Discuss at least three alternative working capital policies that reduce future difficulties, and make a recommendation on which policy Lawrence Sports should follow. Your recommendation must include:
Disclose LS bank balances at borrowing balances at the end of the simulation
An evaluation of the risk associated with the recommendation
Contingencies for the recommendation
Performance measures that are used to evaluate your recommendation
An implementation plan for your recommendation
Resource: The Lawrence Sports Simulation
Please refer to the attached file for the response.
LAWRENCE SPORTS: TOWARDS AN IMPROVED WORKING CAPITAL POSITION
What working capital policies and strategies may be implemented by Lawrence sports to improve its working capital position?
How may LS decide on the trade off between maintaining a good relationship with its business partners and catering to its working capital needs?
Point of view
Working capital management starting 1st week of April
Areas of Consideration
1. Lawrence Sports as a company. LS has established its name in the industry as a world's leading retailer of protective gears needed in various major sports. As such, it has built its name in the business as well as in the contribution of its products in the field of sports. This, however, is not done directly but through its principal customer, Mayo Store.
2. LS Marketing position. The company is too much dependent on its principal customer, Mayo store which is contributing 95% of LS total sales. This is a very risky situation on the part of LS. Aside from its low degree of bargaining power with Mayo, it seems that the whole LS Business relies on the said company. Once the marketing relationship with Mayo fails, LS would fail too.
3. Suppliers of Materials. There are two business partners here - Gartner and Murray. Of the company's raw material needs, 70% come from Gartner. While Gartner is a major supplier to LS, Gartner does not depend on LS as a major customer. This situation aggravates the risk assumed by LS. Aside from a restricted bargaining power with Gartner, LS is too much dependent on Gartner such that if Gartner's business fails, LS may also fail.
In the case of Murray, another partner in ...
Working capital policies alternatives are examined.