Bed Bath and Beyond's business practices and overhead cost reduction strategies

¶ … Financial Institutions #1

The current reading discusses business practices within the company of Bed Bath and Beyond (BBBY) during the period of 2003 to 2004. The reading suggests that BBBY can serve as a template for an effective business; however, no successful plan is without its weaknesses. Statistics show that revenue has continued to increase and current and past methods of management, distributions etc. are effective; however very little is reported regarding the growing issue with rental rates, and prospective locations, and the various renewal dates that have no specific end.

Although BBBY has proven a continued success record in sales and profit margin, there does not appear to be any particular methods associated with cutting down on rental costs, and other overhead. The company has used some methods to cut down on overhead costs, nonetheless research appears necessary in order to determine more effective ways than just having stockholder obtain information online instead of in paper form. The question continues to be in what way can the functionality of BBBY be improved, what are more effective ways of cutting continued overhead pricing, are there methods that allow the company to regulate fees associated with purchasing, and how to increase market share more than the 4% reported in the writing. Research needs to be conducted regarding leasing options and how much revenue is being lost through the current long-term (no cancelable) leases that end up costing well over $300 million dollars per year. This leads to questions of whether there are better more efficient ways to lease a property, and if in fact it is costing the company unnecessarily large amounts of money.

BBBY needs to conduct additional reports (besides the current quarterly reports); this is evident by the writing suggesting that these reports are seldom represented in a complete manner. Continued training will insure that current methods continue to be successful and provide the same level of service and quality that BBBY has been known. This will also provide an opportunity for increased productivity, employee, and managerial input, as well as a forum for any issues or potential issues within the company concerning current protocols, methods, co-worker related issues etc.

BBBY intends to continually increase and open more locations. It is evident in the writing that these expansions will not affect the company in a negative manner. On page three, it is reported that expansions will be funded through cash and cash equivalents, along with short-term investments. The positive is that BBBY estimates a cash balance well over the proposed amount that the expansions will cost, by approximately $400 million. It is possible that there are ways to decrease the costs associated with the expansions if the cost analysis is reconsidered and reworked.

The writing concisely discussed the methods utilized by BBBY that have placed them at the top of their market. However, there is always room for improvement and that is what needs to be assessed by BBBY. They continually incorporate new methods that decrease overhead, allow for expansion project, increase profit margin (although not by more than 4%) these circumstances in need of considerable evaluation and recalculation to insure that unnecessary money is not being lost.

A remedy to the current circumstance is to determine more economical ways of renting retail spaces. Secondly would be to find a better way of stocking stores, it is not very practical if you have different stores being charged different amounts for the same products that is something that requires further investigation. It may also be necessary for financial reports to be provided more regularly that quarterly, if there continues to be discrepancies between the reports and actual figures.

It is evident that there is not a lot that BBBY needs to do in order to continue to hold its share of the market. However, every business can learn where they have come from previous and current business. Bed Bath & Beyond should use there current methods for analysis to inquire further where their weaknesses are and how to grow from there. Therefore, it is possible to make current methods more efficient. It may be necessary to do an evaluation on each location to determine if in fact that location is running efficiently, if current methods are effective, and what may or may not be an effective means of doing business on a day-to-day business.

CASE #2 American Chemical Corp

American chemical corp. found itself in a tough predicament. They prepared for a buyout. Universal Paper Corporations management apposed this buyout. 85% of the sodium chlorate is produced in the United States. It is necessary to not only devise a method of estimation concerning cash flow and cost of capital. Major decisions need to be made regarding the way that business will be conducted from day-to-day as well as the methods of examination that will be utilized. Sales of Sodium Chlorate doubled from 1970 to 1979. The price also increased form $129 per ton to $418 per ton. Operating profit for the company increased rather drastically 1970 to 1979 from 23.7 to 66.4. Another predicament concerns the purchase of stock in the universal Paper Corporation. A team should be created to discuss ways to help Universal understand the benefits of a takeover and how they will benefit from it; evidently, this has not yet been accomplished.

It is evident that one of the primary reasons why American wants to purchase all of the Universal stock is because over 80% of the sodium chlorate is sold to paper and pulp industries. So the take over would insure that American would receive a higher percentage of this much needed product which in turn would increase their market share and production. Now the next major concern is regarding whether or not Dixon should be able to purchase Collinsville or not and what effect this will have on American. This transaction cannot hurt American especially considering that the primary reason that Collinsville was purchased was to simply insure that American would be able to acquire Universal, and that worked. It is evident that it was only a matter of time before American would transition back and focus solely on Universal. In actuality, Collinsville is no direct or indirect threat to Universal now owned by American. Therefore, the transaction would put 12 million additional dollars into Americans assets and allow them to expand and invest in Universal.

This case discusses the many facets associated between American, Universal, and Dixon. It appears possible that all companies can benefit from the acquisitions that took place as well as those on the table. However, Dixon was entering an unknown. Their system entailed hopes of profits and gains and not on actual liquid assets already in their possession. Therefore, it is possible that if the company (Collinsville) does not turn the profit that Dixon is anticipating will produce a significant setback to their business, and agreements with American.

The case discusses the acquisitions between American, Universal, and Dixon as well as the effect; this all has on whether or not American is able to acquire Universal. Sodium Chlorate is a major chemical that determines the success of the before mentioned companies. In addition, it is in all of these companies best interest to have the majority of this company, if not the majority of assess to it the ability to produce enough of the chemical that will allow them to corner the market. However different acquisitions affect different companies in various ways, this is one of the main reasons why Universal was against American obtaining majority shares in their company. Universal knew that this would give Universal an unfair advantage as well as an opportunity to corner the market considering the fact that both companies partake in the same business. This is why it was a good move to buy Collinsville in order to obtain Universal, the ironic thing is that it actually worked; this led to American then selling Collinsville to Dixon. This transaction allowed American to convert back to what they wanted to focus on in the first place; creating a powerhouse that could corner and take over the market by combining the powers of American and Universal. The only negative was Dixon using their debt capacity as a template for acquiring Collinsville.

It becomes tricky trying to use projected outcomes as a means of investing, which is what Dixon was doing. This was not considering if production was low, of if there were market issues etc. that could cause a problem. Therefore, in retrospect American really needs to consider if they are setting themselves up for a potential loss in the end.

CASE # 5 - MSDI - Alcala de Henares, Spain

Primarily there is reason for concern when a company projects profits in the billions and only makes an estimated $600 million. Therefore, research needs to determine the cause for such a significant shift between the estimated projection and the actual amount of revenue created by the company. The company also needs to acquire more sufficient methods of checking the reliability or equipment, the production process as well as the product that is being produced. This will allow them to be more efficient as well as allow the company to see where they can improve and grow in their day-to-day business.

The current case discusses the efficiency of methods used to create and check ampules. Another area of consideration is whether the peso would ever be able to compare closely to the USD. Production was at 200% and this was well beyond what was anticipated. However, it was discovered that there was an even more efficient method available. In fact, it was possible to decrease the numbers of employees on hand, and continue to maintain the level of productivity and in turn decrease the occurrences of errors and wasted materials and time. There was available equipment that provided and increases of ampules by 25%, which is more, that six million ampules per year. Training for employees was reduced or comparable to current methods and does not require excessive amounts of time from work. Testing utilizing the new equipments indicates that the rate of rejection drops from an estimated 11% to 3%, this too accounts for an increase in materials use. Therefore, it is evident to see the benefits here; however research is necessary to weigh the pros and cons. Even though you may be able to decrease the number of employee's new methods and machines will not account for human error, nor will they account for machine malfunctions. Systems should be put in place to run routine checks regarding the efficiency of machines and the efficiency of employees in their respective job functions. This will give much needed insight and help the company to see if the new methods and machinery are actually cost effective, in association with the new increased productivity.

Another important issue raised in the writing is regarding the peso and the USD.There is question as to whether or not it is more economical to deal in pesos or the USD. The research indicates that inflation in Spain will have increased by over 8% over the life of the entire project.

New equipment is more efficient and has a longer life expectancy than previous machinery utilized. This issue was without resolve in the writing. Researchers were not sure if it mattered as to which currency they would deal in. The U.S. prime rate was at 8.5%. Analyst did believe however that the peseta would have a significant appreciation value over the next five consecutive years.

Referring to Exhibit 2 it is easy to determine that although ampule volume was up in 1988, there was a significant decrease in volume by 1997. This needs further assessment, considering that the new equipment was reported to increase productivity and cut cost and waste; this is not evident in the numbers. In fact, volume decreases and cost appears to increase rather significantly using the older equipment. However, the new equipment appears to shift the numbers in a minuscule way, and therefore do not show an enormous difference in cost.

Exhibit 4 further supports the concerns over whether or not to utilize the peso or the USD. The chart indicates that from 1980 to 1897 the three-month t-bill dropped drastically and did not rebound to even half of its worth over the long period. Further research is needed to determine in fact what method is best, as well as the efficiency of the new machinery and decrease in employees regarding overall productivity.

The current article proposes a situation that many companies find themselves in, often attempting to determine the best methods that allow for increased productivity, decreased waste, and possibly a decrease in employee labor. However when one has a company that deals in different areas of the country with varying money and interest rates it becomes a pertinent issue to determine the most effective means for investment and expenditures. The current study does however utilize all current information in an attempt to project the best means for conducting business on a day-to-day basis, as well as investments options and how they affect the company and its production as a whole.