Subject: Possibility of establishing private distribution centers or wholesale operation Overview
Cardon Carpet Mills, Inc is a privately held manufacturer of a full line of medium to high price carpet primarily for the residential segment. Cardon has been around for over 30 years and have great long term relationships with its wholesalers. But, Cardon is lagging behind with the industries sales growth. The current wholesaler’s sales force only uses 40% of their sales call time towards Cardon products. If they eliminate the wholesaler by going with their own direct distribution center, Cardon Carpet Mills can reserve the wholesale markup and other expenditures for themselves. The opportunity of forward vertical integration by newly established distribution practices, in the long run, is a viable and attractive option proven in the following qualitative and quantitative analysis. Recommendation
Establish private direct distribution centers focusing on residential business to eliminate wholesalers and maximize profits. Rationale
Through a 25% wholesale markup, there is currently $13.5 million spent at the wholesale level. The margin of $13.5 million paid out to wholesalers could be preserved by Cardon Carpet Mills, Inc. to support the change in the distribution channel using internal capital. This satisfies conditions set out by Robert Meadows, President of Cardon Carpet Mills, Inc. and company policy to finance programs from internal funds except for capital expansion (Appendix). If Cardon Carpet Mills, Inc. maintains the same retail production presently on hand through the wholesale channel currently used, $2,240,000 should be spent on the salaries of 32 sales representatives and an additional $320,000 should be spent on the salaries of 4 overseeing managers if each sales manager manages eight individual sales representatives (Appendix). The total spent on sales administration, which is 40% of the salaries of the total sales force and management costs...
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