ABC COMPANY B.E.U ANALYSISRECOMENDATATION FOR

IMPROVEMENT

P.SHIYAM

PURCHASING MANAGEMENT

GDPSCM 2011-14

p_shiyam@yahoo.com

MARKET SHARE

• Few suppliers• Price Takers• High competition• Perfect oligapoly

Selling price Fixed Cost Variable cost Demand Market

share

ABC 15 100,000 10 30,000 25%

Competitor 1 15 90,000 9 40,000 33.33%

Competitor 2 18 78,000 12 25,000 20.83%

others 15 88,000 11 25,000 20.83%

SELLING PRICE

ABC COMPETITOR 1 COMPETITOR 2 OTHERS

15 15 18 15

• 79% of market at 15/= .• 21% of market at 18/=.• 20% of price increase compare with others.• Marketing mix to increase the market share1. promotion 2. price discount3. bundling4. advertising5. branding6. direct selling 7. Warranty 8. options9. Chanel

BREAK EVEN UNITE

• B.E.U= FIXED COST

CONTRIBUTION PER UNITE

CONTRIBUTION PER UNITE=SELL ING PRICE- VERIABLE COST PER

UNITE

FIXED COST

ABC Competitor 1 Competitor 2 Others

100,000 90,000 78,000 88,000

• ABC 100,000/= HIGHEST COST AT INDUSTRY

• C 1 90,000 IS SECOND LOWERST LESS THAN 10%

• C 2 78,000 IS LOWERST FC IN THE INDUSTRY

• C 2 LESS THAN ABC FIXED COST 22%

• OTHERS 88,000 THIRD HIGHERST FIXED COST

• OTHERS COMPARE WITH ABC 12 % THAN ABC

RECOMENDATAION FOR REDUCE FIXED

AT ABC • If the companies have excess capacity of resource such as

machineries, factory space, vehicles, permanents labours can utilize for the other purpose .

• Company can outsource the less important activities this leads to reduces company fixed cost . The company cannot outsource core activities because all information technology will available with third party it will be risk to the company.

• Company should re shift the fixed assets resources with more technology advance, less waste and high

• The company should sell the fixed assets and these fixed buy for the lease bases .when company uses the fixed assets at the lease base it is easy to upgrade the machinery with technology when it was not necessary we can stop the lease payment .

CONTRIBUTION PER UNITE ABC COMPETITOR 1 COMPETITOR 2 OTHER

SELLING PRICE 15 15 18 15

VARIABLE COST 10 09 12 11

CONTRIBUTION PER UNITE 5 6 6 4

• ABC CONTRIBUTION 5/= PER UNITE• THIS IS 20 % LESS THAN C1,C2

• C 1 CONTRIBUTION PER UNITE 6/=• HIGHERST CONTRIBUTION PER UNITE WITH LOWER PERCE

• C 2 CONTRIBUTION PER UNITE 6/=• HIGHERST CONTRIBUTION PER UNITE WITH HIGHERST SELLING PRICE

• OTHER CONTRIBUTION PER UNITE 4/= • LOWERST CONTRIBUTION PER UNITE IN THE INDUSTRY

VARIABLE COST

• The variable cost is directly connection with production volume when production increase the variable cost also increase and when production variable cost also reduce variable cost are direct material ,direct labour ,direct over head

ABC Competitor 1 Competitor 2 other

10 9 12 11

• C 1 IS LOWER VC IN THE INDUSTRY • 10 % LESS THAN ABC

• C 2 IS HIGHST VC IN THE INDUSTRY• 20% HIGHER THAN ABC

• OTHER IS SECOND HIGHST IN THE INDUSTRY• 10% HIGH THAN ABC 1

• MATERIAL COST,LABOUR COST,OVER HEAD

RECOMENDATATION FOR MATERIAL COST

REDUCTION• Direct purchase from manufacturer reduce cost of production.• INTERNALY PRRODUCE THE RAW MATERIALS

( we can reuse cans baralles , palates ,plastic tubs. When we reduce the resource use for the production can reduce the cost.)

• 03.Internaly produce reduce other cost Sseveral ways advertising , marketing, purchasing , transportation, eliminate west ,well plan supply chain also reduces the cost in several ways.

• 04.intraduce the JET system( holding cost such as warehouse cost, insurance cost ,no cash flow held in raw materials, less risk for the theft, damage.)

• 05. Use the less cost substitute raw material for the production process there for raw material cost will reduce by ABC

• 06. The ABC can make forward contracting with supplier there for we can get the raw materials at the law price with the specific quality. When ABC sigh with forward contracting it gives the assurance for purchase for certain period .there for ABC can bargain the price.

• 06. Reduces the raw material west through proper production process. For examples reduce raw material damages this will also add to the final product, optimize planning with in the production process such as garment industry.

• 07. Produce the goods at the customer required quality or produce goods at different brands with different quality. For example one company produce the tea with different brands and different quality

LABOUR COST

• The labour cost is the parts of the variable cost so it can reduce through the well manage labour force. Labaor force is managing the other resources in the organization. To increase the productivity the motivation is very important to the company.

RECOMENDATIONFOR REDUCE LABOUR

COST

• Introduce the piece work system for the wages this will reduce the cost of production and motivate people to the do more process in each department

• Introduce the incentive system for the labour force there for workers will motivate to the job.

• Train the labor force according to the requirement, when ABC have train labourforce they can do the work more economically, efficiently, effectively.

• Introduce the welfare system for the ABC company with that explain the company mission vision and goal so workers feel company thinks about them self and they have to do something for company work force with hart smart.

• If ABC has excess labour capacity they can use for the other purpose of process there for labour cost for particular process will reduce.

• Use the equipment and machines for the production process such as automated machines convey, trolley for lift the goods. there for it will increase the efficiency of work and reduce labour cost

• The company can outsource the labor force there for labour cost will reduce labours hires only when required only.

VARIABLE OVERHEAD COST

• The overhead cost is cost incurred for the business operation such as insurance, maintenance, communication cost, security cost, transportation cost, electricity cost, water cost. When overhead cost is liner connection with production process is known as variable cost.

RECOMENDATAION FOR OVER HEAD

COST REDUCTION

• 1. Plan the transportation in the most utilize way with sales delivery and same lorry will be collect raw materials from suppliers it will eliminate the raw material transportation cost

• 2. For the lighting purpose use clear shit in the roof it will reduces the cost electricity.

• 3. The maintenance can reduce through the properly maintain records .to reduce the maintenance cost management implement the incentive system.

• 4. At the production process reduce the idle time because at the idle time all the cost will incurred such as labour wage.

• 5. Reuse materials when it can use for the other purpose such as packing materials, rejects it will reduce the cost of production.

• 6. The waste, rejects damages garbage’s, are reuse or re cycle by the ABC it will creates cost cutting and revenue creation for the company.

CONCLUTION

• The ABC Company in the strong completion market with major competitors’ .The ABC company price is same with competitor 1 and others. There for market is price taker. To improve the profit of the ABC we have increase the contribution of the ABC .for that control the material cost, labour cost, overhead cost. To control the each cost elements recommendation is given above. Through that ABC can reduce the cost and increase the contribution per unite or otherwise reduce the fixed cost for the period. It will lead to reduce the break even unites and break value. There for risk of the ABC also reduce and company will have smooth operation.

THANK YOU