Madison

The Madison Corporation

A report submitted to Prof. Mukul Vasavada

By Aneri Shah Application ID - 61048 FSB 1

Situational analysis of Madison Corporation

The Production Department at Madison Corporation has estimated purchase requisitions for the second quarter on the basis of the sale estimates made by the Sales Department for that quarter. Among the total requirements, the Sales Department has estimated shipments of 4500 brass bases for clock model #329. As per the requirements, the production manager has to arrange for minimum 3,720 brass bases (the inventory of model #329 as on 1/4/1960 is 780 units). According to the Purchase Department of the company; these bases should be secured at lower prices by purchasing quantities more than 4500. The department requests to allow a minimum of 9000 bases and if possible 15,000 bases to be purchased, in order to avail the quantity discounts. The requisition has been put forth to the Production Department who has further forwarded it to the Sales Department. The Sales Department has to evaluate and analyse various options with the costs associated with it as the ultimate decision regarding the quantity to be purchased lies with it. The company needs to analyse the situation from four broad aspects of financial savings, risk, demand, and company policy.  Policy - According to the policy adopted after the heavy inventory losses incurred in 1932 (i.e. the inventory levels need to be maintained at minimum level consistent with the customer requirements) the company needs to stick to its basic minimum requirement of 4500 units, which if exceeded can go against company policy or it could go for change in the policy if it wants to avail the quantity discounts. Risk - There is risk associated in various options. If the department sticks to the exact minimum requirement of 4500 units, the company might lose out on extra demand (if any) generated. On the other hand, if the company buys 9,000 units or 15,000 units as...