In the wake of e-commerce becoming popular, Curve Distribution has to make a significant decision about serving the new market. On the one hand, almost all necessary facilities for the implementation of the solution are already possessed by the company. However, it is vital to carefully assess the feasibility of the project and whether this venture will be profitable. This report provides details on the assessment and reasoned recommendations for Curve Distribution.
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The analysis was conducted using the provided data on average costs per SKU and initial fees for setting up the VDF process. Potential profits were calculated on a per-month basis for 250 SKUs since the actual sales volumes and order sizes were unknown and were not yet forecasted. Labor costs were estimated at 4400 dollars per month on average. If the company sells 250 SKUs via VDF per month, it will incur a financial loss of 4075.96 in the worst case, where each SKU is sold as a separate transaction with EDI costs of 1.64 dollars each.
There is a minimum number of SKUs that Curve Distribution must sell in order not to incur losses. With a proper management and marketing strategy, this goal is possible to achieve. By reaching a certain number of sales, the company will ensure the profitability of this direct fulfillment channel. Because many retailers today are shifting to e-commerce solutions, it is a necessity to win this market in order to stay competitive and profitable. Therefore, our team recommends pursuing this venture and investing necessary financial and human resources in optimizing processing and delivery methods to decrease costs per packaging and sale.
There were three major issues identified in the process of assessment. The impact of these problems may vary, but mostly, in the long run, they can negatively influence the financial situation of the company. The first issue that needs urgent attention is the fact that there are no forecasts on sales volumes and order sizes. It means that the market has not yet been thoroughly researched, and it is not possible to fully assess whether this market will be profitable in the long run. While current resources at the company’s disposal contribute to the feasibility of this venture, the absence of constant sales will bring financial losses. With sufficient knowledge about the market, Curve could make a targeted approach for promotion from a strategic perspective. This issue is short-term and needs immediate consideration.
There are also long-term issues that may result in tremendous expenditures in the long run. Curve Distribution should develop a way of bringing EDI costs and packaging and labeling expenses to a minimum. While a one-and-a-half-dollar tag per package and transaction may seem inconsiderable, the company will find itself spending millions of dollars only on EDI and packaging. To keep the same profit margins as with regular channels, Curve Distribution may have to increase the prices of SKUs, but it will damage the competitiveness of the company.
These last two issues are long-term and not yet urgent, but Curve should definitely consider solving these problems. Penetrating the market of e-commerce will not only provide an additional sales channel for the company and increase profits but will also give Curve a competitive advantage. Many retailers are turning to alternative solutions that would alleviate their struggles, and the company has all the necessary resources to make this process smooth.