Sales

[pic] Case Study: Dell Computer – Organization of a Global Production Network; using E-Commerce to support its Virtual Company 1. 0 Executive Summary Dell’s Direct Model of selling PCs directly to the consumers, bypassing the distributors and retailers (resellers) channel, has been pioneered and provides distinct advantages over the indirect sales model. Customers have the ability to contact Dell directly and order technologically advanced systems at competitive prices.

This direct contact with consumers gives Dell the unique opportunity to know exactly what its consumers want and offer products that would satisfy their specific needs. To fulfill the orders quickly and in supporting the “Build-To-Order” strategy, Dell has developed an excellent manufacturing and logistics capabilities supported by information systems that enable it to substitute information for inventory. Dell coordinates a global production network that ps the Americas, Europe and Asia, combining in-house final assembly with heavy reliance on outside suppliers and contract manufacturers.

The use of Internet and E-commerce has further giving Dell a means for extending the reach and scope of its direct sales business model at a relatively low marginal cost. It has done so in part by automating its functions such as product configuration, order entry, and technical support, enabling the company to grow revenues without a corresponding increase in customer service costs. Also, it has used the Internet to coordinate a network of suppliers and business partners who carry out many of the processes involved in building, distributing and supporting personal computers.

In short, Dell’s supply chain consists of only three stages— the suppliers, the manufacturer (Dell), and end users. Dell’s direct contact with customers and its use of e-commerce allows it to: • offered competitive prices, high levels of support • properly identify market segments, • analyze the requirements and profitability of each segment, and develop more accurate demand forecasts. • cut on the standard supply chain cycle and deliver goods directly from the manufacturer to the customer. • turn its inventory over 60 times a year introduced new products without having to clear out old inventory in the channel • minimize the rapid depreciation costs that mark the PC industry • operated on a negative cash conversion cycle – by receiving payment from its customers before it paid its suppliers for components • build strong, stable relationships with the large corporations and other organizations who are its core customers Table of Contents TopicPage 1. Executive Summary2 2. Key Success Factors4 3. SWOT Analysis of Dell Computer6 4. What SCM strategies Dell had implemented? 8 5.

What are the values of the Dell’s strategies? 10 6. Conclusion11 2. 0 Key Success Factors • Supply Chain Know-How – A key component of Dell’s supply chain management was having materials in close proximity to Dell factories; therefore suppliers are required to have inventory hubs near the manufacturing plants. A huge benefit of this supply chain solution is communicating with these hubs in real time to deliver the required materials. Dell had reduced its inventory to an all-time low of a 5 day supply, which comparatively was 20 to 70 days for its major competitors, thereby creating a competitive advantage.

By operating on a just-in-time basis, (a result of an 87% reduction in primary suppliers) Dell was able to provide better service with a faster turnaround time. Also by reducing the total vendor pool and choosing suppliers physically close to Dell’s factories, supplier loyalty was increased, leading to further economies of scale. • Strong supplier relationships – Dell seeks long-term single source relationships in situations where alternative sources are unavailable or the relationship is advantageous with respect to performance, quality, support, delivery or price.

Securing long-term relationships with vendors allows Dell to more fully integrate major vendor into Dell’s supply chain management programs. This helps Dell reduce inventories of components, which translate into lower unit costs. Dell also seeks to lock-up supply at the lowest possible cost. Recently Dell signed a long-term supply agreement with Philips for the supply of CRT and flat panel monitors. • Strong commitment to IT Practices ? Pre-installing software for Eastman Chemical, maintaining a corporate asset database for innovational support ?

Integrating supply chain vendors with more precise demand forecast for business process support. ? Premier Pages – customize, buy and track systems, resolve tech issues for operations support. • Customer Efficiency – Dell has made a serious investment in understanding its customers’ activity in real time and then uses this information to constructively build its business and its winning culture. Dell constantly monitored the customer’s shifting preferences, which helped in pricing, inventory management, and cost accounting. Also, Dell’s factory assembly process was highly organized (i. e. bar codes), efficient (i. e. ystems were “burned in”) and extremely fast (i. e. 36 hour turnaround) and its customer service was exemplary for the industry. (a) Start with customer value – Historically, customers were segmented by verticals (e. g. , consumer, corporate, government and small business) as well as regions and size. Dell had to look across an aggregated view of these existing groupings to identify shared values relating to product features and supply chain capabilities. A global view was critical to this process. As Mr. Noakes stated, “[Our] growth markets are not in traditional regions. We need to adjust our model to the new requirements. (b) A unified, end-to-end business strategy — The Dell team stated this effort was “truly a corporate wide transformation. ” Key to this was the ability to clearly articulate the need for change, the vision and the role of different organizations. To support this communication, several leaders started an internal blog to keep people up to date. • Culture – Dell’s winning ways begin and end with its culture. Dell has created a disciplined culture that relentlessly focuses on optimizing its operational model, responding to its customers’ needs and sustaining a self-motivated and experienced workforce Market Sensing – Dell consistently sensed market changes before they happened and was able to anticipate and identify product areas to maximize sustainable profits using its Direct Model. As a result of this ability, Dell could pick and choose which market they entered, making sure it was a market leader quickly upon entering. • Strong Information Management practices – is a powerful strategic weapon in Dell. It is widely distributed, analyzed and acted upon. People know where they and their business units stand at any time. They re-act accordingly.

According to Dell: “If the folks in its consumer business notice it’s 10am and they’re not getting enough phone calls, they know they have to do something: run a promotion on the web starting at 10:15, or change their pricing or run more ads. They can’t wait 30 days after the end of the quarter to figure it out. ” Openness and sharing are part of success at Dell. • Lower Unit Costs – Removing the third party retailer from the sales equation eliminates additional product mark-ups. The savings can be either recognized as higher margins or passes along to consumers.

In both situations Dell is experiences better pricing flexibility than its competitors. When economic conditions are slow Dell is able to offer product at lower prices and still operate profitably. Dell’s success in the most recent economic downturn serves as clear signal that the company can weather less than favorable economic conditions. In 2001, Dell’s domestic market share actually climbed from 19% to 24. 2%. • Quicker reaction to customer wants and needs – As mentioned above Dell focuses on streamlining their production operations. Finished products are quickly assembled in direct response to a customers order.

Low finished good inventories put Dell in a better position to continually offer the newest and most requested technologies. Changes in customer demands hurt the competition more as they struggle with product obsolescence and high inventories. Competitors may be forces absorb write-offs associated with inventory obsolescence or markdown products below cost to clear inventory. 3. 0 SWOT analysis of Dell Computer: Strengths • Biggest PC (personal computer) maker in the world. Dell’s brand is one of the best known in the world. They are the number one PC provider for medium and small businesses across the US for 10 straight years. Direct to customer business model. – They deal directly with the customers with no use of a middle man, i. e. retailer channel. – They offer their customers the ability to track their delivery by contacting customer services, based in India. – They design the computer to the customer’s specifications. • It uses information technology, and excellent customer relationship management (CRM) approaches to capture data on its loyal consumers. This allows it to produce the personal computer based on the customer’s own specification. • Cost advantage over rivals Their assembly is done at a fairly inexpensive cost – By offering superior telephone customer and/or internet services such as Premier Access, and outsourcing their shipping, Dell had the lowest operating cost in the industry at 11. 5%. • Dell is not a manufacturer; Components are made by suppliers and Dell assembles the computers using relatively cheap labor. The finished goods are then dropped off with the customer by courier. Dell has total command of the supply chain. • No inventory buildup. Dell built its computers to order; none were produced for inventory. Wide geographic coverage and strong global distribution capabilities • Good supply chain management capabilities. • Good customer service capabilities Weakness • Dealing with a large amount of supplies from many different countries can cause a large issue when products are recalled. Example in 2004 Dell had to recall 4. 4 million laptop adapters because of a fear that they could overheat, causing electric shocks or fires. • High dependence on suppliers. They build computers, not develop them. It buys from a group of concentrated hi-tech component manufacturers.

Whilst this is a tremendous advantage in terms of business operations, allowing Dell to focus on marketing and logistics, the company is reliant on a few large suppliers, and to an extent is locked in for periods of time (i. e. unable to switch supply dues to the lack of large suppliers in the World). • Their supply orders are so large that they become limited to dealing with a small few supplies that can handle the volume. • Dell lacked solid dealer/retailer relationships. They have weak business relationships with many computer retailers. • No propriety technology. They do not have unique technologies to offer the market. Because outsourced all components, it is very difficult to manage the quality. • Dell is the lack of multi-channel distribution capabilities. It will be very difficult to expend the selling channels because there are no other retailers in markets. • Dell’s products promotion and introduction of new products fall behind other competitors • Weak dealer network Opportunity • New products and new market still has room for development. • Continuing to market on the internet to gain larger market base. • Broadening their scopes in Europe, India and China. • Expand into government and education markets. Utilizing existing company skills or technological know-how to enter new product lines or new businesses. • Entering into alliances or joint ventures to expand the firm’s market coverage or boost its competitive capability • PC industry’s growth prospects remain attractive • Dell can further capitalize on the remaining build-out of the Internet infrastructure and increase market share in the external storage market Threat • The single biggest problem for Dell is the competitive rivalry that exists in the PC market globally. As with all profitable brands, retaliation from competitors and new entrants to the market poses potential threats.

Dell sources from Far Eastern nations where labour costs remain low, but there is nothing stopping competitors doing the same – even sourcing the same or similar components from the same or similar suppliers. Remember, Dell is a PC maker, not a PC manufacturer. • Increasingly popular brand names in the competition. • Likely entry of potent new competitors. • Competition can basically create the same computers since Dell builds computers, not designs them. • Fluctuations in the currency markets can make global business operations more open to losses in certain areas of the supply chain. • Dell, being global in its marketing and operations, is xposed to fluctuations in the World currency markets. Although it is a very lean organization, orders do have to be placed some time ahead due to their size or value. Changes in exchange rates could leave the company exposed to potential loses in parts of its supply chain. • Tariff trade barriers affecting their positions in multiple countries. • The global economic downturn. • Loss of sales to substitute products, like Ipad, Tablet PC. • Growing bargaining power of customers or suppliers. • Price difference between brands is getting smaller all the time. 4. 0 What are the SCM strategies that Dell had implemented?

Dell revolutionized supply chain management with its direct model, build-to-order (BTO) manufacturing, just-in-time inventory model and impressive cash-to-cash conversion cycle. Dell designed its supply chains based on a mix of cost optimization, delivery speed and product choices that customers value. Its strategy was built around a number of core elements: build-to-order manufacturing, mass customization, partnerships with suppliers, just-in-time components inventories, direct sales to customers, market segmentation, awarded-winning customer service and technical support, and pioneering use of the Internet and e-commerce technology.

Through this strategy, the company has somehow achieve what Michael Dell called “Virtual Company / Integration” stitching together of Dell’s business with its supply partners and customers in real time such that all three appeared to be part of the same organizational team sharing extensive data and information [pic] Process Streamlining In particular, Dell focused on enabling “just-in-time” delivery of parts and components—a process whereby Dell’s suppliers delivered goods to Dell very close to the time Dell actually needed the parts for use in computers that consumers had already ordered.

This shortened the time during which Dell needed to maintain an inventory of parts and reduced the costs associated with storing that inventory. The reduction in costs associated with the innovative manufacturing processes allowed Dell to offer its products at low prices that were attractive to consumers and that were difficult for competitors to match. Moreover, the low-price approach allowed Dell to gain market share without investing heavily in research and development in the early stages of its growth.

Build-to-order( Postponed) – Dell built its computers to order; none were produced for inventory. Dell customers could order custom-built computers based on the needs of their applications. Desktop and laptop customers ordered whatever configuration of microprocessor speed, random access memory (RAM), hard disk capacity, CD-ROM drive, fax/modem, monitor size, speakers, and other accessories they preferred. The orders were directed to the nearest factory.

In 2000, Dell had PC assembly plants in Austin, Texas; Nashville/Lebanon, Tennessee; Limerick, Ireland; Xiamen, China; Penang, Malaysia; and El Dorado do Sul, Brazil. All six plants manufactured the company’s entire line of products. Partnerships with suppliers – Michael Dell believed it made much better sense for Dell Computer to partner with reputable suppliers of PC parts and components rather than to integrate backward and get into parts and components manufacturing on its own.

Just-in-time components inventories – Dell’s just-in-time inventory emphasis yielded major cost advantages and shortened the time it took for Dell to get new generations of its computer models into the marketplace. New advances were coming so fast in certain computer parts and components (particularly microprocessors, disk drives, and modems) that any given item in inventory was obsolete in a matter of months, sometimes quicker Direct Selling – Selling direct to customers gave Dell firsthand intelligence bout customer preferences and needs, as well as immediate feedback on design problems and quality glitches. Market segmentation – To make sure that each type of computer users are well served, Dell had made a special effort to segment the buyers of its computers into relevant groups and to place managers in charge of developing sales and service programs appropriate to the needs and expectations of each market segment. Their market segment comprises from large customers, both corporate and governmental buyers, to small customers, both small businesses and individuals.

Customer service and Technical Support – Dell contracted with local service providers to handle customer requests for repairs; on-site service was provided on a next-day basis. Dell also provided its customers with technical support via a toll-free number, fax, and e-mail. Virtual Integration and Information Sharing – On-line communications technology made it easy for Dell to communicate inventory levels and replenishment needs to vendors daily or even hourly. 5. 0 What are the values of the Dell’s strategies? The direct business model had a valuable benefit that Michael Dell didn’t anticipate.

It enables the company to have an actual relationship with customers. This provides essential information that is used to leverage relationships with the suppliers as well as customers. It also provides 2 distinct advantages: • reducing marketing and sales cost by eliminating markups of distributors and retailers • building to order reduced inventory costs and risks of retaining inventories. Knowing the customer is the foundation for creating value It is no longer good enough to simply meet customer expectations. It is not ven good enough to delight the customer. These goals are often one-time goals. Continued success, particularly at a fast pace means it is getting increasingly important to KNOW the customer. Knowing the customer means having knowledge that lets Dell constantly add value. Knowing the customer means Dell can design new products, new services, and new pricing schemes that constantly meet and exceed customer expectations. Dell achieves this through creative use of their information systems as well as through their people.

Their information systems attract, store, manipulate, and report information on customers. Their people used this information to respond immediately to changes in market conditions, changes from competitors, and changes in customer preferences. Price for Performance Dell boasts a very efficient procurement, manufacturing and distribution process allowing it to offer customers powerful systems at competitive prices, especially for the price conscious customers. Continuous reinvention is critical for continued velocity

At some point, every strategy and every goal is outdated. Dell has the keen sense to identify possible new strategies and goals early, and to reinvent itself in order to move in the new direction. This was true when Dell made their entry onto online service over the Internet. The Dell Direct Model was extended to allow customers access to systems which let them tap directly into Dell’s service and support databases. Dell has already reinvented itself again by viewing their business as one of integration and distribution, rather than simply as a hardware manufacturer.

Complexity reduction — Product options had become too complex. In response, Dell reduced configuration complexity in line with customer requirements. Product offerings had exceeded customer requirements and were adding unnecessary cost and responsiveness waste in the supply chain. Improved internal collaboration — Identifying and managing functional interdependencies have driven collaboration across product design, supply chain, marketing, sales and finance. Dell also simplified interactions by centralizing global operations, while aligning to customer verticals. . 0 Conclusion Dell is simply a success story; it shows how one can gain market advantage by simply understanding what brings value to customers. Dell’s direct selling and build-to-order has given it a unique position in the industry. Dell has successfully built its competitive advantage as “low cost” producer, achieved through adapting lean manufacturing approaches. Also today, the Internet has created many new opportunities to interact with customers, people and to provide products more closely customized to individual customer preferences.

Certainly Dell’s competitors see the advantage of the company’s direct model, and to a varying degree use similar tactics. But, the other vendors have legacy ties to supply chains — supply chains with distributors and resellers that still hinder these non-direct channels less efficient. So Dell had the ability to cut margin without cutting profit! Dell’s e-commerce service is a valuable management tool for online business, whereby, increased efficiency, cost effectiveness and improve customer satisfaction. Selling online allows the whole process to be automated and more efficient.

 “Developing a Strategy for Distribution Channel Management”

     In my case assignment I will be talking about Wal-Mart, Leapfrog and Toys R Us in the toy industry. Also, why I think toy manufacturers and other vendors in the toy industry should consider joining Wal-Mart into partnership to become less competitive in the toy industry.

In the research I have done with the background materials and search engines through the internet, I have learned a lot from the developers, producers and sellers of toys in the industry. Many companies are now facing problems when the world monster was organized called Wal-Mart. In the Toy industry I believe back in the early 70’s and late 80’s were successful in selling toys to the customers. As Wal-Mart grew stronger introducing the consumer’s needs, other organizations became a target on who had the better sales especially around the holidays. As Toys R Us became a well known organization was very successful in other ways of attracting individuals into their stores expanding the products sold in their store. They established a method into selling baby items and some kids clothing with the brand names from Kids R Us, Baby R Us and other brand names in the approximate 380 plus Toys R Us stores throughout the US. With Wal-Mart started inclining in the business world, Toys R Us started to notice a decline in their net earnings within the organizations stores. With the document provided by Eryn Brown on the September 2004 statement “Imagining Toyland without one of its Giants” has stated that the net Earnings for Toys R Us fell dramatically in 2002 and 2004 in the millions. The net earnings that sent Toys R Us under were the rise of Wal-Mart taking over the sales over Toys R Us advertising a lesser price for the products offered. This is why a business such as Leapfrog should to take into consideration in investing with Wal-Mart to ensure they are meeting the cut in their net earnings making their distribution channel more effective in order to stay in the game. With Wal-Mart offering many items at discounted process will surely and swiftly take lead over Toys R Us products sold as their vendor’s all over the world producing products very cheaply and sold at the store with moderate prices.

Although Toys R Us had a vision to be a store to attract the children having products such as clothing, toys and furniture would only bear so long until Wal-Mart unleashed the Super-centers where customers can make a one stop shop deal. This was a headache for Leapfrog facing the distribution of products into Toys R Us. Leapfrog still trying to keep up with the competition, Toys R Us in the late 1990’s launched a campaign with technology in their hands advertising and selling products over the Internet in their own website making the distribution channel more effective for the customers to receive their products directly from the vendor. With technology and competition kept getting harder for vendors supplying the goods to stores such as Toys R Us, Wal-Mart right along with technology in their hands built their own website with more than a million products offered to the customer making millions from the low cost products purchased around the world. With a super store such as Wal-Mart making it easy for customers to buy products online and either have them delivered or pick up at a local super-center made the challenge even harder for smaller businesses to match up to the everyday low prices Wal-Mart offered and guaranteed over the products sold in the store. This is why Wal-Mart is one of the largest retailers in the world without any competition to match them.

As I read through the articles, Wal-Mart is one of the largest private employer in the US and Mexico and continuing to expand to other parts of the world working the distribution system work with technology and tracking their goods all over the US. With Wal-Mart having a combined store with grocery and products for the consumer has made itself one of the largest retail stores and has surpassed the retail toy business with other competitors such as Toys R Us in the late 1990’s here in the US. As Wal-Mart continues to campaign low prices every day has made it difficult for Toys R Us to keep up with their profits each quarter. I think in order for businesses to be successful, organizations that are producing products should consider selling certain products to other business opening up a distribution channel to keep them from going bankrupt. This will become a nightmare to toy companies if Wal-Mart continues to continue to sell more from their store instead of customers going into Toy store for the same or similar product. This is why organizations such as Leapfrog should consider into investing part of their products to Wal-Mart and Toys R Us forming distribution channels to other organizations. If the company wants to make its profits they should consider the products offered to businesses to be different from one another in order to keep them alive in today’s era.

     In conclusion, many organizations will become very successful while others will strive to make their gains when products are not sold and distribution slows as stores have a hard time selling products on the shelf. Small and big organizations should come into an agreement to not sell the same products in both locations and attract the demands of the customer and ensuring vendors keep up the distribution going on new developed products. Or maybe they just need to branch off Wal-Mart to make their quarterly gains worth staying in the business sharing the same distribution of products.

Work cited

D:Backgroundusing_the_background_readings.htm

http://www.knowthis.com/

Brown, Eryn (2004, Sep. 12). Imagining Toyland Without One of Its Giants. New York Times, pg. 3, 5.

Gogoi, Pallavi (2006, Nov 03). Tis the Season for Price Cuts

Tsao, Amy (2002, Nov 27) Will Wal-Mart Take Over the World? the insatiable chain’s next target?

Chambers, Erin (2004, Nov 24). How a Toy Store Plays to Win: Debi Grymes’ small shop thrives despite a nearby Wal-Mart, thanks to unique items, tea parties for little girls, and attentive service.

Palmeri, Christopher (2004, Nov 29). March Of The Toys — Out Of The Toy Section

What types of decisions must Chad Thomas make dally for his company’s operations to run effectively? Over the long run? To be best serve external customers, the types of decisions Chad Thomas must make daily for running the company’s operations effectively that are including capability planning, process Improvement, managing production and project, managing and scheduling resources and quality control. It is exciting to have the business expansion and increasing sales in order to gain profit. However, In this case, Shad’s Creative Concept does not have the capability to meet the soaring customer demand.

Thus, identifying the company’s capability and production bottleneck are most important and must be considering at first. Secondly, design new processes to optimize the firm’s capability and maximize the production level thereby to shorten the lead time in order to lower Inventory warehouse and handling cost. The third, project production plans in monthly, weekly and dally basis. The next, since the company’s resources are limited, therefore, Chad must make decisions on managing and scheduling the limited materials, equipment, other facilities and human resources. Allocate resources effectively to optimize the reduction process.

Finally, to be best serve and satisfy customers, avoid defected products from the mass production process, the performance and quality control must be tracking. In addition, Chad might to think about to hire more staffs and rent a cheaper warehouse to handle the current problems. Over the long run, Chad must make visionary corporation strategy and the following production strategy. Maintaining the company’s existing capabilities and develop new capabilities to best serve customers. Expand the business by hiring another production team to concentrate to the standard line of furniture.

Expand the company’s facilities and managing resources, scheduling staff and make work plan. Measure the product quality, control the lead time and ensure to meet delivery schedule and customer satisfaction. 2. How did sales and marketing affect operations when they began to sell standard pieces to retail outlets? Due to Limited capableness of the company In the resource-poor setting, the operation of the company was affected by the sales and marketing when Chad creative concept began to sell standard pieces to retail outlets. The company’s production capability cannot meet the Increasing sales and marketing expansion.

This result has been leading the company’s product lead time increase by both the custom and standard line furniture. In addition, the company has to deal with the in process materials, and unfinished products by renting the expensive would affect the operation are the performance and quality control. This would be happened because the huge work load, tight production schedule and poor human resources, and this resulted in poor product quality and defected products. 3. How has the move to producing standard furniture affected the company’s financial structure?

Since the limited production capability is difficult to handle the increasing sales, order and huge customer demand. Many of the production plans cannot meet the schedule due to the shortage of experiences workers. There are more and more in process products and materials overstock in the plant and rented public warehouse which cannot meet the schedule to delivery to the customers. This result in a diminishing turnover of capital and therefore affect the company’s finance structure. 4. What might Chad Thomas have done differently to avoid some of the problems he now faces?

In order to avoid the current problems he facing right now, Chad might identify the plant’s production capability first and therefore to make an effective sales, order and production plan in the existing capability setting. The other alternative is to expand the business by purchasing more facilities, equipment and hiring more employees. Separate the custom and standard line furniture by funding another production team to concentrate on the standard line furniture. Hire an independent consultant in the plant to make wise advice for him. Find an cheaper warehouse therefore to cut the cost.

The above matrix demonstrates the benefits and drawbacks of each business type. The individual deliberating over the sense of entering into a partnership as opposed to forming an individual venture has in the first place to think about the chances of success and the threat of bankruptcy.

A partnership is more advantageous because it allows a person to share financial burden with others. Even more importantly, the company can then be registered as a limited liability company which will make the business responsible only in the amount of money brought in by the partners.

However, there is a trade-off between lower risk and degree of financial and managerial control. Situations when partners try to cheat each other out of money are unfortunately frequent and have to be considered. Situations when partners squabble for control are even more frequent, and thus a sole owner will have more unified control and possibly strategy. With all this said, I would most probably still bring friends into the business. Being a risk-averse individual, I would want to share the risks and spread liability more evenly. Besides, the possibility to form a limited liability company is very attractive as it would lower the threat to lose all money to lawsuits.

Matrix: hiring employees versus using independent contractors

The main advantage of subcontractors is that they can lower the costs by selling products of different companies. Apart from issues mentioned in the table, hiring independent contractors to sell products has other advantages. These contractors, sometimes called manufacturers’ agent “provide relocating or start-up firms with immediate front-line information on marketplace trends and demographics” (“Manufacturers’ Agents”, n.d.). Concentrating on the market, they have immediate access to what the customer thinks and feel and can provide feedback.

However, the company loses control over its sales force that can choose to behave in ways it thinks fit and, for instance, adopt the ‘pushy’ sales style undesirable to manufacturers. Besides, working for several companies at a time, contractors lower costs, but are not always able to devote the necessary time to all product lines. If they feel that my business does not bring them as much profit as they want, they can start to overlook my products and devote more effort to others. For these reasons, I would prefer to bear the expense of hired salesforce.

References

1. “Manufacturers’ Agents”. (n.d.). Retrieved March 1, 2006, from http://www.referenceforbusiness.com/small/Mail-Op/Manufacturers-Agents.html
2. Venexus. (2005). Business Entity Matrix. Retrieved March 1, 2006, from
3. http://www.venexus.com/Services/BusinessCreationSystem/Incorporation/BusinessEntityMatrix/tabid/129/Default.aspx

When an employer wants to be working for the company they would be assigned to the department which they are a specialist l, so for example they could get assigned to the it and admit department because they are really good at the cit side of the business. Functional Areas Finance and Accounts Human Resources- The human resources Is the people who are working for the business, also the human resource management would be concerned about how these people are being managed.

Now the term human resource management has now come to the mint where It now means more than this because there are now people that are different from other resources that work for an organization. Also there are people that have feeling and have thoughts, needs and aspirations. Now the term HARM has now come to be referred to an approach and it also takes into account for both. Customer Services- The customer service of any business is something that is going to lead to the success of your business. F a business is unable to get customers to buy products from your store and shop from there then your business will not be around for long ND it would get shut down and so it’s important for the business to make sure that they are getting customer’s shopping for products from their store and that they are getting good feedback from their customers. Also It Is Important for the business to have a excellent customer service because If the business has got a good customer service then It will enable the business to get new customers to shop at their store and to keep their current customers as well.

Give out good information about the products that they are selling. Also the business should make an improvement to the Image of the business and the reputation of the business so that it can attract more customers and they should also expand on their sales and the amount of money that they business is making. In a business there are also two deferent types of customers which are internal customers and external customers.

External customers come in two parts where we have other businesses for example where we would have a business selling something to another business and we also have consumers which re like you, now Internal customers are people who are working for the business. Now when customers are shopping from your shop hey would expect the following: a quick polite response for any problems or any queries that they may have, a very clear and a honest piece of Information for their customers, a lot of attentions and a lot of care whilst shopping for goods in your shop and a good value.

Without customers, it’s impossible to build a successful SaaS business. And, when you’re first getting your business up and running, you might be inclined to get new customers by any means possible. In the long run, however, this can make your acquisition costs unpredictable and, more often than not, overinflated.

Related: 

If you measure the cost of acquisition against customer lifetime value, you will likely discover that the revenue earned from each customer is less than you originally thought — or worse.

Wouldn’t you rather know exactly how to budget for sales and marketing, than to just fly by the seat of your pants? Let’s take a look at how to determine your SaaS business’ cost of acquisition.

What is customer-acquisition cost?

Very simply, customer-acquisition cost takes into account the sales and marketing costs involved in acquiring one new customer for your SaaS business.

In general, the less you have to spend on getting an additional customer, the better. However, this isn’t to suggest that there is a magic number to aim for. Acquisition costs can vary significantly from one business to another, depending on the niche and the target audience.

Customer-acquisition cost is also an important metric to help you determine whether or not you have a viable business model that can be scaled over the long haul. The higher the profits you see after expenses, the better.

If you don’t match up your acquisition cost against your customer lifetime value, it will be hard to determine whether your costs are high, low or somewhere in between. We need to take a closer look at customer lifetime value.

What Is customer lifetime value?

How much revenue do you earn from a single customer while he or she is paying for your services? When you average out that figure across your customer database, the result will be your customer lifetime value.

In this case, it’s better to have a higher number. The longer a customer stays and pays for your services, the more valuable that person is to your business.

There isn’t necessarily a target to hit, because customer lifetime value can vary a lot from one SaaS business to another. In general, though, your customer acquisition costs should be at or less than 33 percent of your customer lifetime value. If you aren’t there yet, don’t buckle, because the scale can be titled in your favor.

Related: 

Customer-lifetime value and customer-acquisition cost ratio

When you’re looking to better understand your business’ cost of acquisition, there are many important to understand. But comparing customer lifetime value and customer acquisition cost gives us a much better idea of your revenue per customer.

It should be apparent that it’s better to spend less and earn more, as opposed to the other way around. This can also help you determine your ROI — the overall efficacy of your marketing strategy.

Ideally, your customer lifetime value and customer-acquisition cost ratio should be three or higher. Fortunately, neither value is fixed. Think of it as a seesaw. You can reduce costs and generate more revenue, but those efforts will require ongoing optimization.

This ratio alone can give you a better idea of your business’ cost of acquisition, but there are some other important factors to keep in mind, such as churn.

What is churn?

In practically every business, customers come and go. This is called churn. Even a 5 percent difference in annual churn between two businesses could be significant, especially over the course of five, 10 or 15 years.

If you’re able to keep customers for longer, you can consistently increase revenues without having to generate more business. Churn drives up customer acquisition cost and takes a toll on customer lifetime value. A high churn rate is a likely indicator that your service is mismatched to your customer’s needs, and may require further development. Adding features or tweaking the software could further drive up the costs.

Most small SaaS businesses tend to have a monthly churn rate between 1 and 11 percent. As with other metrics already mentioned, the exact nature of the business and the customers you’re targeting are factors here. There is no perfect score.

The lower the churn rate, the better, but smaller businesses typically have a higher churn rate, so don’t be put off by that. It can be improved upon.

Calculating your SaaS business cost of acquisition

A simple way to calculate your customer acquisition cost is by dividing the total cost of sales and marketing by the number of customers you acquired. Let’s say, for example, that you spent $10,000 to acquire 350 customers. That would make the cost of acquisition roughly $28.57 per customer.

Customer-lifetime value is also easy to calculate — you would simply add up the revenue earned from each inactive customer and divide it by the total number of customers.

As previously mentioned, if your customer-lifetime value and customer acquisition cost ratio are higher than or equal to three, you know that you have a viable business model on your hands.

You would still need to account for churn, because, as we already determined, a higher churn rate would be indicative of a problem with the product. It might be a mismatch with your target audience members; it might not offer the right features or benefits they want; or the solution itself might not be what they were looking for, and there are better options on the market.

Don’t forget: Cost of acquisition is like a seesaw, and can be optimized.

Final thoughts

In developing your online and offline presence, you need to realize that  is key. You have to take your leads and prospects from completely unaware to most aware for your marketing and sales to be effective.

Related: 

The added benefit to reducing customer-acquisition cost and increasing customer lifetime value is that it can help your valuation. If you’re interested in selling your business at some point, you will need to take a close look at acquisition cost and lifetime value. You don’t need to optimize it to the nth degree to pique the interest of investors, but going through the process will be beneficial for you as well.

Business forecasting, by professional and business man alike, is too frequently a guessing game. Even when forecasters agree, they are apt to reach their common conclusion by different methods and for different reasons. And when they happen to be right, they are frequently right because of reasons or conditions they did not anticipate. These critical observations are written with no disparaging or pharisaical implications. These difficulties are inherent in the art and beset everyone who attempts to move ahead of time and to pierce the veil that shrouds the future. There is no infallible forecasting system.

Unorganized business forecasting is usually the product of personal judgment or intuition or, sometimes, only a subconscious feeling for the course of future events. It is more art than science, and it will remain in this unsatisfactory state until its methods can be brought into the realm of the rational and can be based on logical relationships that govern business behaviour and can be stated in measurable terms. General progress in forecasting will come only with the wider understanding and application of the common-sense economic principles that govern the fluctuations of aggregate national income, production, and prices.

This wider understanding is one of the objectives of this volume. It is hoped that this study will bring to the businessman and to other students of forecasting an understanding of some of these principles and their application to business forecasting. In order to fulfil this task, more pages will be devoted to theory than the reader may, at first thought, be prepared to welcome. However, it is necessary discipline, and it is hoped the reader will be prepared by this warning and will not be too impatient (Pindyck, & Rubinfield, 1998).

Notwithstanding the unsatisfactory state of forecasting as usually practiced in business, forecasting, by some method or other, is necessary and is as inescapable in business life as breathing and digestion are in physical life. Characteristics of forecasts Every successful business concern–Big Steel or the corner grocery–must anticipate the needs of its customers, the demand for its products, the prices it must pay, and the prices it will be able to collect. Business forecasting of these involuntary kind needs no advocate, requires no justification, and like other arts permits of few generalizations.

Its successful practitioners develop a sixth sense of impending events, a feel of the market drawn from day-to-day experience. A few forecasters of this psychic type may be highly successful, but why they are successful or how they reach their conclusions they can explain no more than they explain the involuntary processes of their healthy digestions. But this subconscious psychic kind of forecasting is scarcely possible for the vast majority of businessmen. If men lacking this sixth sense depend upon it, forecasting becomes less than an art, is practiced without organized knowledge and with little personal skill.

It degenerates into a feeling, a hunch, a guess without reason or the possibility of explanation, although the forecaster likes to think of his conclusion as a considered opinion based on good judgment and mature experience (Gunther, & Schoemaker, 2002). The point that should be mentally underscored is that the businessman will forecast in one way or another; he cannot escape forecasting while he remains responsible for a business enterprise. The question every executive faces is not whether he will forecast but, rather, how he will forecast.

The businessman can forecast by hunch or by intuition or by judgment (if he prefers to call it so), or he can bring the forecasting activities of his enterprise within the more definite and tangible boundaries of an organized management function and with as solid a foundation of scientific principle and method as the status of this difficult art permits. His forecasting can be without plan and without organization, or it can be made a recognized function of scientific management. How good should forecasting be to be acceptable?

Some top business executives believe in holding out for the impossible standard of completely correct forecasts–for 100 per cent hits–without really expecting any such performance. Actually no other single figure which places a maximum limit on error is reasonable because permissible limits of error should change with the conditions under which the forecast is made. Two or three per cent error may represent poor forecasting in a stable industry in times of high personal income and customer demand.

Ten per cent error may be good forecasting in an industry which fluctuates widely, and when customer demand is declining. High per cent accuracy is easier to attain in sellers’ markets than in buyers’ markets (Gunther, & Schoemaker, 2002). Then in some situations a qualitative forecast is all that is needed. The prediction of the direction of business trend–up or down or level-may meets the requirements of the business executive. The broad test for good forecasting is whether or not it leads to correct management decisions. Components of a forecast and forecasting methods

Forecasters may also go too far in the use of elaborate mathematical and statistical procedures that are not justified by the inexactness of the data that forecasters frequently are compelled to use. There is a golden common-sense mean between pure guessing and too much mathematics. Even though many business executives do not think too highly of forecasting as it is usually performed, there are at least two reasons why they should take the practice of forecasting seriously. In the first place, forecasting is a part of business management from which there is no escape, as has been pointed out.

Forecasting will be done in one way or another. If it is not approached as a management function to be organized along scientific lines to the extent that the scientific approach can be used, then the unavoidable forecasting will be done by guess and by feel. The second reason why businessmen should tackle forecasting seriously is that, except for the rare forecasting genius, any organized plan is better than no plan. No matter how simple and elementary an organized forecasting plan may be, it is better than 100 per cent judgment or hunch or guesswork.

However inadequate and disappointing the results from organized forecasting may seem, they are still better than the usual results of unorganized guessing (Morris, & Siegel, 1993). It is the part of wisdom to recognize the inadequacies of available forecasting procedures and results. It is also wise for management to recognize the importance of forecasting as a function of management and to do what can be done to increase understanding of its underlying principles, to organize pertinent information concerning past experience and current events, and to improve forecasting procedures.

There are a number of fairly obvious reasons why good forecasting is an important part of good management. There can be no intelligent or effective planning for a business enterprise without the preliminary step of forecasting. The planned objectives of management can be realized only when there is a reasonably accurate forecast of the trend of general business and of the sales income of the specific company. The businessman cannot act on the spur of the moment.

Successful management requires that the businessman look ahead and make plans. In short, he must plan, and he must forecast in order that he can plan. Successful budgeting of expenses, costs, and profits depends on good forecasting of sales income. Some well-conceived and executed budget plans have failed and have been discarded because they were not backed up by good sales forecasts. A forecast of annual sales and prices is the necessary foundation of the control of a business through a budgetary program (Siegel, & Shim, 1991).

Successful forecasting reduces the area of avoidable risk. Forecasting will seldom, if ever, be without some error, but forecasting can limit the area in which assumption and judgment must be the only guide. Good forecasting can help stabilize production and employment over the year by ironing out variations caused by seasonal fluctuations of sales. Steady employment can mean better labour and community relations, lower employee turnover, and lower labour costs.

Better forecasting will be needed by managements to deal successfully with the growing rigidities of labour costs and other problems brought about by the demand by organized labour and by public opinion for greater security of employment in manufacturing industries. Guaranteed annual wages, employee seniority, transferable pension rights, and severance pay may so increase the costs of high employee turnover–of hiring and firing–that it will become necessary for management to plan future expansions more carefully (Siegel, & Shim, 1991).

No management in a volatile, feast-or-famine industry can handle this explosive problem unless the management has developed a dependable sales-forecasting procedure–a procedure that will provide correct trends of sales and employment not only for one year but for several years. The satisfactory and safe solution of this important problem of job security awaits the attainment of more dependable results in forecasting and planning long-term company growth.

Satisfactory control of inventories of all kinds–raw materials, component parts, semifinished materials, work in process, and finished goods–is dependent on satisfactory forecasts of future sales, of raw-material and parts requirements, of raw-material and parts prices. The traditional methods of inventory control, which are based on past activity alone, inevitably lead to losses. Control based only on past activity leads to loss of possible sales and competitive position when market demand increases unexpectedly and to direct money loss when market demand suddenly declines.

Successful planning of long-term investment programs of new mills and other facilities and of corresponding new capital requirements depends on reasonably accurate long-term forecasting of sales. An even rate of investment expenditures, as will be shown, is the first step in the stabilization of aggregate employment over the business cycle. The successful use of standard cost systems for cost and expense control and for satisfactory pricing of products depends on good long-term forecasting of sales and production volume.

The successful use of standard costs depends on the selection of a good normal volume of production that is neither too high nor too low. The setting of a high normal volume results in consistently unabsorbed expense, high variances, low standard costs, and the danger of establishing market prices that are below real costs. A low normal results in over-absorption of expense, high standard costs, and market prices that may be unnecessarily high (Smaghi, Lorenzo, & Casini, 2000). Basic approach to demand forecasting

These are some of the ways by which better forecasting can help produce successful planning and control of operations and contribute to better over-all management. Good planning depends on good forecasting. There would be no difficulty in convincing business executives of the importance of forecasting as an organized management function if direct dependable answers to the executives’ problems in this field were always forthcoming. Unfortunately in this world there is no way to see clearly and with certainty what lies ahead.

The best that can be managed is an indirect approach: to attempt to understand the causes of impending events and to anticipate their coming or to analyze past experience and behaviour so that it can be safely projected some little way beyond the present (Press, 1996). The first of these approaches requires the understanding of various economic principles and relationships that affect business behaviour and the direct measurement of the factors and forces that determine business activity, such as the size of customer demand and the availability of funds to make that demand effective.

It is completely scientific and rational in that it depends on the development and understanding of general principles and on the measurement of necessary data. This approach fails in being a complete solution only because we are dealing, in considerable measure, with human behaviour which may not be rational and because we cannot determine or measure all the necessary factors. The second of these approaches supplements the first and attempts to bridge over its deficiencies. This method of organizing past experience and projecting it into the future assumes that all other conditions of the past remain the same in the future.

It is a safe method only to the extent that this rash assumption may be true. This general approach includes the determination and extension of trend lines of growth, of seasonal fluctuations, and of longer cyclical movements of the business cycle. It also includes the determination of past empirical relationships or correlations between the quantity being forecasted and other quantities that are more readily measured or estimated such as the relationship that exists between department-store sales (or of any single product) and total available consumer income.

This method of analyzing past behaviour and relationships and of assuming that this past experience can be usefully projected into the future is frequently frowned upon; nevertheless it is quite generally used. The method can be used safely and successfully if it is used with intelligence and with good judgment. But it has been used frequently and on notable occasions without good judgment and with too little experience.

The possible improvement of forecasting methods and the increase in accuracy and dependability of forecasts lie very largely in these two directions: in the discovery and scientific use of general principles and factual measurement and in the systematic analysis, organization, and projection of past experience (Heilbroner, Thurow, 1994). Forecasting in practice It is true and should be recognized that forecasting organized as a separate management function is not equally necessary in all industries or in all companies.

The difficulties of achieving good forecasting and the benefits to be derived from it vary widely with different businesses. Each company has a unique problem which only the management of the company can solve satisfactorily. There is no universal plan. There are, for example, many small business enterprises that may not need organized forecasting. A concern small enough, or with operations simple enough, so that its operations can be planned and controlled by one chief executive will usually depend on this one man’s foresight and ability for its success.

Forecasting in such a concern is likely to be the intuitive or subconscious kind. But as a business grows in size and complexity beyond the physical and mental powers of one man, then organized forecasting should become a separately organized function of management. Organized forecasting becomes more necessary and pays larger dividends as a company increases in size, in the variety of products it handles, in the number of different markets it supplies, and in the extent of its decentralization of management (Smaghi, Lorenzo, & Casini, 2000).

Some processors of staple foods, for example, are affected only to a minor extent by fluctuations in general business. Consumption of food per person remains much the same from year to year, and the growth of a specific company depends mainly on the energy and skill of its management and more directly on the skillful, aggressive sales promotion of its products. In other industries of the feast-or-famine kind, sales volume from one year to the next may be determined by general business conditions, regardless of sales-promotion campaigns.

Companies that deal with new and rapidly growing products and whose major sales problems are the creation of markets for new products, usually have little interest in the state of general business. Their sales may be made to increase by creative selling against the general business trend. Such company managements are prone to underestimate the importance of general business conditions and to exaggerate their own independence of these conditions. They are apt to be right in their ability to control their sales volume until their new product grows in importance and becomes an established product with substantial market acceptance.

Success under these circumstances is the forerunner of trouble. A company manufacturing mechanical refrigerators, for example, could not be convinced that its sales volume in 1938 would be lower than sales in 1937 even though general business had started to decline in the fall of 1937. Mechanical refrigerators were a new product during the early 1930’s, and sales had increased each year all through the depression. But by 1937 the market for refriger ators had become sufficiently saturated so that it fluctuated with other established industries and durable products (Heilbroner, Thurow, 1994).

Organized forecasting takes on added importance to industries and companies with long production processes and where raw materials are subject to wide fluctuations in price. The risks of doing business increase with the length of the cycle from commitment of funds for raw materials to the sale of the finished product. Tire manufacturers, because of the raw rubber situation, and soap manufacturers, because of their use of imported fats and oils, have to hold large inventories of these raw materials. They are vitally interested in following supply and demand factors affecting the prices of these materials.

Meatpacking companies’ major interest in forecasting is also in the prospective supplies and prices of their raw materials–cattle, sheep, and hogs. Companies that are important users of copper, such as the larger electrical manufacturing companies, find it advisable to study supply and demand conditions and their probable effect on the future price of copper. It is necessary only to remember the many uses of forecasting and the close ties between forecasting and planning to realize the extensive ramifications of forecasting throughout the operations of a large corporation.

Good forecasting requires team play, the best possible coordination among many departments: general business research and market research, sales, accounting, treasury, production planning (another coordinating activity), and line production. Good forecasting and planning will not come if each of these several departments works independently. Poor results are sometimes the result of too much emphasis on a departmental objective instead of a wiser emphasis on a company objective (Spiegel, 1994).

Organized forecasting, where it is justified by the conditions, should lead to the development of a logical structure of forecasts and budgets. The foundation of this structure is the forecast of general business conditions wherever the volume of the single company sales is strongly affected by general business conditions. On this foundation the company sales forecast is erected. The sales forecast, in turn, becomes the support of the complete superstructure of financial forecasts and budgets and also of production forecasts and schedules with their array of employment, purchasing, and inventory plans and schedules.