Case: Pepe Jeans

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Case: Pepe Jeans|
Group : ASIAN CONNECT- Chen, Yu Hsien; Eman, Jesse; Neri, Hiyasmin; Wang, Tony; Wong, Benedict | |
Ateneo Graduate School of Business Operations Management Prof. Terrence Sorono| 2/13/2013|

Current| |
Sales| 200,000,000.00 |
Cost of sales| 80,000,000.00 |
Operating expenses| 56,000,000.00 |
Profit before tax| 64,000,000.00 |
| |
Alternative| |
Sales| 220,000,000.00 |
Cost of sales| 104,000,000.00 |
Operating expenses| 61,600,000.00 |
Profit before tax| 54,400,000.00 |
| |
Other alternative| |
Equipment| 1,000,000.00 |
Building location and renovations| 300,000.00 |
Total fixed cost investment| 1,300,000.00 |
| |
Inventory value| 9,230,769.23 |
Inventory carrying costs| 2,769,230.77 |
Operation| 500,000.00 |
Recurring cost| 3,269,230.77 |
Annual profit increase| 6,400,000.00 |
Profit before tax| 3,130,769.23 |
| |
Payback period| 21.59 |

First alternative
Decrease of lead time would lead to an increase in costs by 30%. Currently the yearly cost of sales is 40% of sales of 200,000,000 that is 80,000,000 If the cost goes up by 30% it would mean 30% of 80,000,000 which is 24,000,000

The advantage in this alternative is that the company does not have to make any initial investment but has to incur this additional burden every year. Since no investment is made , no payback period is calculated Other alternative

The other alternative that Pepe could consider is to continue with the current arrangement. It is excellent from the financial point of view but it is vulnerable from the marketing point of view. If Pepe continues to insist on requirements...
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