MBA550r3Wk3ProblemSolution

MBA550r3Wk3ProblemSolution - Lawrence Sports Inc. Running...

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Lawrence Sports Inc. 1 Running head: PROBLEM SOLUTION: LAWRENCE SPORTS INC. Problem Solution: Lawrence Sports Inc. University of Phoenix
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Lawrence Sports Inc. 2 Problem Solution: Lawrence Sports Inc. Lawrence Sports is a $20 million revenue manufacturer and distributor of protective sports gear. Lawrence Sports is receiving material from Gartner Products and Murray Leather Works (MLW). Gartner is a $200 million revenue producer of precision testing equipment, cured leather and fabric for sports accessories and provides Lawrence Sports with 70% of its raw material Lawrence Sports. MLW is a $10 million revenue company and supplies Lawrence Sports with semi-finished leather products accounting for 75% of MLW’s revenue. Lawrence Sports’ primary customer is Mayo Stores and is the world’s leading retailer with nearly 3,000 stores in the US and Canada with operations in South America and Europe. Mayo accounts for 95% of Lawrence Sports’ sales (Apollo, 2004). In recent weeks, Mayo has defaulted on 80% of its outstanding payments and Lawrence Sports suspects payment cannot be expected for two more weeks. Lawrence Sports is forced to negotiate payment deferral to Gartner and MLW as the outstanding loan and interest burden has increased. As the newly hired Financial Manager (FM), this author is tasked with keeping the loan burden minimal, negotiating short-term payment and collection arrangements, and maintaining good relationships with vendors and customers (Apollo, 2004). Lawrence Sports’ problem is defined as: Lawrence Sports needs to implement a cash management strategy that incorporates additional banking solutions to better address short term financing issues and negotiate payment and collection arrangements that promote vendor and customer relations. Lawrence Sports’ end-state goals are as identified in its problem definition. This author used each end-state goal as an umbrella for research topics as follows: 1) Lawrence Sports needs Mayo to pay its debts on time;
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Lawrence Sports Inc. 3 2) Lawrence Sports needs to negotiate fair and acceptable payment arrangements with Gartner and Murray in order to retain key relationships; 3) Lawrence Sports needs to keep the loan burden minimal and identify alternative sources of short term financing solutions; and 4) Lawrence Sports needs to create a successful working cash management strategy and will allow Lawrence Sports to address its issues and opportunities. Situation Analysis Issue and Opportunity Identification “You need to be resolute with the truly delinquent customers, but you do not want to offend the good ones by writing demanding letters just because their check has been delayed in the mail” (Brealey et al, 2005, p. 832). Mayo Stores wants to delay payments on an already overdue account. Mayo has already defaulted on 80% of its outstanding payments. The request to defer payment for an additional two weeks places an undue financial burden on Lawrence Sports. Lawrence Sports would like to defer payment to Gartner and MLW. Based on Mayo’s
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MBA550r3Wk3ProblemSolution - Lawrence Sports Inc. Running...

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