Problem Solution: Lawrence Sports Inc
Problem Solution: Lawrence Sports Inc.
Lawrence Sports (LS) is a 20 million sporting goods company that manufacturers and distributes sporting equipment. The company has been struggling to maintain its monthly cash inflows of at least 50,000 and has been borrowing from Central Bank. LS will have to implement a few capital management strategies that may include diversification and a new inventory management system. In implementing a new capital management policy, LS will be able to create a win-win situation that will help them survive in the long-term.
Situation Analysis
Issue and Opportunity Identification
LS is a 20 million sporting goods manufactures and distributes sporting equipment. LS currently
does business with two materials suppliers, Gartner and Murray, and Mayo a retail partner. LS is highly dependent on these business relationships, considering Mayo accounts for 95% of LS’s sales and Gartner supplies about 70% of its raw materials. LS has determined that it must have a minimum of 50,000 in cash at the end of each month to remain in business. Mayo Stores has recently not been able to make its payments, which has affected LS. LS has resorted to debt financing from Central Bank to maintain its minimum desired cash balance. However, the terms of the loan vary based on the current loan balance, the more money LS borrows the higher the interest rate. LS should consider diversifying its business among more retail stores to soften the impact of delayed payments from any one retailer. Additionally the company should reduce its inventory to free up cash from expenses incurred for storage. LS should consider adopting a just in time approach to its inventory cycle that will allow the company to meet predictable market demand without tying up unnecessary cash in surplus inventory. “JIT is based on the principle of giving customers what they want when they want it. Goods are produced only when they have been...
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