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Class Exercise For Chapter 3

The document discusses two expansion options for BG Falcons, a retail company. The first option involves partnering with a logistics company and developing an integrated inventory/distribution system at a cost of $20M initially and $2M annually. The second option involves investing $50M in warehouses and developing their own inventory system at a cost of $20M initially and $2M annually. Both options expect $100M in additional annual sales and profits of $10M or $20M respectively. A 5-year business case is to be developed to analyze the options.

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Aparna Singh
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38 views2 pages

Class Exercise For Chapter 3

The document discusses two expansion options for BG Falcons, a retail company. The first option involves partnering with a logistics company and developing an integrated inventory/distribution system at a cost of $20M initially and $2M annually. The second option involves investing $50M in warehouses and developing their own inventory system at a cost of $20M initially and $2M annually. Both options expect $100M in additional annual sales and profits of $10M or $20M respectively. A 5-year business case is to be developed to analyze the options.

Uploaded by

Aparna Singh
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
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BG Falcons

The BG Mail Order has grown into a successful retail company on the web serving mostly Ohio,
Michigan and Indiana. Its current annual sales revenues are $100 Million with annual profit of $20 Million.
BG Falcons has plans to expand in the Midwest USA but it needs many warehouses and distribution centers to
achieve this goal. BG Falcons decides to get into a strategic agreement with United Carriers (UC), an upcoming
logistics company to distribute and even hold temporary inventory in UC’s facilities. Before the strategy can be
implemented, BG Falcons needs an information system integrated with the distribution system. The integrated
system would have decision models to hold optimal inventory in various warehouses and minimize the
distribution costs. At the same time, it proposes to deliver items in 3 days as standard delivery and one day as
expedited service. The system is expected to cost about $20 Million to develop and $2 Million annually to
maintain and operate. It will take one year to develop and implement the system. After providing for profit
sharing with UC, BG Falcons hopes to have an additional annual sales of $100 Million and additional annual
profit of $10 Million.
Alternatively, BG Falcons would have to make an investment of $50 Million in warehouses throughout
the Midwest USA, and use common carriers such as UPS and FedEx to deliver the goods. It still needs its own
information system to manage inventory in multiple warehouses and distribution. The information system
would cost about $20 Million to develop and $2 Million annually to maintain and operate. With this
arrangement, BG Falcons expects to have an additional annual sales of $100 Million and additional annual
profit of $20 Million. It will take one year to develop and implement the system. The warehouses can be
constructed while the system is being developed.
Develop a business case for the above scenario. Any one of the above projects will last for 5 years.
Business Case for BG Falcons
1.0 Introduction/ Background

2.0 Business Objective

3.0 Current Situation and Problem/Opportunity Statement

4.0 Critical Assumption and Constraints

.
5.0 Analysis of Option and Recommendation

6.0 Preliminary Project Requirements

7.0 Budget Estimate and Financial Analysis


8.0 Schedule Estimate

9.0 Potential Risks

10.0 Exhibits
Exhibit A: Financial Analysis

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