Lawrence Sports Problem Solution

Running head: PROBLEM SOLUTION: LAWRENCE SPORTS INC.

Problem Solution: Lawrence Sports Inc.

Karen M. Isabella

University of Phoenix

MBA550/Resource Optimization

February 10, 2008

Problem Solution: Lawrence Sports Inc.

The financial officer of a company must maintain the cash budget in order to keep the profits steady. Analyzing cash budgets on a regular basis is the key, especially in the case of Lawrence Sports, Inc. (LS). The main problem is LS has relied on one customer for its profits and this one customer has defaulted on 80% of its payments, causing LS to delay payments to its suppliers. In the following paragraphs, the decision for LS to enforce capital/collection policies will be discussed, along with the creation of a new method of production, development of new products by the Research and Development team (R&D), and the need for finding new customers by the Marketing team will be explored. The issues that have occurred and opportunities available will be discussed. There will be a review of the stakeholders, how this plan has affected them and what ethical dilemmas there may be regarding them. Next, the problem will be reviewed, along with the end vision for the company, and the alternative solutions with the risks associated with them will be explored. The final optimal solution will be discussed along with how the plan will be implemented and how the results will be evaluated.

Situation Analysis

Issue and Opportunity Identification

“Lawrence Sports (LS) is a $20 million revenue company that manufacturers and distributes equipment and protective gear for baseball, football, basketball, and volleyball,” (Simulation, 2007). 90% of its customers solely come from Mayo Stores. LS receive its supplies from two main manufacturers: Gartner Products and Murray Leather Works. When looking at the working capital of the company, LS has a continuous unbalanced cash flow due to Mayo Stores not making their payments on time. This has led to a delay in payments to the suppliers and having to turn to the bank for loans.

To improve the cash flow for LS, the financial manager will need to develop a cash budget that will improve the available cash for the company. Setting up capital policies that enforce Mayo to pay would be one method. They could offer a cash discount - 8/10 net 60 cash discount to Mayo in an attempt to encourage them to pay on time. Another major issue to be concerned about is making payments on time, especially to Murray Leather Works. They are a smaller company and rely on LS for funds. The business relationship that has been created is one LS needs to keep. Third, the cash outflow is greater than the inflow at this time for LS. To keep the cash outflow down, LS could look at changing to a just-in-time approach. This would keep the inventory and cost of supplies down. Once, cash availability improves, LS could invest the money into research and development for newer products and marketing to find other customers so they do not rely so heavily on Mayo Stores for the majority of their income. Plus, they could set up a sweep program with the bank to help with investment.

Stakeholder Perspectives/Ethical Dilemmas

Since LS has fallen into a situation where the cash inflow and outflows are not balancing, LS may need to make changes to their capital policies. The problem with this is if Lawrence wants to change their policies to include penalties for late payments, they could lose Mayo Stores as their primary customer. LS will need to take time to adding new policies because they have developed a loyal and reliable business relationship with Mayo. Communication is the key in making sure relationships remain secure.

The other ethical dilemma that could occur is if LS decides to change to a justin-time approach. The suppliers have relied on LS for purchasing of material in volumes. If LS lowers the volume of supplies purchased, they could decide not to do business with LS. Whatever LS decides, they will need to treat both vendors the same, or they will run into a bias situation that could cause further problems. Once again, communication will play a huge part if LS decides to make this change. The chance of LS having to find another vendor that would be willing to work with them is always a possibility.

Problem Statement

Lawrence Sports will maintain a positive working relationship with its customers and