Economics
Jim Hargrove, CEO
Excess inventory
Neptune has over 60 days' worth of inventory and is faced with some interesting solutions to address this issue. This memo will analyze the issue and the proposals put forth by the management team. The memo will conclude with a recommendation for action.
New fishing rules and new technology investments have allowed Neptune to take bigger catches. Despite record sales, the company is still accumulating inventory. There are two proposals on the table for addressing the inventory issue: launching a budget brand and decreasing fleet size.
Analysis of Underlying Issues: The solution should reflect the underlying problem. The company has increased its fleet with new additions. This increase in capacity is permanent. The government's new regulations are also pushing us into richer fishing grounds, again representing a permanent increase in capacity. Other firms in the industry are also facing a long-term increase in capacity.
Recommendation: The company should decrease the size of its fleet, rather than launching a budget brand. A price war is not sustainable and there is no evidence to support that price reductions will dramatically increase consumption, particularly if those reductions are matched by other firms within the industry.
Supporting Documentation.
The two main factors affecting supply have both been discussed. Each of these factors can be considered to be a long-run issue, and will be shared by other firms within the industry. The industry is characterized by monopolistic competition, so the price is expected to decrease somewhat, to a new equilibrium point. In order to maintain a higher price, the industry as a whole must cut production. Demand is impacted in part by the price of fish, but also in part by the desirability of fish products in...
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