Badm 324 Individual Assignment 3
Throsel-Teskey Drilling
Immediate issue that Alison needs to resolve is to prepare a plan for the CEO to reduce inventory.
Hence, 1. Do a financial (quantitative) analysis of the situation. (10 points) Currently, it has been seven months since the merger with Teskey-Dean which was owned by Jongsma Equity Partners. While sales have increased 40 percent, inventory levels have more than doubled going from $5.990 million to $12.584 million. The merger was supposed to help consolidate purchases from a smaller number of suppliers, but this clearly isn’t working out as planned due to the large inventory levels. The company is dealing with a large increase in demand, and the stakeholders are also pushing for results and answers to the inventory question. In the past, actual drilling supplies accounted for roughly half of the total spend of 25-27 million dollars from 400 suppliers. The goal was to reduce the number of suppliers though within the company and with the merger.
Given the quantitative data in the case, we can take a deeper look at where things are at compared to where they should be. Off first glance, it is obvious that the budget for January – May falls far short of the actual inventory. In fact, there is a 61 percent increase when comparing the Inventory budget for January and the Inventory Actual. This type of increase only continues through May with the gaps getting larger and larger. The increase is so significant that the total comes out to over 110 percent. This time of difference between budget and actual is sure to cause problems, and definitely has not been a benefit to the merger. Another important analysis that we need to look into is how sales factor in. So what do the sales look like when compared to the two types of inventory? Well, in January, sales make up nearly 48 percent of actual inventory. This is