Lawrence Sports is a multi-million dollar corporation that manufactures and distributes sporting equipment for several sports, including basketball, baseball, football, and hockey. Lawrence is in a negative cash flow situation and is experiencing challenges managing their working capital due to delayed payment from customers, inventory demands and payments to suppliers. This has forced Lawrence to utilize short term financing, which is reducing profitability. This paper will discuss three working capital policy’s including a new JIT system, possible restructuring of short term financing, and a modified accounts receivable plan. Finally, a recommendation will be made on which alternative would be most beneficial for all parties involved. The recommendation will include: an implementation plan, a risk evaluation, contingencies based off the risks identified, and performance measures to evaluate the recommendation.
One alternative solution to avoid future problems would be to implement a Just-in-Time Inventory System (JIT.) The simplest way to describe this system is that materials should arrive exactly as they are needed in the production process, no more and no less (Emery, Finnerty, & Stowe, 2007, p. 690.) With JIT, it’s imperative that everyone involved be on the board, starting obviously with the CEO all the way down to the factory workers, as it would involve an entire culture change within these organizations. With this method, Lawrence would only be requesting the products it needs at that time. This would in turn reduce the amount of holding inventory costs, therefore, allowing previous cash that was used for inventory to now be used for account payables. JIT would also give these business partners additional flexibility
A second alternative policy would be for Lawrence Sporting Goods to renegotiate their short term financing interest rate with the bank. This may be a plausible option since lines of credit are usually informal arrangements...