Essays24.com - Term Papers and Free Essays
Search

Problem Solution- Lawrence Sports

Essay by   •  January 22, 2011  •  3,072 Words (13 Pages)  •  1,341 Views

Essay Preview: Problem Solution- Lawrence Sports

Report this essay
Page 1 of 13

Running head: PROBLEM SOLUTION: LAWRENCE SPORTS INC.

Problem Solution: Lawrence Sports Inc.

Melissa Garrett

University of Phoenix

Problem Solution: Lawrence Sports Inc.

Lawrence Sports Inc. is a major supplier of sports equipment and protective gear. Recently, they have faced several issues that have created a sort of crisis within the company. One retailer, Mayo, is responsible for the bulk of Lawrence’s commercial sales. Mayo encountered internal accounting issues that have led to their inability to pay Lawrence in the agreed manner. This unexpected slow in incoming cash flow has been complicated even further by an unexpected damaged shipment of goods. This damaged shipment resulted in Lawrence terminating their contract with the transporting company; this came with a cost of $250,000. Despite the extra expense, Lawrence will still have to find a way to cover expenses to their two vendors: Murray and Gartner. They have reached the maximum of their borrowing from the bank in the amount of $1.2 million. Cash will have to be rerouted from other assets to cover expenses and the debt from Mayo will have to be satisfied.

This problem will be evaluated and solved while keeping in mind the stakeholders in the scenario and their interests. Relationships with vendors and clients must be maintained. Also analyzed will be possible risks and ways to mitigate them in the optimal and alternative solutions. Finally, an implementation plan and evaluation methods will be established for the optimal solution. This in-depth analysis of the problem and its solution will provide Lawrence Sports with a plan of attack for their financial issues.

Situation Analysis

Issue and Opportunity Identification

There are four major issues that have created the situation at Lawrence sports. These issues are both internal and external factors that have all contributed to the ultimate problem within the company. The first issue is related to the optimal use of cash. Lawrence is in desperate need to redirect cash flow from on area to another to cover for the detriment. This detriment was caused in part by the inability of Mayo to pay as promised and made more complex by the unexpected damage of goods delivered. They have an opportunity to reassess their cash flow and allocation. The second issue is the risk of incurring debt that will do irrevocable damage to the company. Solutions for the issues will have to incorporate risk management to attempt to mitigate this damage. Another issue that has contributed to the problem is the balance of collecting and distributing cash. Lawrence owes a debt to their vendors and is owed a debt by their client. This two-way transaction must be managed to keep the cash flow balanced. They have an opportunity to develop a strategy to negotiate the satisfaction of both accounts to minimize damage and optimize their cash flow. The final issue that will be examined for this study is the issue with the debt management. Bank lending has reached its maximum at $1.2 million. It is not possible to borrow more and this debt must be satisfied quickly to reduce the amount that will have to be allocated to cover the growing expense of interest. Lawrence must take this debt as a priority to settle to minimize the possibility of hurting their credit standing and increasing their debt to income ratio.

Stakeholder Perspectives/Ethical Dilemmas

The first stakeholder in this scenario is Mayo, Lawrence’s largest commercial distributor that has defaulted on 80% of the amount they owe Lawrence. Mayo’s primary interest is to satisfy their debt to Lawrence while still managing to satisfy their internal operating capital needs. They have an ethical and legal responsibility to pay the debt however, Lawrence must treat them in a manner that will preserve the working relationship.

At the other end of the perspective are the two vendors that Lawrence relies on for their supplies. Both Gartner and Murray expect to be paid by Lawrence for the materials they have already provided. Gartner is rigid in their collection policies; it is not likely they will tolerate much change in the agreed payment plan. Murray will be much more forgiving however, their internal finances will not allow for much shift in payment as Lawrence provides 75% of their sales. Lawrence has a responsibility to satisfy these debts while still maintaining their operational minimum. It will be a challenge to maintain healthy working and financial relationships with both vendors while extended leniency to Mayo as well.

Problem Statement

Lawrence Sports will successfully optimize their cash flow on both accounts payable and accounts receivable by managing their debt and planning for possible contingencies.

End-State Vision

Lawrence Sports will maintain and improve their reputation as a solid investment and credit lending opportunity as the company builds strong relationships with vendors. We will also consistently treat our clients with respect and understanding in all disputes and commit to building solutions that will benefit all involved. The flow of resources with Lawrence will be optimized and risks will be managed with carefully planned mitigation techniques. These goals will facilitate the continued growth of the Lawrence Sports Corporation.

Alternative Solutions

One major problem with Lawrence Sports is their credit lending policies. JP Morgan set a very successful credit lending policy that minimized risk and optimized the profits. JP assessed the risk of these credit lending issues on several different figures. The first was to estimate the probability of a commercial client defaulting on a loan. The next was the exposure to risk that would occur in the case of the default and the third was to assess the severity of the loss that might occur. These factors were then aligned with market factors for the related industry and JP Morgan Chase was able to derive expected and unexpected losses for each part of the industry. Expected losses were able to be applied into the financial plan for the future of the company. By understanding the losses that will likely occur, JP can set into motion risk management techniques that will minimize the damage of these losses. The costs of these can be incorporated into standard business costs and the price of daily operation. Unexpected losses were developed to try to predict

...

...

Download as:   txt (20.7 Kb)   pdf (212.2 Kb)   docx (17.2 Kb)  
Continue for 12 more pages »
Only available on Essays24.com
Citation Generator

(2011, 01). Problem Solution- Lawrence Sports. Essays24.com. Retrieved 01, 2011, from https://www.essays24.com/essay/Problem-Solution-Lawrence-Sports/30301.html

"Problem Solution- Lawrence Sports" Essays24.com. 01 2011. 2011. 01 2011 <https://www.essays24.com/essay/Problem-Solution-Lawrence-Sports/30301.html>.

"Problem Solution- Lawrence Sports." Essays24.com. Essays24.com, 01 2011. Web. 01 2011. <https://www.essays24.com/essay/Problem-Solution-Lawrence-Sports/30301.html>.

"Problem Solution- Lawrence Sports." Essays24.com. 01, 2011. Accessed 01, 2011. https://www.essays24.com/essay/Problem-Solution-Lawrence-Sports/30301.html.