Jamestown Electric Supply
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Introduction
Jamestown Electric Supply is the leading designing, manufacturing, and supplying electrical supplies company. Jamestown is mainly targeting customer group in automotive industry and telematics industry. Facing the high competition from the market Jamestown is having trouble with growing, and even maintaining current market share.
The problem urgently needs to be solved is the risen sales but fallen profits. In order to the reason for existence of current problem we examined the ratio between W&S, G&A and COGS. We found the ratio stays at same level (Appendix 1). In the sense, the current “internal charging” system is incomplete and not accurate. Therefore, we decided to improve the profitability analyses and re-allocate cost drivers to each cost categories.
Analysis
We first re-assign cost drivers to Warehousing and Shipping Costs: Facility Costs, Inventory Storage and Handling Costs, and Pulling and shipping Costs.
Assumption (Appendix 2):
Facility Costs (number of orders — cost per order)
With the number of orders increase Jamestown has to provide more space, which lead the utilities and property cost go up.
Inventory Storage and Handling Costs (average number of inventory days & number of orders—–average days of inventory on hand per order)
Equipment depreciation; Salaries and benefits; office
Utilities/fuel: with the increasing length of time inventory stored in warehouse the utilities/fuel cost increase
Wages and benefits: with more inventories stored more workers and more hours are required, which increase the hourly wage and benefits for overtime working hours.
Communication lines: as Jamestown wants to provide more service to customers they maintained good communications about inventories with their customers. Programs like “Emergency Hot Line” incur communication cost.
Pulling and Shipping Costs (number of orders & types of orders— cost per order requiring special service & cost per common order)
As large portion of pulling and shipping cost is heavily driven by time spend on special orders, we separated special orders and regular orders to various customers total orders.
Equipment
Utilities/fuel: special orders required more service, which lead utilities/ fuel cost go up.
Salaries, wages, and temporary employee wages: more labor time per dollar is required to accommodate extra requirements of special services orders.
Order processing: more complex process for special orders