Blue Ridge Manufacturing: Case Study
Type of cost system Blue Ridge uses, and whether it’s consistent with their strategy
Blue Ridge uses activity-based costing (ABC) in determining unit costs of its diverse products. ABC is a costing system that enables an organization to allocate resources to diverse activities and assessing value of outputs to establish the degree of profitability. In the case study, Blue Ridge evaluates costs associated with small-, medium-, and large-sized customers, manufacturing of lines and units, marketing activities, and administrative duties. With ABC, Blue Ridge is able to determine the profitability of each product unit, line, customer base, and administrative sections.
ABC is consistent with the Blue Ridge’s strategy of cost leadership. The analysis of the case study shows that Blue Ridge employs cost leadership strategy in reducing manufacturing costs and increasing profits from its sales. Since Blue Ridge utilizes differentiation in improving quality of products and coming up with new inventions, it employs the ABC system in establishing profitable products. In this view, the cost leadership strategy enables the company to implement the ABC system and identify profitable products and customer segments.
The most important in analyzing the data (product or customer)
I would consider analyzing data of customers as the most important consideration for Blue Ridge. Since the company has differentiated its products, analysis of the customer segments would provide critical information for improving sales and marketing activities. The analysis of the customer base of Blue Ridge shows that it has classified them into small, medium, and large segments. With 986 customers from different target markets, the management established that the majority are in the small segment (824) followed by the medium segment (154), and the large segment (8). By focusing on customers, the company can differentiate its products to match consumer needs, maintain and expand market share, and drive innovations. The manufacturing activities of product design, quality improvement, and the advancement processes are dependent on consumer needs. In essence, the analysis of consumer data enables the company to generate products that meet the dynamic and diverse needs of customers in various market segments.
Which segment should be given more resources and which segment should be eliminated or reduced and why?
A comparative analysis of the number of customers and the amount of sales shows that the large market segment requires expansion. This market segment comprises 8 customers operating as national chains. Despite having the lowest number of customers (8) large market segment generates sales units that are comparable to those of the small market segment with 824 customers. The analysis of sales shows that the large market segment made 147 shipments and generated $308,762 sales volume, while the small market segment made 5431 deliveries and created $38,024 sales volume. These comparisons imply that expansion of the large market segment would increase sales and profitability of the company.
Further comparison of markets reveals that the segment that needs reduction is the small segment. As this market segment consists of single store operations (824), it has saturated the market and stagnated in its growth. Moreover, the small market segment mainly focuses on hand towels and records minimal sales in regular and medium-sized towels. The small market segment has the highest number of accounts with balances in over 60 days (122), making it unprofitable.
Given the activities, which ones should be collapsed together?
I would merge some activities that relate to sales, shipping, and marketing sections. To streamline sales activities, I would merge entering purchase orders, commissions, calls, and customer types. Logistics activities of shipping, cataloging, charging, distributing, and marketing need merging to reduce costs and improve efficiency. Marketing activities of advertising and administrative support need integration to enhance the promotion of products. For the company to generate innovative products, it should incorporate activities of research and development, product design, and manufacturing process.