Case Study Essay

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How would you characterize Crafton’s Position in the carpet and rug industry? Crafton Industries sells high priced to medium priced rugs and carpets predominantly to the domestic market segment. Crafton is small industry with company sales of $75 million in fiscal 2010, while the U.S. industry sales leader is Shaw Industries, with 2009 sales of 3025 million. Currently, Crafton supplies its products through seven flooring wholesalers; the seven wholesalers have 4000 retailers. For small players in industry like Crafton it is heavily depended upon its wholesalers to distribute its products, because it cannot setup retails store unlike its competitors.
How is the industry segmented?
The industry is segmented through large and small …show more content…
They often will use inventory software to keep track of what products they have on hand and where it is located. If a wholesaler was eliminated Crafton would need to provide warehouse space for the inventory, staff to maintain the warehouse, sales reps to sell the product to retailers and they would need to come up with a system to track inventory.

What are the economics of the wholesale vs. company distribution systems? a. What is the total cost of wholesale distribution? b. What are the total costs of direct (company) distribution? c. Compare the costs of each alternative approach.

The company distribution benefit economic benefit will flow in shape of increased sales from existing $75 million to a new level, plus margins will also increase by a good proportion. Crafton will avoid being taken over if its distribution network increases

Cost of Wholesale Distribution

Wholesale Margin= 20%
This represents 25% of manufacturer’s price.
Wholesale Margin Dollars=0.25 x $54 M (3M x 7wholesalers = 21M -75 M) = $13,500,000
Costs of Servicing: 6% of present sales - $3,240,000
Total Estimated Cost = $16,740,000
Cost of Direct Distribution Warehouse and Sales Rep Expenses Warehouse Expense 7 warehouses x 700,000 annual cost = $4,900,000. * Sales Rep. Cost Assuming Crafton wants to service its 400 accounts, salespeople make one call per month of one hour each, and 25% of sales reps’
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