Wilson Wheels Case Study

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Wilson Wheels Case Study

Wilson Wheels Case Study

        

Operating for almost 40 years, Wilson Wheels Company had established itself in the independent bicycle market with competitive quality and price. As the Marketing Vice President of Wilson Wheels, Mary Smith was approached with an opportunity to expand the company into discount department stores in the Northwest. Jim Jones, a buyer from BigBox Stores, Inc, expressed interest in partnering with Ms. Smith, to create a private-label bike for its stores. Alongside this interest, Jones proposed three features to alleviate potential risk from the BigBox standpoint. These features include: approximately 25,000 bikes a year of inventory from Wilson to cover projected sales, which would fall under FOB shipping guidelines; a house-brand bicycle named “Lightning” sold at a lower price than name-brand bicycles, and a different appearance for “Lightning” branded merchandise. To evaluate this proposal, Ms. Smith must consider the financial impacts this new opportunity would have on Wilson’s purchasing, inventory, and production costs. If the proposal is accepted, Wilson is projected to lose about 3,300 units of regular sales volume. If the deal is rejected, Wilson could continue to see declining sales in a poor economy. Despite sales reaching over $10 million in 1993, Wilson Wheels was not considered a top of the line product and was experiencing declining revenues each year.  This has left Ms. Smith with two options, accept the deal or reject the deal.
        There are many added benefits should Wilson Wheels choose to accept BigBox’s deal. First, Wilson was operating its plant at about 75% of one shift capacity, thus indicating that there is available room for more production and thus increased sales.  Projected sales over the next 3 years is about 100,000 bikes a year.  Wilson projects that by taking the deal, there would be additional sales of 25,000 bikes per year.  Based on last year’s sales of 98,791 units, if Wilson capitalizes on their one-shift production capacity and increases utilization to 100% they would be able to produce 131,721 units (Exhibit E). Based on these projections, Wilson has the ability to fulfill BigBox’s order by running their shift at optimal level (100%) without additional production overhead.