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... Alternative # 2 Distribute my means of Foreign Distributors. There are two companies Lavoie is considering. These companies are the East Asia Trading Company and DCH. This alternative features the 10 % markup plan that includes simply warehousing and delivery.
Advantages: Both companies have established strong reputations for providing a wide range of trading, transportation, and distribution services and support functions. Cheap method of distribution with only a 10 % markup on the ex-factory price. These companies are run well with reliable warehousing and transportation services. These companies have professional management. Information systems are in place as well. These companies have much experience in the distributing industry.
Quick analysis of performance in the market with their information systems. Disadvantages Lavoie is responsible for promotional activities and receivable collections. For this, he may need to hire sales personnel. Very limited coverage.
They may need to outsource warehousing and transportation services due to inadequate coverage. It is not a full network as of yet. There is a lack of ability to collect outstanding accounts. Manufactured product is purchased on a 90 -day credit policy. Extending credit to Chinese companies can be risky. The distributor then sells on credit to the customers who have a difficult time paying the distributor.
A triangular debt trap results. Ever-changing regulatory regime in China could hinder the distribution process. Financial Impact The financial impact of this alternative is that warehousing and delivery are taken care of, but promotion and means of receivable collections isnt accounted for yet. Promotional expenses would be similar to alternative one at about 5 % of total sales. Their selling price at the 10 % markup is 7. 43 Rmb to restaurants.
This can be seen in Exhibit 3. Alternative # 3 Distribute by means of a Foreign Distributor using the 25 % markup plan that includes delivery, warehousing, and promotion. The advantages for this alternative are the same as in Alternative # 2 plus these additional advantages: These companies have proven ability to promote goods. They have an adequate level of marketing and promotional support for Beijing Oasis products. It would not be necessary to hire sales personnel. Disadvantages are also the same except hiring sales personnel plus one additional disadvantage: Lavoie is still responsible for receivable collections.
Financial Impact With this alternative, promotion is taken care of by the distributor. Therefore, the 5 % of sales method doesnt need to be taken into consideration. However, Lavoie incurs a cost of 25 % markup, raising the price of the product to 8. 44 Rmb to restaurants. However, the cost of collecting receivables isnt taken into account yet.
Therefore, Lavoie needs to create a method to do this. It is doubtful that this will occur for less than a 10 % markup due to the lack of resources the new company has. These numbers can be seen in Exhibit 3 as well as the break-even analysis in Exhibit 4. Alternative # 4 Distribute by means of a Foreign Distributor using the 35 % markup plan that includes delivery, warehousing, promotion, and accounts receivable collections.
Advantages of this alternative are the same as Alternative # 2 plus these additional advantages: Virtually all responsibility is off Lavoie and in the hands of the distributor. No sales personnel would need to be hired. There would be more time available for analyzing market performance and product development. Disadvantages are the same as for Alternative # 2 except hiring sales personnel with one additional disadvantage: Most expensive alternative with foreign distributors. Financial Impact This alternative shows a 35 % markup that raises the price of the product to 9. 11 Rmb to restaurants.
With this alternative, no additional costs are incurred. Although it is the most expensive alternative per unit on paper, additional promotion and receivables collection wont be added later. Also, this option leaves an opportunity to change if adequate promotion isnt performed during the first year. Lavoie could change to a different plan if he feels the distributor did a poor job promoting his product. This gives him time during the first year to analyze market performance and new product development. These figures can be seen in Exhibit 3.
Break-even analysis can be seen in Exhibit 4. Alternative # 5 Distribute by means of establishing an Independent Network. Advantages: Due to the upper-level incomes of the six friends involved in the network, they already know many promising restaurants in which the nectar's could be sold. Partners feel they would benefit from knowing many of the owners of the restaurants.
They felt the owners would have a greater willingness to try the unique and more expensive nectar's due to the acquaintance. Lavoie felt with a 35 % markup, the six members would have sufficient incentive to promote the product aggressively and alleviate problems expediently. Lavoie expected that the company would enjoy prompt payment from the partners because they are counting on friends and acquaintances. Lavoie felt that establishing an independent distribution network provided Beijing Oasis with the greatest degree of self-control and flexibility in responding to new market developments. Disadvantages: The friends knowledge of Tianjin was very limited as compared to their knowledge of Beijing. This brought about questions of fairness in territories for the six partners.
Each partner would eventually need to sub-contract warehousing and transportation services because only limited volumes could be handled using each individuals apartment and vehicle. Inconsistent levels of delivery service could develop. Lavoie recognized that friends might intrude on other territories than their own especially with such a strong incentive to sell. Financial Impact The financial impact of this alternative is rather uncomplicated. If Lavoie chooses this alternative, a 35 % markup on the selling price would be implemented giving the unit price a cost of 9. 11 Rmb to restaurants. The break-even calculation in units of 1, 226, 667 can be seen in Exhibit 4.
Recommendation I recommend that Lavoie choose Alternative # 4. Under this alternative, all warehousing, delivery, promotion, and receivable collections are taken care of. He will not need to hire additional personnel for promotion nor would he need to implement a personal information system for receivables. Also, if he felt the foreign distributors werent performing well enough with their promotional activities and receivable collections, he could change plans and start his own promotion and receivable collections plan.
Therefore, this is the most lucrative decision. Implementation Implementation begins by contacting one of the two Foreign Distributors Lavoie is considering and organizing a meeting. A one-year contract must be made for the 35 % markup plan. The contract should be relatively short term in care Lavoie isnt satisfied with the distributors promotion and receivable collections performance. The financial implications are shown in Exhibits 3 and 4. The last step in the implementation process is to begin manufacturing the nectar and start the distribution process.
With every aspect taken care of, Lavoie will have time to help manage the manufacturing of the product and analyze market data and performance. He can then make decisions as far as new product development or improvements to the existing product.
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Research essay sample on Break Even Analysis Product Development
