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Crafton 1

The document summarizes the costs of wholesale distribution versus direct distribution for Crafton. Under wholesale distribution, the total cost per wholesaler is $2.01 million, while the total cost per location under direct distribution is $3 million. Going direct would increase Crafton's net sales by 20% due to eliminating the wholesaler markup, but would also increase total costs by $17.81 million, resulting in an overall profit loss of $7.01 million. Therefore, converting to direct distribution would decrease Crafton's profits.

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Cee RD
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1K views6 pages

Crafton 1

The document summarizes the costs of wholesale distribution versus direct distribution for Crafton. Under wholesale distribution, the total cost per wholesaler is $2.01 million, while the total cost per location under direct distribution is $3 million. Going direct would increase Crafton's net sales by 20% due to eliminating the wholesaler markup, but would also increase total costs by $17.81 million, resulting in an overall profit loss of $7.01 million. Therefore, converting to direct distribution would decrease Crafton's profits.

Uploaded by

Cee RD
Copyright
© Attribution Non-Commercial (BY-NC)
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as XLSX, PDF, TXT or read online on Scribd
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All numbers are in millions.

Costs of wholesale distribution (per wholesaler)

According to the case, 72% of Crafton's $75million sales are residential sales. Hence, residential sales are $54millio Cost of service to the wholesaler Revenue lost due to wholesaler markup Total cost of wholesale distribution $ $ $ 0.46 1.54 2.01

Costs of direct distribution (per location) Warehouse operation cost Sales personnel salaries Sales managres' salaries Sales administration costs Devivery and transportation costs Inventory cost Accts receivable carrying costs Total cost of direct distribution $ $ $ $ $ $ $ $ 0.70 0.28 0.04 0.13 0.31 0.77 0.77 3.00

ntial sales. Hence, residential sales are $54million. 6% of sales to service 7 wholesalers. Wholesalers received 20% margin at the price to retailers. Per wholesaler.

Annual fixed cost. Average wholesaler employ 10 salespeople, but only 40% of their time on Crafton. 1 manager per 8 sales people. 40% of salesperson and managers costs. 4% of sales. 10% of sales. 10% of sales. Per location.

All numbers are in millions.

Now (Using wholesalers) Residential sales Cost of service to the wholesaler $ 54.00 $ 3.24

Direct distribution The assumption is that cost and sales of 7 wholesalers are equal and the sales will remain the same. Average sales per warehouse $54million/7=$7.71million. This is greater than $7million, which implies that the warehouses can operate economically. Warehouse operation costs Sales personnel salaries Sales managres' salaries Sales administration costs Devivery and transportation costs Inventory cost Accts receivable carrying costs Total cost $ $ $ 4.90 1.96 0.32

$ 0.91 $ 2.16 $ 5.40 $ 5.40 $ 21.05

Wholesalers have a 20% mark-up. Going direct will increase net sales by 20%. Hence, sales increase by going direct $ 10.80 Cost increase by going direct $ 17.81

Profit (loss) increase by going direct

$ (7.01)

Profit will decrease $7.01million by going direct.

72% of the net sales are residential sales. 6% of sales to service 7 wholesalers. This includes advertising and 2 regional sales coordinators.

esalers are equal and the sales will remain the same. 71million. This is greater than $7million, which implies that the

For 7 warehouses. Average wholesaler employ 10 salespeople, but only 40% of their time on Crafton. 28 sales people for 7 1 manager per 8 sales people. Average of 3.5 managers for 28 sales people. Rounded up to 4. 40% of salesperson and managers costs. 4% of sales. 10% of sales. 10% of sales.

will increase net sales by 20%. Difference between cost of service to the wholesaler now and going direct.

2009 U.S. industry Carpet and Rug market All numbers are in millions According to the case, residential sales are two-thirds of floorcovering industry sales. Assume residential sales are two-thirds for the Carpet and Rugs category. Crafton's Net Sales for 2009 $ 72.39

Total U.S. residential sales market for Carpet and Rugs for 2009 Crafton's residential sales in Carpet and Rugs for 2009 Industry market share of Crafton for residential sales in Carpets

$ 6,223.33 $ 52.12 0.84%

2010 saw a sales growth of 3.6% from 2009 to result in $75mn net

two-thirds from $9335mn 72% of Crafton's net sales are residential sales

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