Discuss about the Project Development of Dick Smith Holdings Ltd.
The current report is based on selecting the appropriate methods of decision makings. The case study of Dick Smith has been selected for the current project to determine the decline of the company. Dick Smith Holdings Ltd was until the year 2016 an Australian retail chain company that sold consumer electronic goods. The chain of the company expanded unsuccessfully in New Zealand with successful operations in other countries. The company was founded in Sydney during 1968 until the company was sold to the Woolworths Ltd. The operation of the company ceased in 2016 following its acquisition by Anchorage Capital Partners.
The collapse in the leadership of Dick Smith meant that there was a shortfall to the creditors of more than $260 million.
Changing consumer market: The primary reason that led to the collapse of the Dick Smith Holdings Ltd was the change in the consumer market. The electronic consumer market changed significantly at the competitive rate with significant amount of change in the consumer demand patterns (Kirzner, 2015). This reflected a failure in the vision of leadership as Dick Smith Holdings Ltd failed to study the consumer change in taste and preference with changing pattern of market forces.
Higher cost of Store Network: Another reason that could be attributable to the collapse of Dick Smith Holdings Ltd is the higher cost of store network. The store network of Dick Smith Holdings Ltd was much larger in size than its competitors (Brenkert, 2017). This involved higher amount of cost base with considerable amount of exposure to and dependence of the fast moving computer products market.
Falling shares in the market: The leadership failures were noticed when Dick Smith Holdings Ltd experienced a shrinking share and falling sales. The revenue of the Dick Smith Holdings Ltd was experiencing fall in revenue with lower margin of commercial sales. The leaders implemented the plans of expansion that required considerable amount of financial commitment (Bolman & Deal, 2017). This led the company utilising all their cash flows and resources that were required in the commercial expansion of the company. Dick Smith Holdings Ltd increased and resulted in heavy commercial lending and bank borrowings.
Failure in inventory management: A lack of inventory management reflected a failure in the leadership. The decision relating inventory that were made by the management of Dick Smith Holdings Ltd were not considered to be appropriate in the current changing market of consumer behaviour (Northouse, 2018). The decisions of inventory that were made cannot be regarded as consistent with the consumer demand and this resulted the Dick Smith Holdings Ltd to unfortunately shoulder excessive amount of obsolete and inactive stock that required major write down.
Expensive financing and poor sales: In the environment of falling sales Dick Smith Holdings Ltd employed the strategy of clearance sale that failed to generate sufficient amount of revenue or margin to alleviate the pressure of cash (Goleman, 2017). Furthermore, there were also the situation that reflected the inability in leadership to derive favourable terms of credit that created an impact on the level of stock. The management of the Dick Smith Holdings Ltd were failure in reflecting their ability to derive favourable terms of credit and product mix and appropriate store presentation.
Loan demands: The leaders of the Dick Smith Holdings Ltd were burdened with the rising amount of loan. This resulted the company to shoulder the pressure of cash flow and contributed to decline of the company (Antonakis & Day, 2017). The growing pressure of debts on the part of the company caused the breach of banking covenants that could not be further remedied.
Management inability to purchase decisions:
The role of the rebates from the suppliers, their influence on the management purchasing decision along with the ability to mask the reality of the earnings was clear (Fairhurst & Connaughton 2014). During the year 2014-15 Dick Smith Holdings Ltd reported some earnings before interest and tax, and depreciation and amortization of around $72 million. Following the exclusion of rebates and advertising subsidies the reported adjusted figure stood $119 million EBITDA loss.
Failure of the company:
During the year 2016 on 4th January the value of the Dick Smith Holdings has declined by more than 80%. As they were listed on the ASX the holdings of the company fell drastically with company requesting for the cessation of the trading activities. Following the cessation of the Dick Smith Holdings Ltd the company was placed into the administration by its majority of the creditors (DuBrin, 2015). Additionally, the company was looking for the secured buyer for the stores with the company announcing cessation of all the stores across the Australian and New Zealand.
Incorrect decision making by Chief Executive:
A series of decisions that were made by the chief executive reflected poor ability of the chief in decision making process. The centre of attraction was the debt management facilities of the company as the banks that were organized by the management was without the approval of the board (Johnston & Marshall, 2016). There was huge amount of rise was noticed in the inventory and reflected the failure of the management to transact with the rising inventory along with the quality of the inventory management and inventory purchase. The strategy of the chief executive to push towards the private level good also raised alarming level of bells among the management. There was a rising issue with the management of the finance. An assertion can be bought forward by stating that Dick Smith Holdings Ltd usually focused on the short term strategic objectives. On a conclusive note the failure of the Dick Smith can be attributed to the failure of the poor strategy, poor leadership and breach of trust that resulted in the decline of the company.
Best practices to assess the situation of Dick Smith:
Transparency in operations:
The non-existence of effective regulations requires transparency of actions by the Dick Smith Holdings Ltd to address the problems of leadership failures. There is a need for appropriate corporate governance regulations for the Dick Smith Holdings Ltd to be addressed. The rules should be put in place to make sure that the Dick Smith Holdings Ltd meet their long term financial security of the company (Tourish, 2014). The external administrator of Dick Smith Holdings Ltd has issued an advice relating to the entitlements of the unsecured claims ahead of the secured creditors and at this point of time they are anticipated to be paid in full.
There was also the instance of poor inventory management by the company. An alternative to the poor inventory management can be made by imposing the techniques of inventory control. The just in time inventory method works to reduce the volume of inventory that is held by the business in hand (Priest & Gass, 2017). It is regarded as the risky techniques but an effective method of managing inventory. The inventory could be purchased just before prior to few days of distribution or sale as this will enable the items to arrive in time for use.
The just in time method of inventory control would help in saving the inventory cost of holding for Dick Smith Holdings Ltd as the company would be able to keep their level of stock level of stock low and would eliminate the situation where absolute stock level (Johnston & Marshall, 2016). As the alternative to the situation the management could consider researching the customer patter of purchase, seasonal demand and the reliable source of supplier to channel the transportation prior to implementation of the just in time in the business operations. This would help in minimizing the risk and screwing up the risks.
Inventory management improves cash flow:
A better inventory management would help in saving the fund and would additionally improve the cash flow in other ways. As an alternative decision making process the inventory management would help in affecting the cash flow management. It creates an impact on both the sales and expenditure with emphasis on cash management. Better flow of inventory would help the management in leading the better cash flow management (DuBrin, 2015). Having the solid inventory system would help in exactly knowing the amount of that is present in the inventory. Not only this would make sure that the company does not sales lose their sales but it would also help in planning ahead of the enough amount of cash flow.
On a conclusive note the external administrators are required to strengthen the operations in order to make it clear that the industrial entitlement of the Dick Smith Holdings Ltd are adhered. The inventory management technique are considered to customizable portion of doing business. It is recommended that the companies should strive for removing the error of decision making from the inventory management process as much as possible. This would help in improving the decision making process and would enable the business in taking advantage of the inventory management techniques. Although an extensive amount research is required but it would systemize the process of ordering. Not only this would make it easy for making decision but would allow the management to make decision for appropriate cash management
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