It is necessary to asses due to the perceived resistance to change, including the already stated dissatisfaction of the Merton Industries staff members, and the negative effects this could generate. In this order of ideas, alternatives 3 and 4 would generate the least changes and would be best accepted by the personnel. Alternatives 1 and 2 on the other hand would generate the most changes and would be negatively perceived, welcomed and implemented by the staff members.
Payoff table: A payoff table is a highly useful decision tool and is benefit is that it can be constructed in a flexible manner so that it incorporates the features most relevant to a given instance. In our situation, since the benefits and limitations of each available alternative have been revealed throughout the previous section, the payoff matrix will incorporate financial information, better else said, the financial investment and the financial gain from each possible course of action.
Cost
Gain
Final result
Alternative 1
$14,230,000
$4,500,000
-$9,730,000
Alternative 2
$13,230,000
$4,500,000
-$8,730,000
Alternative 3
$90,000
$500,000
$410,000
Alternative 4
$0
$0
$0
Break even analysis: the breakeven analysis is only applicable in this case for the first alternative, which sees the elimination of the wholesalers and the individual retailers all together. With total costs of $5,990,000, expected revenues of $7,200,000 and a retail price of $300, the company will register a profit of $1,210,000 and will break even once it manages to sell a total of 11,900 rugs and carpets.
3. Recommendation
Strategy: Based n the previous assessment, it becomes obvious that the most suitable solution at this stage does not revolve around the implementation of a direct distribution system. The company does not have sufficient strength to embark in such an endeavor and the costs and risks are too high. However, a change strategy for the overall organizational benefit could be implemented and it is based on the third possible...
This alternative has an additional benefit over the other three for the simple reason that it will generate low levels of employee dissatisfactions. Furthermore, it will allow the Merton Industries to prospect the industry for potential mergers and acquisitions that will further increase its strength.
Action Plan: Since this possibility is only raised during this July meeting, it is recommendable that the first issues associated with this possibility be presented at the future meeting. An actual plan would be available at the second meeting and it would revolve around the following steps:
(1) Assessments of wholesale operations and results
(2) Discussions with wholesale representatives to improve efficiency and reduce operational costs
(3) Allocation of sufficient resources
(4) Implementation of selected measures
(5) Monitorization and control -- the process should be completed within the following six months
Resource allocation: there is a need for an estimated $90,000 to cover for the adherent expenditure; also, the time of six months must also be allocated to ensure real improvements and the adaptation to the new working system; it could also be possible to contract the services of a management consultancy organization to offer their specialized assistance
Pro-forma income statement showing impact of decision: with an investment of $90,000, the distribution process is likely to improve in terms of reduced costs, increased operational efficiency and improved profitability margins and lead to a final net outcome of $410,000
Controls: the control would be ensured by the managers at Merton Industries as well as by the managers at the wholesale centers as the two parties reveal similar objectives in the endeavor. Whenever inconsistencies are observed at any level, the monitoring forces will discuss them and implement the most adequate solutions.
Reference:
Kerin, R.A., Merton Industries -- The Wholesale Distribution Decision, Edwin L. Cox School of Business, Southern Methodist University
