Strategic Cost Management

Baldwin Bicycle Company

Case Brief 

 
June, 2020

Submitted by - Group 7

Name Roll No.

Harshit Mulchandani G035

Jagriti Modi H036

Jubin Jacob J021

Shaily Kasaundhan E031

Tanmay Khanolkar C033

Utkarsh Shukla A055

Strategic Cost Management

1. Summary
Dilemma: Suzanne Leister who is VP Marketing of Baldwin Bicycle received a proposal by Hi
Valu stores for producing bicycles named ‘Challenger’ under the umbrella of Hi Valu.
Suzzanne is in a dilemma to accept or reject the offer.
Proposal: Hi Valu stores are a chain of discount departmental stores in Northwest, which
has increased its sales volume in the current time that it has started adding ‘House Brands’.
Baldwin is a bicycle company for 40 years, which has most sales through independent
retailers and bicycle shops. Current annual sale of Baldwin is $10million.
 In the proposal by Hi value some conditions are mentioned which might be challenging for
Baldwin:
1. Hi Valu wants ready to access, large bicycle inventory because they have difficulty in
predicting the sales by store/Months.
2. Hi Valu will pay within 30 days after the title has been transferred. 
3. Title of bicycle will be transferred if, bicycle is shipped from warehouse to any Hi valu
stores or if the bicycle is in the warehouse for four months. 
4. On an average bicycle is in warehouse for 2 months
5. Hi value will purchase bikes from Baldwin at lower price than its wholesale price for other
retailers.
6. For the new look of ‘Challenge’, Baldwin has to incur new purchasing, inventorying and
production cost.
7. 3 year contract, 3 months’ notice period for ending the contract. 

Opportunities: Bicycle Boom is flattened now, economy is poor and sales volume of
company is falling past two years. Capacity utilisation is only 75%. As the market is already
going down so by accepting this proposal, a new market can be created for Bicycle and
Baldwin able to increase its sales through the new channel. Capacity utilization might
increase and new partnership may lead company to become more successful in business.  

Challenges: 
1. Baldwin may lose its existing customers or dealers of existing bicycle models. 
2. Whether added additional cost will be paid off with sales
3. As the market is already fluctuating, if bicycle demand will decrease further then   how
the additional cost will be recovered. 

Strategic Cost Management

2. Similar situations in the present context -

A similar but not exactly the same business situation comes to mind in the following two
scenarios - 
1. ASUS - Asus started off in 1989 as a computer components manufacturer such as
motherboards, accelerator cards, LCD TV’s etc. It still is the world’s largest
motherboard manufacturer with about 40% market share. Apart from this it also has
its own laptop, notebook and PC line which competes directly with HP, Dell, Lenovo
etc. So while, it competes with HP, Dell and other manufactures in the PC business, it
also acts as PC component supplier to them.
2. Samsung and Apple- In a similar example, Apple and Samsung are two main
competitors in the smartphone market, but a major part of what goes in the iPhone
has been developed and manufactured by Samsung - the display and multiple
processors. In fact, in 2015 Apple paid Samsung an average of $20 per unit for the
processors built into its iPhone 6 and iPhone 6 plus.

3. Inter-disciplinary and strategic issues that need to be considered

1. Permanent loss of Sales - Suppose, Hi-Valu changes their manufacturers after

the 3 year deal. In this scenario, there would be a permanent loss of market
share/sales (customers who switched from Baldwin to Challenger). 
2. Loss of pre-existing distribution channels- The current distributors might move
to Challenger brand and drop the Baldwin line. Since Hi-Valu had purchased
them at a lower price compared to wholesale, they could offer attractive deals to
the dealers
3. Dumping of inventory - If the bicycles are returned or the order is cancelled,
then it would be difficult for Baldwin to dump/sell the inventory as they have
been customized for the Challenger brand with the brand name inscribed on
them
4. Cash Flow issues - Since a lot of capital will be tied up in maintaining the
inventory volume and the incoming cash flow would be slow, it would cause a
major cash crunch for subsequent productions

Strategic Cost Management