Leasdille and Simmons Ltd is a small manufacturing company located in South London. The company makes sunglasses. The sunglasses are sold to supermarkets. The supermarkets then sell the sunglasses on to the general public as an own label item.
The market for own label sunglasses is extremely competitive. There are many small producers like Leasdille and Simmons in the market who would love to have contracts with one of the major supermarket chains. Leasdille and Simmons have a contract to supply Tesco. However, their current contract is due to expire next year. Last week the Managing Director of Leasdille and Simmons met with Tesco’s chief sunglasses buyer in order to negotiate a new contract. At the end of a heated discussion Tesco announced that they would only re-new their contract with Leasdille and Simmons provided that they could get a price cut of 10% next year.
Yesterday Meqele, the Managing Director met with Gemma, the Production Manager to discuss the implications of the new Tesco contract.
“ Look Gemma at present 60% of our turnover comes from Tesco. We might not like what they are offering but there are plenty of our competitors out there who would gladly accept Tesco’s new contract. Accepting a 10% price cut need not reduce our profits, so long as we can cut our costs by a similar amount. There’s no other solution, as Production Manager you have got to increase efficiency”
Meqele went away from the meeting with an idea in her mind. She thought that the best way of decreasing costs inside the factory was by reducing wastage. The company had always operated with a traditional quality control system. The sunglasses were checked once for quality at the end of the production line by a specialist team of quality control inspectors. The same inspectors were also responsible for trying to re-work any poor quality sunglasses they found. The aim of the re-working being to rectify any...