Crafton Industries Case

How might one characterize the carpet and rug industry and Crafton’s position in the industry?
• Industry Sales Trends
• Industry Competitors
• Carpet and Rug
• Distribution
• Crafton Industries’ Competitive Position

2. What are the pros and cons of a wholesaler vs. a company distribution system?
• Advantages of Direct Distribution and Sales Efforts:
• Disadvantage of Direct Distribution and Sales Effort

3. What are the economics (e.g., revenue, cost, and profit margin) of the wholesale vs. company distribution system?
 Costs of Wholesale Distribution
 wholesalers mark-up on cost to retailers
 costs of servicing wholesalers
 cost of financing wholesalers’ coconut receivable
 total estimate cost
 Costs of Direct Distribution
 Warehouse
expense
 Sales representatives
 Sales managers
 Sakes administration
 Inventory
 Accounts receivable
 Transportation
 Total estimated cost

4.
Can Crafton “afford” the conversion? (in terms of current asset, current liabilities, and working capital)?

5. Summarize your analysis and conclusion/recommendation (this will be reflected in your case writing).

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Case 5 Hints:
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Q3. What are the economics (e.g., revenue, cost, and profit margin) of the wholesale vs. company distribution system?

1) Costs of Wholesale Distribution
-- wholesalers mark-up on cost to retailers (margin provided) –- 20% of sales billed at the price to retailers or .20/.80 =.25 x $54 million = ?
-- costs of servicing wholesalers – 6% of sales ($54 million)
-- cost of financing wholesalers’ account receivable = average account receivable X account receivable carrying costs

54 million (sales)
= ------------------------------------------------------ X 10% (account receivable carrying costs) 365/90day (collectable period)

-- total estimate cost

2) Costs of Direct Distribution
– Warehouse expense – Annual fixed warehouse cost x 7
– Sales representatives – assuming 4,000 accounts, salesperson make one call per month of 1 hour each and 25% sales time is non-sales (50 weeks X40 hours/wk x .75 = 1500 hours of selling time)
–
Then:
– 4,000 accounts X 12 calls/yr. X 1 hour / 1500 hour of selling time = 32 reps. needed at cost of $70,000 each
– Sales managers – 1 manager needed for 8 sales reps., $80,000 cost for each manager
– Sakes administration – 40% of total sales force and sales manager cost
– Inventory carrying costs – $54 million / 4 turns x 10% carrying cost
– Accounts receivable – $67,500.000 million (based on sales to retailer not to wholesaler) / 4.06 turns X 10% (carrying cost)
– Transportation – 4% of sales (to retailer)
– Total estimated cost