Strategic Supply Chain Management Presto Limited

Currently, the company is manufacturing around a million pieces in a year and the sales revenues per unit area of £6 to £8 (mostly towards the lower side). The total material cost is £0.60 per unit and the manufacturing cost currently is at £2.5. Thus, the total annual cost of manufacturing (manufacturing and material) for 1million pieces is £3,100,000.Currently, the company is manufacturing around a million pieces in a year and the sales revenues per unit area of £6 to £8 (mostly towards the lower side). The total material cost is £0.60 per unit and the manufacturing cost currently is at £2.5. Thus, the total annual cost of manufacturing (manufacturing and material) for 1million pieces is £3,100,000. Following are the calculations of various costs in the present case scenario. The calculations are done for computing the cost of 1million pieces annually. Sales revenues have been calculated at £6 per unit as the actual price that Presto receives is towards the lower of the range mentioned earlier. Inventory costs have been divided into two – capital costs and operational costs. Capital costs have been calculated at 25% of the average inventory held during the year. It has been noted that the company holds inventory of 2 months of average sales volumes and at time 4 months. Thus for calculations, an average of 3 months of inventory has been taken to find the capital cost of inventory. Average 3 month’s sale has been calculated to £150,000 (1mn units apportioned over the entire year) @ £6 revenue per unit. The operational cost of inventory is calculated at £0.10 per unit produced. For calculating the transportation costs, calculations have been done under two different heads. One is the cost involved in convention packing and the other is that for hanging garment style transportation. It has been observed that of the total production on 1million units 35% of the demand was for hanging garment style delivery. This means that 350,000 units were required in this style of delivery and the rest 650,000 units had the conventional packing requirement. As conventionally packed clothes can be delivered in big as well as small trailers each having different pricing, an optimum combination of the two which required minimum costs were calculated.