Josh Denims

Executive Summary

With the new policy change of JOSH Denims, RDS is going to operate at a profit of Rs.18000 less than its previous profit but with the same remuneration of Rs.60000 per month. Also, the complexity of work is going to increase.

RDS can renegotiate now or after the end of the contract period to increase the remuneration to Rs.78000. It can also consider quitting the business association with JOSH.

After analysing how these options effect the firm’s Market reputation, work and financial stability and learning opportunities it provides, it is recommended that RDS renegotiate after the end of contract 

* Number of words: 98

Table of Contents

Situation Analysis        

Problem Statement        

Options        

Criteria for Evaluation        

Evaluation of Options        

Recommendation        

Action Plan        

Exhibits        

Exhibit 1        

Exhibit 2        

Exhibit 3        

Situation Analysis

Since April 1998, Logistics Solution has been handling the C&FA operations of JOSH Denims through its agency Raj Distribution Services (RDS). The business has added value to the reputation of Logistics Solution. It has provided an opportunity for Amit and Akhilesh to gain experience in handling the financial aspects of a business, the skill they were specialised in. Thus, the business is providing value in many ways.

The terms and conditions of the contract would be periodically reviewed every two years. Until July 1999, in the existing terms, the supply chain had JOSH Denims, RDS, Distributors and Retailers in order. The remuneration of RDS is fixed at Rs.60000 per month. The job profile of RDS was well defined and was operating at a profit of Rs.25400 per month (exhibit 1) in this policy.

In July 1999, JOSH Denims made a policy change by eliminating the distributors from the supply chain without any change in the remuneration of RDS. This would increase the complexity in the work done by RDS and would require additional 4 personnel (explained in exhibit 1) and an additional operating cost of Rs.17000 per month (exhibit 1). This would decrease the profit of RDS to Rs.8400 per month (exhibit 1). However, the profit of JOSH would be increased by Rs.148000 month (exhibit 1).

In the earlier policy, RDS had been distributing 250 cases each to 10 distributors who in turn would supply to 180 retailers. In the new policy, RDS should take care of the supply chain link from JOSH to 180 retailers directly. This would involve additional repackaging activity of 2500 cases into 3600 cartons initially done by distributors. This repackaging activity was not in the job profile of RDS described in the initial contract.

Problem Statement

RDS is going to incur a monthly profit decrease of Rs.17000 & high work complexity with the same monthly remuneration of Rs.60000 because of the new policy change by JOSH. The necessary action to address this is to be discussed.

Options

The various options considered are

1. Renegotiate remuneration with JOSH now to compensate for the additional operating cost of Rs.17000 per month
2. Renegotiate remuneration with JOSH after 9 months to compensate for the additional operating cost of Rs.17000 per month for the subsequent periods of contract
3. Quitting the business association with JOSH

Criteria for Evaluation

The criteria for evaluation in the decreasing order of preferences are

1. Maintain the Market reputation of ‘Logistics Solutions’
2. Ensure the work and financial stability of the firm
3. Provide Learning opportunities to the future executives

Evaluation of Options

1. Renegotiate remuneration with JOSH now

• Maintain the Market reputation of ‘Logistics Solutions’:

Since JOSH had already breached the contract by changing the policy before the end of contract period, renegotiating now might be a good option. But this option may lead to loss of trust with JOSH. Consequently, JOSH might go for other service providers who have been constantly looking for an opportunity to get the contract with them and RDS might lose the contract.

Though the terms of the contract has been breached by JOSH, renegotiating with them before the contract period (2 years) would disrupt the image of the firm.

• Ensure the work and Financial Stability of the firm:

Renegotiating now would help RDS in increasing the remuneration by Rs.17000 per month to compensate for the additional costs incurred in adopting the new policy.

It thus would help in maintaining the balance between the amount of work and the remuneration.

• Provide Learning opportunities to the future executives:

This option may lead to termination of the contract. In this condition, it would stop providing the learning opportunity it has been providing so far. However, if the negotiation is approved by JOSH and the contract is continued, it would continue to provide the learning opportunities.

1. Renegotiate remuneration with JOSH after 9 months

• Maintain the Market reputation of ‘Logistics Solutions’:

It would prove that RDS is adaptable to new changes thereby increasing its market reputation.

Though JOSH breached the contract before its term, continuing with the work till the end of contract period would enhance the image and values of the firm in a positive manner.

• Sustain the work and Financial Stability of the firm:

Continuing with the contract till the end of term would not provide the same profit as before for the next 9 months.

Also, the work done by RDS would be more complex and the remuneration provided for the same would not be the right compensation.