Companies implementing cost management principles face difficulty since applying these doesn’t come without cost. It becomes harder if legal clauses are considered. Sometimes, rules and regulations limit the company’s ability to maximize its profit. Dynamic Medical Solutions (DMS) is a perfect example of how Federal regulations affect the company’s pricing decisions.
DMS is a retailer of durable and nondurable medical products in the United States. They have three major classifications of customers namely Cash & Carry, Government beneficiaries and Private Insurance. We disregarded the analysis for private insurance since the contribution of this segment is immaterial. The analysis will revolve around the first two types of customers.
At first, DMS was confident that they are complying with given Federal regulations but as soon as they hired a healthcare consultant, they realized that they are in trouble. They face a dilemma with regard to their sales price to customers availing of the government program. The interpretation of the regulation states that the maximum price should be 120% of the usual price charged to common customers. Unfortunately, they are not complying with this. Statement of the Problem Knowing that DMS is not complying with the Federal regulations, the top management is looking for the best way in order to remedy this violation but at the same time, avoid adversely affecting their profit. …show more content…
Given this, the company hired us, the external consultants, in order to provide alternatives that have the potential of solving the company’s problem.
Our goal is to answer the given question: How should the company comply with Federal regulations without adversely affecting its profit?
TOWS Analysis
The medical products supply industry’s external opportunities, external threats and Dynamic Medical Solutions’ strengths and weaknesses are presented in the table on the next page:
Table 1. TOWS Analysis
External Opportunities
External Threats
Growing trend of e-commerce
Presence of Business-to-Government (B2G) networks
Serving additional customer groups or market segments Strict and costly regulatory requirements for serving government programs customers Changes in regulatory requirements Liability exposure from litigation Strong rivalry among competitors Likely entry of potent new competitors Internal Strengths Internal Weaknesses Strong financial position; zero debt Ongoing marketing plan (e.g. sales representatives visiting potential customers in assisted-living facilities) Primary source of sales are from the more restrictive government programs Direct competition with large national retail stores operating at small profit margins Behind on technological advancements Alternative Courses of Actions To give a more comprehensive background of the situation, the health consultant identified two products that are violating the 120% threshold, namely, nutrition supplements and nondurable gloves. Given this, the alternatives …show more content…
For this case, we summarized everything into 3 namely: (1) Raise selling prices of nutrition supplements and nondurable gloves charged to cash and carry customers such that these products will comply with the 120% rule, (2) reduce selling prices of nutrition supplements and nondurable gloves charged to government program customers, and (3) attempt to establish “good cause” using Customer Profitability Analysis.
The first alternative aims to adjust the price charged to cash & carry customers such that the 120% rule will be achieved. We recognized that adjusting the price for cash & carry customers will have an impact to the profit of the company, but the impact might not be adverse since sales from such customers is only 25% of the
DMS is a retailer of durable and nondurable medical products in the United States. They have three major classifications of customers namely Cash & Carry, Government beneficiaries and Private Insurance. We disregarded the analysis for private insurance since the contribution of this segment is immaterial. The analysis will revolve around the first two types of customers.
At first, DMS was confident that they are complying with given Federal regulations but as soon as they hired a healthcare consultant, they realized that they are in trouble. They face a dilemma with regard to their sales price to customers availing of the government program. The interpretation of the regulation states that the maximum price should be 120% of the usual price charged to common customers. Unfortunately, they are not complying with this. Statement of the Problem Knowing that DMS is not complying with the Federal regulations, the top management is looking for the best way in order to remedy this violation but at the same time, avoid adversely affecting their profit. …show more content…
Given this, the company hired us, the external consultants, in order to provide alternatives that have the potential of solving the company’s problem.
Our goal is to answer the given question: How should the company comply with Federal regulations without adversely affecting its profit?
TOWS Analysis
The medical products supply industry’s external opportunities, external threats and Dynamic Medical Solutions’ strengths and weaknesses are presented in the table on the next page:
Table 1. TOWS Analysis
External Opportunities
External Threats
Growing trend of e-commerce
Presence of Business-to-Government (B2G) networks
Serving additional customer groups or market segments Strict and costly regulatory requirements for serving government programs customers Changes in regulatory requirements Liability exposure from litigation Strong rivalry among competitors Likely entry of potent new competitors Internal Strengths Internal Weaknesses Strong financial position; zero debt Ongoing marketing plan (e.g. sales representatives visiting potential customers in assisted-living facilities) Primary source of sales are from the more restrictive government programs Direct competition with large national retail stores operating at small profit margins Behind on technological advancements Alternative Courses of Actions To give a more comprehensive background of the situation, the health consultant identified two products that are violating the 120% threshold, namely, nutrition supplements and nondurable gloves. Given this, the alternatives …show more content…
For this case, we summarized everything into 3 namely: (1) Raise selling prices of nutrition supplements and nondurable gloves charged to cash and carry customers such that these products will comply with the 120% rule, (2) reduce selling prices of nutrition supplements and nondurable gloves charged to government program customers, and (3) attempt to establish “good cause” using Customer Profitability Analysis.
The first alternative aims to adjust the price charged to cash & carry customers such that the 120% rule will be achieved. We recognized that adjusting the price for cash & carry customers will have an impact to the profit of the company, but the impact might not be adverse since sales from such customers is only 25% of the