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Paper Products Corp. founded in San Francisco in the 1800 s 92 flat growth & hard to maintain profit margins Introduced TFC in 92 by 94 $60 million in sales Price 32.2% of cost for TFC + 20% markup for fees
Cost Pools
Storage Requisition Handling Basic Warehouse Stock
Selection Pick-Pack Activity Desk Top Delivery
$ $
22.82 1.25
Inferences on Profitability
Both customers are profitable under the model but customer A nets nearly $15,000 more income than B. Customer A is $7,198 more profitable than the initial assumption. Customer B is $8,479 less profitable than the initial assumption.
$ $ $ $
$ $ $ $
20,418 26%
4,741 6%
The next 145 customers are still profitable and contribute the other 20% of the income. The bottom 50% of accounts actually incur expenses to service which reduces income.
Manager Suggestions
Each customer should be reviewed based on the new pricing model to adjust their profitability. Shipping costs should be better tracked per mile and billed to the customer utilizing the new computer system. The bottom 50% of accounts which are not generating income should be reviewed and pricing adjusted with the new model to ensure profitability.