F292 2014 Case study Analysis- All About the Baby(AAB)- Possible Questions

This is a short analysis of the case study All About the Baby(AAB) for June 2014- with some possible questions that could possibly come up based on previous years question- the questions are analysed in points that you should expand on during the exam!


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Preview of F292 2014 Case study Analysis- All About the Baby(AAB)- Possible Questions

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OCR Business Studies F292- Case Study All About the Baby(AAB) 2014
Case study Review:
Operations points:
Just in Time/Stock control
Just in time could work for the warehouse to the stores, but maybe not for the
manufacturers to the warehouse from the far east.
Good if there is a good relationship with suppliers
Stock Control
Att he moment works well with distribution from the manufacturer to UK (less lead time, less
number of transport suppliers).
Clearly have a system where orders can be placed in advance based on demand.
Could have been human error, wrong reorder levels. Wrong codes being entered.
Barcode scanner could solve this if human error (transcription / keypunch error)
Could be a communication error
Competitors/distribution partners:
Is it a good idea to have 200 independent retailers stocking their products?
o Access to customers?
o May be more expensive to stock if kept in their own stores ­ however, by selling to
other stockists, this saves them storage costs, and allows more brand awareness.
o If stockists are selling, then AAB are no longer responsible, so the onus is on the
o It does seem to be of bigger benefit selling to so many stockists, because they
enable much higher sales, they don't have any of the overheads to run the shops,
and therefore get economies of scale.
Analysis: Unit costs were LOWER in the previous year, which led to BETTER gross profit.
Why were they higher this year?
New investment in distribution depot will have increased some of these costs
Increased material and production costs
Some products that aren't selling well may be increasing overall unit costs as well??
Turnover up by 7.3%
o Increasing awareness
o More products
o More stores selling products
o Increasing market share?

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Cost of sales up by 12.7%
o Increasing material costs (see other notes regarding logistics etc)
Gross profit ­ down by 0.2%
o Not doing so well compared to previous year
o Up by 13.8%
Operating profit ­ down by 111.7%
o Currently £10 million Net Current Assets ­ if inventory sells well. If not, then they will
have a shortfall.
o Last year (2012) Net current assets was just under £5,712 million ­ so liquidity has
improved this year.…read more

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Loss Leader Strategy ­ Sell some products below cost (at a loss) in order to attract customers for
others. Possibly the cheaper mattresses, or some of the other products?
Penetration pricing for New Mattress (or at least an introductory price)
Which products from the list need to be removed?
Possible questions:
These Questions are all analysed in further detail later on in this pack...
1. Discuss the factors which AAB might consider in responding to their distribution
system issues.
2.…read more

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Distance they travel
o AAB have a complicated process in developing their product, which takes time and
money to transport between locations. It seems inefficient to send products to the
UK to be repackaged when they could be packaged prior to sending. This has caused
AAB to have significant increases in costs this year, along with increases in material
costs. Any reduction in these costs would be beneficial for them.…read more

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What strategy to take?
o Psychological?
o Cost plus?
o Premium
Price Elasticity
Demand for product
Price charged ­ reasonable? Monopoly for that product
Always in stock
Improve delivery (logistics)
Only location in which product is sold
Advertising on the line
Brand loyalty ­ trademark product
Brand awareness
Promotions ­ offers ­ 50%
Refer to features of product as USP (recycled, fibre, healthy )
Unique product (healthy, blah blah blah)
Healthy for the baby
Recycled materials (Environmentally friendly)
Q3) Discuss…read more

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Price increases (or decreases ­ depending on Elasticity of demand)
Costs: Reduce ­ Overheads or Direct costs
Spend money on promotion ­ increase overheads in order to sell more (needs to be
effective advertising).…read more

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Having so much to be incharge of hinders ability to do normal day to day activities
Possibly having large span of control
Could have delegated to managers below him to relieve the task
Could have split the Logistics & IT role to enable future IT/Logistics development and
expansion (Val Hainey could possibly take on some of this role? ­ issues of
Point 2:
Centralised structure ­ too many decisions limited to too few people.…read more

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Boston matrix
Market growth
Market share
Extension strategies
Costs of developing/maintaining products
Profitability of the product
Objectives of the business
Q6) Discuss the implications to AAB Ltd of having large quantities of
stock on their balance sheet.
Stock may become obsolete, and therefore will need to be sold below cost, therefore the
value is wrong (refer to Boston Matrix/product portfolio).
Logistics ­ need to be able to manage that level of stock.…read more

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Having 32% of assets tied up in stock (compared to 29% last year) ­ can sell quickly and use
to pay their short term debts (currently have 10,211 more current assets than current
liabilities) ­ assuming stock is moving well.
More stock = more knowledge required about the stock, meaning more staff may be
required to manage/sell. This will increase costs.
Storage space may be limited ­ £469,180 of stock in each store this year.…read more

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Staying Private (not owing anything to banks)
o To sustain this growth, will they need to open up to new investors, or need to
borrow larger sums of money? Can they support it privately still?
Leasing ­ each store is going to cost them more money, is this sustainable while they are
making losses?
Do we have the highest market share?
o They seem to have only one "main" rival, but they don't seem to have the highest
market share in all their product lines.…read more


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