Unformatted text preview: 7,200,000 $ - $ 1,890,000
$ 6,815,000 $ - $ $ 385,000 Obviously, discontinuing the Golf Department will not help the overall situation. The reallocation of
unavoidable costs not only reduces overall profitability, but it also paints the Camping Department
in a precarious light. Further, this analysis does not take into account potential sales reductions in
other departments that might occur from reductions in overall store traffic (e.g., a “golfing only”
customer might nevertheless buy an occasional flashlight from the camping department, etc.).
Another factor not included above are the incremental costs from closing a department (e.g.,
inventory write-offs, increased unemployment compensation costs for laid off workers, etc.). As you
can see, the decision to discontinue a product, department, or project is far more complex than it
might at first seem. 2.9 The 80/20 Concept
Many businesses have broad product lines and large customer bases. However, an in-depth
evaluation is likely to reveal that a significant portion of its success is centered around a narrow set
of products, customers, and services. The remainder of the business activity may be very marginal.
For example, a technology-based business may find that some of its lowest-volume customers
consume the largest amount of the tech support staff’s time (due to customer inexperience with the
product) while the large volume customers require almost no assistance with the company’s
It requires a great deal of business discipline to “abandon” a product, customer, or service, but such
decisions can actually contribute to business success. Consider the following quote from ITW, a
large and successful corporation that embraces the 80/20 concept:
Download free ebooks at bookboon.com
18 Business Decision Logic Analytics for Managerial Decision Making “A key element of the Company’s business strategy is its continuous 80/20 business process for
both existing bus...
View Full Document