Report: Mayday Printers.

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REPORT: MAYDAY PRINTERS

The firm, Mayday Printers, from my analysis is operating in a niche market (a small segment of a larger market). This means they are aiming at a relatively small target market and have a specialised service designed to meet the specific needs of the niche. The specialised service Mayday Printers offer is a twenty-four hour turnaround so they guarantee they can finish printing anything you want and it will be ready for you in a day to collect. They also can then charge a premium price for this specialised service because they must make their profits from a small sales volume as they are in a niche market. The problems faced by Mayday Printers are that overheads can not be spread over a high output level. So fixed costs per unit are high therefore prices must be high but the service must be highly valued by the niche aimed at, like the service Mayday Printers provide which is differentiated from other services because they have such a quick turnaround from receiving the order and processing it therefore they can charge a premium price for it.

If we now look at what factors can allow Mayday Printers to achieve such an efficient service we shall see the importance of the machinery and what effect a new printer will have. A flexible and reliable workforce is needed because if there is an order made for example at night the workforce must be expected to work through the night to process it and they must be reliable and turn up to work everyday or night otherwise the service is no better than any other which takes over a day to process. It is essential the business has a good reputation of being reliable because they offer a service that aims mainly at emergency situations were people need things to be processed and printed for the next day. They will not go to a business that has a bad reputation of being unreliable and they won’t risk not having their order ready as usually it is an urgently needed job.  Presently though the workforce is reliable and Mayday Printers is working at full capacity, so the firm is producing the maximum possible output that it can with the current available resources. The reason they are turning away work is because of a limited amount of resources, i.e. not enough printers. Mayday Printers can take advantage of high capacity utilisation by expanding and invest to boost their total production capacity. If they purchase or have use of another printer the affect it will have on the business is a long-term increase in prosperity as they can meet demands and produce more due to more capacity available. This means more productivity and more revenue leading to more profits for the business. In terms of cash flow Mayday Printers are very good as they meet short term debts easily however there are periods were the cash flow is strained. This may be because they offer credit to customers, what this means is they may offer a 30 day period in which customers can pay, but Mayday Printers might need to make a payment on an overdraft in ten days, and interest gets paid onto the overdraft every time so there will be little cash flow to pay off the overdraft so it will take longer to pay off and the longer it takes the more interest will have to be paid on it. Not only the overdraft payments have to be met but also employee wages, overtime pay and to purchase supplies. The supplies will be more expensive as they use a Just In Time production method so they only buy enough stocks to meet orders. They have to pay more for the stocks and frequent deliveries and cannot afford to have a low cash flow. A new printer would increase the cash flow and so they will meet all the running costs of the business and make some profit as they would be able to take more orders and increase cash flow coming in to the business. Also if printer breaks down in the current situation they will find it hard to meet costs as they have some cash flow problems at certain periods when there are a lot of orders. They will lose out on a lot of orders but another printer will mean they will still have enough orders processed to meet costs and take orders so will be able to meet some overheads. A new printer would benefit them hugely and increase the total capacity, allowing them to make more revenue and ultimately more profit.

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Mayday Printers have two options to purchase a printer: Bank Loan or Leasing a printer

Option 1

They can take out a bank loan for £100,000 with 8% interest and a 4% bank rate (which is variable) to be paid over a 10 year period. The advantage of taking out a bank loan is that after the 10 year period when the entire loan has been paid off the printer will be Mayday Printer’s property. If they lease the printer it would not be their property at any point.

Leasing over a long period of time is more ...

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