Chesterton Case Study: Additional Considerations
The move to direct distribution for Chesterton Mills has several opportunities and barriers.
The financial analysis shows that the proposed move will yield a higher return on assets than the current scenario (24.4% vs. 20.5% respectively). Essentially, Chesterton would see more return establish its own sales force compared with the structure currently in place. There is, however, some risk associated with issue. The proposed move calls for 34 sales personnel and 5 managers. If established number do not make the required six calls per day and can only maintain 4 calls per day, additional sales persons and managers would need to be hired. Furthermore, $700,000 was established as the cost to run a single warehouse. Given the fact that Chesterton would be new to this operation, a “learning” curve to meet the minimum cost of running a single warehouse would take one to three years, conservatively speaking. Increased cost above and beyond $700,000 is a real concern and would increase operating cost, consequently decreasing return on assets.
The Carpet industry has seen declining sales the past few years. It is believed that more attention has been giving to decreasing operating costs as opposed to marketing the advances and benefits of products. Going direct would allow Chesterton to work with retailers to identify new product and the demand for such products. Retailers will have intimate, local knowledge of end user preferences. Establishing long-term relationships with retailers would enhance the effectiveness of Chesterton strategic planning. They would be able to share information more closely in order to position certain product and streamline product offerings. The constraint to thi ...