Hello,I need help with writing critique about this two team answer, I need 1 page for each one. Thank you so much!
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1A.
Cost analysis is one set of performance data that should be given to management because it will allow
you to meet with your suppliers and give them an idea about how the costs are being increased reducing
their margins, allowing the two parties to meet and negotiate a price or trade that is fair and beneficial to
the both of them. It would provide them with an evaluation of actual or anticipated costs. Centennial
Company has been struggling with seeing their costs rise, so we believe a more in-depth analysis on
costs could help them immensely. Using cost analysis, they would have been able to match their pricing
with costs much easier and stop their sales from slipping. Granted doing this may let them lose their title
of being a cost leader and consumers may no longer see the perceived value in their product.
Through historical pricing, it would have been much easier for Centennial to see the rise of costs, and in
turn, forecast more accurately. They could have forecasted a rise in costs, for example, in overhead and
indirect labor. Management should be looking at the cost and price of its competitors to forecast that
they will probably have to pay more for their raw materials, resulting in decreased margins. With
suppliers charging more you can still be considered cheap and keep the same margins you just may have
to raise prices however this shouldn’t be a problem because competitors will most likely be raising their
prices as well.
1B.
Using the target costing method, Centennial can see how much consumers are willing to pay for their
product. Through this, they can figure out the exact lower price that they can lead the market with as a
cost leader, while taking that reduction in profit margin and reinvesting it in their products value. Target
costing would allow them to adjust their prices accordingly as well as being able to deal with the rising
material costs that they face. Centennial Company can then focus on meeting the needs of the customer
within the target cost constraint. It would also help designers see what people like about their product
and what they can do to fix their product. Sometimes a good fix can be easiest through a less-is-more
kind of situation where the company will still deliver a quality product however it may not be as loud or
have as many bells and whistles. A comparison in razors that we see is Gillette and Harry’s razors.
Gillette razors are very expensive and there isn’t a noticeable difference between the 2 of them. They
both work very well and give a close shave however Harry’s razors are significantly less money than
Gillette. What we believe Harry’s does very well is use very plain colorful handles for consumers, which
in turn is very eye catching and Gillette uses very masculine handles that many men still buy however
many people don’t like them.
Furthermore, Centennial can look to recover some of their indirect costs. One of their major issues with
costs is from overhead. Using outdated overhead allocation that no longer reflect the true costs can
significantly affect final costs. By improving its system of applying costs and overhead, Centennial could
lower final costs drastically. These savings can then be reinvested back into the company.
2A.
Scenario A is clearly the better choice of the two scenarios, not only because Centennial can keep their
customers happy by keeping the price the same and keeping their cost leader title, but also because in
the end it saves them more money than what raising prices would earn them.
With cutting material costs there may be a way to improve the design of the razor by either cutting certain
materials form your razor or reducing the materials put into your razor to either make more razors or to
order your materials in smaller batches therefore reducing your costs. Also depending on how close your
overseas suppliers are to save on certain transportation costs you can always look for a supplier closer to
home with better or similar options that may be able to offer you an equal or better deal
Materials Cost pre supply professional= $20,475,000
After adding supply professional= $17,325,000
After adding the supply professional including their salary the company is saving $3,070,000
An easy decision to make adding the employee. Centennial’s problems with the rising costs could be
solved easily by doing this.
2B.
Option B affects Centennials bottom line less spectacularly. With an increase in price, you initially bring in
more sales, however, you lose your cost leader title, and lose out on sales as consumer decide your
product isn’t worth paying the additional charge. With a 5% increase in sales price but a 2% loss in sales,
Centennial brings in a little over 900,000 more in sales. Therefore, option B is nowhere near as effective
as option A.
Revenue pre 5% increase is $31,500,000
After 5% increase revenue is $33,075,000
With 2% decrease in sales volume, revenue is back down to $32,445,000
This means after adding the 5% increase in price revenue went up by $945,000 which is a solid increase
considering the overall sales volume went down 2%.
1. As a supply manager, what is your responsibility concerning top management’s knowledge and
expectation of the supply management operation? Please connect your answers to questions a. and b. to
at least 2 topics each in Chapter 14.
In order to maintain responsibility as a supply manager, one would want to make sure that you are
following the trends of the future forecasts of costs for materials and make sure you are analyzing the
costs analysis from suppliers. It would also be beneficial to stay up to date with other suppliers just in
case something happened to your main supplier. All in all, you just want to make sure that you know the
costs involved, whether they be direct or indirect, of the procurement of materials.
a.
a. What performance data should management have been receiving?
Some performance data management should have been receiving is the cost analysisof their suppliers.
It is crucial for the buyers to focus on this since price analysis wouldn’t help them as much in this case.
This will allow Centennial to get a good evaluation of actual or anticipated costs from their suppliers
whether that be the efficiency of labor, amount and quality of subcontracting, or plant capacity and
the continuity of output. I would also recommend that Centennial try out some Activity Based Costing.
In the Centennial reading it described how indirect labor costs and overhead had increased. With Activity
Based Costing, it allows you to identify and allocate indirect costs to the products they support. This in
turn allows Centennial to create some opportunities to reduce their indirect costs.
b.
b. What information is necessary to control material costs?
To control material costs, you need to understand the direct cost of all your products and materials.
Without an understanding of the costs that directly go into making your product you won’t have a good
understanding of what it costs you to make a product which will cause you to not succeed as a company
because you will not be able to meet your bottom line.
Competitive Price Proposals can be beneficial because it requires having at least 2 suppliers that are
qualified for the job. The case doesnt specify how many suppliers Centennial has, and I’m assuming they
don’t have many because material costs accounted for nearly 65% of net sales last year which is
ridiculously high. Having a competitive price proposal allows multiple suppliers to submit bids to produce
or supply the materials/products for the buying company. This allows the buyer to have the lowest price
possible and should ensure that the total materials cost decreases over time.
2. What types of suggestions might the supply manager make in his report that would be worth exploring?
Making several reasonable operating assumptions (also assume the current profit margin is 5 percent),
quantify the estimated results from a profitability point of view for both Scenario A and Scenario B.
a. Scenario A: • Assume that the supply management department adds one supply professional at a cost
increase of approximately $80,000 per year.
• Assume that this supply professional is dedicated to cost reduction activities, and that she can reduce
the shaver’s annual material costs by approximately 10 percent.
• Assume that sales volume and shaver price remain unchanged, i.e. annual gross revenues = $31.5M.
I believe that hiring this supply professional would be extremely beneficial to the company in reducing
their annual material costs which is primarily the major concern here. If the firm had 35$ million in net
sales in 2018 with 65% of that being materials cost that equals = 22750000$, and a 10% decrease in that
department would equal = 19250000$. That 10% decrease means a saving of 3,500,000$. And also
helps build up the current profit margin for the company. So when paying another 80,000 to an additional
employee to save 3,500,000 seems like a no brainer to me. This also ensures that the company does not
have to increase the price of the shaver, which was a big concern for the public image of the company.
As the supply manager I would suggest this scenario but under certain terms. I would like to negotiate the
salary of the supply professional with a clause that stated if they didn’t decrease the material costs by
10% then they would be subject to a lesser salary. Also if the materials cost decreased by more than 10%
there would be a bonus in place for the supply professional for doing such a good job and putting the
company in a position to succeed in the future.
b. Scenario B:
• Assume that the shaver’s selling price is increased 5 percent.
• Assume that the price increase produces a 2 percent reduction in annual shaver sales volume.
• Assume that all other factors remain constant (no additional supply professional).
Because we aren’t given the exact selling price or volume of shavers sold, the exact effect of these
changes on the gross revenues is not possible to calculate. However, I believe that the first scenario
would be much more beneficial. It saves the company money, it doesn’t tarnish their reputation as a lowcost, high-quality product, and it doesn’t potentially lose long time customers.
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