorn face continually declining sales due to a poor economy. b. ) BBC will continue to produce at only 75% production capacity. c. Another disadvantage is that the offer price of Hi-Va lu was lower than the regular selling price. d. ) There is an additional cost snarly in producing additional units from Hi-Valu the $5,000 additional cost plus the asset cogitate cost. e. ) The possibility that the current dealers of BBC might drop-out line if they find that BBC is making bikes for Hi-Valu. f. ) The commitment charge will be shouldered by BBC until it reached the destination of Hi-Valu warehouse. g. ) additional from regular sales of 3,000 units from regular costumers. ADVANTAGES a. ) insist loyalty from current distributors . ) Maintain 40-year reputation for above average quality and price. 2. Accept Proposal RISKS a. ) electric current dealers may drop Baldwin line. b. ) Current dealers may request a kindred product c. ) Putting faith in a new product d. ) BBC may find itself with an abundance of Challenger-specific inventory e. ) Extra costs may result in having to use cheaper materials f. ) Loss of street cred ADVANTAGES a. ) great penetration of the m ark through new market segments b. ) I f Baldwin name is not on the Challenger bike, BBCs reputation may not be damaged c. Strong Challenger sales may balance weak Baldwin sales d. ) With Challenger line, BBC will be producing at a higher capacity Recommendation The group recommends the alternative courses of action number two which state Accept the Proposal. The followi ng computations was the basis of the recommendation. latent Problem Analysis 1. Additional cost is involved. 2. Lost additional sales from the costumers 3. Additional investment to finance additional increase in receivables, inventories, record-keeping,tax inventory, treatment labor and equipment, possible obsolescence and or damage.