The Perfect Fit

Imagine you are a buyer for a market leading tennis shoe company “The Perfect Fit” (TPF). TPF is an online store that allows customers to create an account for free which unlocks the ability to create multiple styles, designs, colors and so on, of any type of tennis shoe you can imagine.

You are TPF’s buyer of white shoelaces and your company currently sources white shoelaces from “Crazy Lace”. Crazy Lace has been working with TPF for nearly 5 years and has shown positive improvements through their timeliness of orders, improved quality and overall account representation communication when any issues arise.

However, because Crazy Lace is a relatively new and upcoming business, the company is increasing prices to help build capital and invest in better quality raw materials for their laces. TPF’s current price per lace from Crazy Lace is $0.11 cents. Crazy Lace is raising their price to $0.12 cents per lace.

As buyer of the laces, it is your decision to decide whether or not TPF will accept the $0.01 cent increase from the supplier. With the industry standard for the price of laces at $0.13, you should analyze Crazy Lace’s costs and overall performance. You do know that $.01 of Crazy Lace’s price is manufacturing overhead which consolidates machine and other related costs. Your typical rule of thumb is to continue working with good suppliers when their price markups are 50% or lower.

Should you not accept the price increase additional costs will be incurred to either negotiate with Crazy Lace for a lower price over a committed order quantity or through a thorough evaluation of alternative suppliers and their costs.

Below are Crazy Lace’s attributable costs to white shoelace production:

Raw Materials: Machine Costs: –

• Cotton/lace = $0.02 – Braider Machine Cost = $20,000
• Polyester/lace = $0.01 – Acetone & Plastic Machine Cost = $7,000
• Nylon/ lace = $0.02 – Braider Machine Batch Setup Cost = $300
• Plastic/ lace = $0.01 – 50 laces/batch
• Acetone/lace = $0.01 – 8 batches per day

Other Related Costs:

• Factory Worker @ Braider Station:
  • 50 laces/hour
  • $8.00/hour pay @ 8 hour shifts
  • Works 5 days a week for 50 weeks

Will you accept Crazy Lace’s price increase or will you negotiate and/or look for alternative suppliers? Perform a cost analysis on the margin and markup of Crazy Lace’s current and increased prices per each pair of white shoelaces. Also, explain why, or why not, you as a buyer would decide to accept or decline the price increase detailing how you would proceed moving forward.

Flag this QuestionQuestion 14 pts

In percentage form and calculated to two decimal places, what is Crazy Lace’s old margin on white shoelaces sold to TPF before the price increase.

Flag this QuestionQuestion 24 pts

In percentage form and calculated to two decimal places, what is Crazy Lace’s old markup on white shoelaces sold to TPF before the price increase.

Flag this QuestionQuestion 34 pts

In percentage form and calculated to two decimal places, what is Crazy Lace’s new margin on white shoelaces sold to TPF after the price increase.

Flag this QuestionQuestion 44 pts

In percentage form and calculated to two decimal places, what is Crazy Lace’s new markup on white shoelaces sold to TPF after the price increase.

Flag this QuestionQuestion 59 pts

Based on the scenario provided, detail whether or not TPF should accept the proposed price increase from Crazy Lace. Support your opinion with at least 3 solid reasons.