Question

1.       United Parcel Service (UPS) provides package delivery services throughout the United States and the world. Discuss the impact of seasonal variations in the delivery business for forecasting the firm’s financing requirements.

2.       Dell Computer Corporation (DELL) has long been recognized for its innovative approach to managing its working capital. Describe how Dell pioneered the management of net working capital to free up resources in the firm.

Answer 1

1]

In the delivery business, holiday season sees the maximum volume due to the peak shopping season and delivery of gifts. Due to this, the business would required much higher working capital during the peak season. This is because of higher number of short-term hires, hiring of delivery vehicles, higher receivables etc.

In forecasting the financing requirements, this peak season needs to be taken into account and planned for so that services are not interrupted. Higher lines of credit, overdrafts, cash credit accounts etc. must be negotiated beforehand with bankers and other suppliers of working capital

2]

Dell pioneered the build-to-order model in the computer hardware industry. PCs would not be manufacture beforehand and stored in warehouses. Rather, a PC would be built only after receiving an order from a customer. This resulted in very low inventory, which reduced carrying costs. Carrying costs of raw materials was also reduced due to very low inventory of raw materials. Obsolence of raw materials was also reduced, and with the advent of newer technologies, the wastage of older raw materials was kept to a minimum. Days sales inventory (DSI) was low, and Days Receivbale was also very low as the PC would be built only after the customer paid for it.