Memo Report on Decline in Profit
May 7, 20____
To: M. Kashif Manager
From: Fazal Mahmood
Subject: Report on decline in Profit
PROFILE OF THE PROBLEM
The company which enjoys a remarkable position in the market is now suffering a reverse in profit for the last three years. A minimum ten percent annual increase in the profit is the general yardstick against which businesses measure their performance. Previous three years records exhibit that the annual profit rate is running much below ten percent. The situation may worsen in time years to come.
Decline in Sales
The sales volume has come down by twenty percent. My investigation shows that the primary reasons for this fall are high prices, severe competition, and substandard quality. After sales services are not furnished. Advertising program has been abandoned. The designs and styles of the products are obsolete and not up to fashions. The packaging is unattractive, rather hideous.
Increase in Cost of Production
The production cost and wastage have increased. Production planning, routing, scheduling, following up, and controlling are not properly observed. Quality control and inspection are taken as unimportant functions.
Increase in Cast of Distribution
Distribution cost relates to marketing. It includes sales personnel salaries, commissions, and fringe benefits. The cost is on the increase without bringing better results. Most of the sales staff is untrained.
Due to poor management accounts receivable are growing faster than their collection. A good percentage of accounts receivable turn into debt and doubtful debts every year. There is no proper policy on investigation, collection and follow up. Increase in bad debts is one of the most anguished reasons to weaken the profit position of the company.
The company should improve its selling efforts by the following actions:
1. Prices of the products should be evaluated.
2. Product research and testing is important to update the designs and styles.
3. The company should formulate an effective and viable promotional policy. It should include advertising, publicity, and public relationing.
4. To meet competition not only price should be competitive but also quality should be improved
5. The company should redesign packaging,
6. Customers should have after sales service.
Training to be the sales personnel is of vital importance. The employees should not only have the technical knowledge and orientation of the products but also be acquainted with markets, procedures, methods, and principles of marketing. The company should start a broad based marketing training program operated by marketing experts.
Control Over Cost
Production and distributions costs must be controlled. Production should be properly organized and its management should be made effective by reorganizing it. The management should be careful in production planning, routing, scheduling, and controlling. Production control should define set of procedures responsible for coordination of men, machines, tools, and materials. It will, then, facilitate fabrication of products with a minimum interruption, in the fastest possible time, and at the lowest possible cost. In the same way, distribution cost should be controlled meticulously so that the morale of sales team ix not slaughtered.
Proper Debt Management
Debts should be properly managed. Before sanctioning credit the soundness and character of the buyer should be investigated. Cash discounts should be introduced. The management should control the size of accounts receivable. The terms of sales may be 2\10, n\30,
I am sure, after following the recommendations the company will attain the goal of maximum profit.