Manufacturing for Bravado in Mexican Company

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Table of Contents

Financial relations
Industrial impact
Inventory
Impact of exchange rate fluctuations
Office building rental
Reference

Before	After	Impact
Manufacturing for Bravado was done in Canada.	Manufacturing was outsourced to a Mexican company.	Manufacturing in Mexico is cheaper than in Canada. This is especially due to the low labor cost in Mexico. This move has helped to reduce Bravados cost of goods sold therefore expanding their gross profit margin.
Payment for materials was made six months before delivery.	Bravado negotiated 30-day contracts with the Mexican companies. Payment is now done after the work is complete.	Prepayments usually hold up a lot of working capital. Negotiating the 30-day contracts frees up 5 months worth of working capital. This can be reinvested in short-term projects to earn Bravado a profit.
Bravado purchased raw materials in advance and stored them in their offices until the demand for them arose.	Bravado does not purchase any raw materials. The Mexican companies handle that part of the supply chain. However, Bravado now purchases the finished garments at $6 each from the Mexican companies.	Inventory is costly to maintain. Eliminating the storage of materials reduces the risk of obsolescence, theft, and pilferage and insurance payments on the materials. The space set aside for materials storage can be put into a different use.
Bravado staff checked raw materials for quality before receiving them to the store. They also checked the finished garments from the factories.	There is only one quality checkpoint after the garments leave the factory.	This change has reduced the amount of time spent on quality control.

Financial relations

A financial relationship is still necessary at Bravado. This is because banks can be a good source of short term financial assistance. Bravado might need to call upon their help at some point. Thus, it is necessary to maintain good credit ratings. However, for their long term investments, equity finance is the best option for Bravado (Scarborough, Wilson, & Zimmerer, 2009). This is because no regular interest payments are required by equity holders. Debt finance has to be paid back at regular intervals and with an interest. These conditions may prove difficult to meet for a firm that has barely started breaking even. Bravado can also regulate how much equity finance they would like to raise as opposed to debt finance which is at the discretion of the owner who decides how much to grant.

Industrial impact

Manufacturing clout means influencing the manufacturer. This comes with the size of purchases made by these manufacturers. Bravado uses the same manufacturer with well-known brands such as Victoria Secrets and La Perla. The two major brands have more negotiating power with the manufacturer than Bravado. This is the reason why Bravado says they have not much manufacturing clout. Economies of scale are the benefits attained by operating on a large scale. In Bravados case, it would refer to benefits attained from large scale manufacturing in Mexico. These benefits would include lower costs of production and high quality of goods due to efficiency in manufacturing. These are the benefits that From is out to exploit.

Inventory

Nordstrom says that the inventory is centralized (Scarborough, Wilson, & Zimmerer, 2009). This means that the entire inventory is found at one location. This is in the case of online stores where virtual stores have unlimited space in which to display their inventory. They can place pictures of all kinds of lingerie on their websites for customers to see. This is unlike normal stores where display space is limited. This can be an advantage to Bravado since customers can easily view their products if they search the website. However, competition with other brands displayed in the same online store is quite high.

Impact of exchange rate fluctuations

The impact of fluctuating currency exchange rates on Bravado is not surprising. Foreign exchange risk is one of the major risks facing businesses in todays globalized world. Bravado cannot eliminate this risk as they are an export company. However, there are a few ways to minimize their exposure. The best way would be to invoice their foreign customers in home currency. Customers would be persuaded to pay in Canadian dollars. This transfers the foreign currency risk to the customers completely. Any change in exchange rates would have no impact on Bravado (Scarborough, Wilson, & Zimmerer, 2009). The second option is to negotiate currency forwards and futures with their bank. This way, Bravado can hedge against the risk of foreign currency risk and minimize the risk of loss. Finally, Bravado can purchase currency options that allow them to buy or sell foreign currency at a pre-determined amount in the future.

Office building rental

Kathyrn can convert the former materials store to an office block and let it out. This would be a good source of extra finance. She can also consider setting up a factory in the US where most of her sales are made. This expansion into a foreign market would require a huge initial capital outlay. Kathyrn could consider making franchising deals. This way, she would be assured of regular income from the franchisees. She could also make licensing deals. These are the easiest ways for her to enter the American market using minimum capital outlay.

Reference

Scarborough, Wilson, & Zimmerer. (2009). Effective Small Business Management: An Entrepreneurial Approach. Chicago: Pearson Prentice Hall.

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Manufacturing for Bravado in Mexican Company

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