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finance cost of holding stock was the same for all products at 20 per cent per annum. With
the flexibility of the production process, any of the basic product range could be
manufactured within 2 days. The details of the various standard product ranges are in
Table 8B.
Table 8B. Set up, production costs and customer price in FF for product lines
Product
Set up cost
Variable cost
Price
A
3000
150
450
B
3750
175
520
C
3150
180
320
D
3050
130
390
E
4300
110
520
F
8000
250
850
G
1100
85
425
H
4500
175
600
I
2400
200
660
J
4500
300
800
Supplying the motor car and train industries was in some ways more predictable, but in
other ways more demanding. The purchasing requirements were defined well in advance
by both rail and automotive manufacturers, but once agreed the company had to meet
time, budget and performance specifications of new cutting tool design. There were no
standard set up costs, or standard prices, as each product line varied enormously in
specification.
Production
The company still manufactured at the original plant, which had grown slowly over the
years. Continuing investment in manufacturing systems had meant that the company had
low fixed costs of production and the ability to rapidly switch between the various
production items. Xenon maintained a very detailed product inspection process which
involved using X rays to ensure that each of the cutting heads would stand up to their
intensive use in the factory. For the recent expansion into the motor and railway sectors
the company had invested heavily in an integrated computer aided design and
manufacturing system. This investment had meant a negative cash flow over the last 2
years.
Distribution channels
Mostly direct, though a new group of wholesalers was establishing itself to sell the more
basic industrial components. These distributors were prepared to hold stock of all the
Xenon range, but demanded a substantial price margin of 14 per cent. All these
wholesalers had sales representatives calling on customers weekly. Xenon at present had
not decided what products, if any, should be offered to the 15 wholesalers interested in
holding the product range.
Physical distribution
The basic products could be distributed via a range of parcel delivery services, with the
more complex cutting equipment delivered in company owned vehicles direct to the
factory, essential to meet the just in time production requirements of the major customers.
Salesforce
As the company became more specialised in supplying sophisticated equipment,
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