Cost of production
The graph below shows the cost of production for Wesco incorporation for five years.
The graph above shows that the cost of goods sold as well as the operating expenses have been increasing from 2011 to 2014. However, in 2015, the cost of goods sold reduced in 2015 but operating expenses for the company remained the same. The cost of goods sold represents the direct expenses incurred in the production of the products made by WESCO. These costs are inclusive of labor costs and other overheads to produce goods as well as freight to obtain other required products. The cost of goods sold has been increased from 2011 to 2014 due to increased labor costs and a decrease in the supply of raw materials. A reduction in supply will lead to price increases as the demand for the raw material for products increases (Hall, 2016). There are new entrants in the market that operate in a similar industry as Wesco, which has led to increased demand for identical raw materials used by WESCO. With supply decreasing, this led to increase in cost incurred to acquire raw materials that resulted in increasing the cost of goods sold. A reduction in the cost of goods in 2015 was influenced by the decrease in cost of raw materials used in production due to a slight increase in supply and use of improved manufacturing equipment that uses modern technology.
Operating expenses of the company have been increased from 2011 to 2014. There was a slight increase in 2015. The operating expenses have been increasing as the company has been increasing its total production. This has led to increase in fuel, insurance, maintenance, rents, and power expenses. Over this period, the company has been increasing its fixed costs to cater for newly opened branches to attain its expansion objective to other nations and continents.
Overall market
The main competitors of Wesco International Inc. include Anixter International Inc., W.W. GRAINER, Inc., and Graybar Electronic Company, Inc. Among these three, Wesco Inc. is the largest supplier and distributor of electrical construction equipment in America. The market of the of the company increased tremendously from 83 billion dollars in 2004 to over 500 billion dollars currently. The company has managed to have a growth rate of over five percent for nineteen years consecutively, making it the largest market share holder. The company sells its products to governments, institutions, commercial, utility, electrical contractor, and industrial consumers.
There are no barriers to entry of new firms in the manufacture of electrical equipment. This poses a threat to Wesco Incorporation. Even though the sector that Wesco operates in has experienced changes, a window remains in the production of better equipment that meets the ever-evolving needs as well as expectations. The industry has been experiencing improvement regarding performance through the provision of safer, reliable, together with affordable products but the important model used for operations to meet the requirements of customers has not changed over a long time. Therefore, if new entrants will focus on transforming the operating model that will aim at addressing the needs of clients better, then Wesco will experience a reduction in its market share as well as revenues.
Wesco Inc. operates in a perfectly competitive market structure. Many firms are operating in the same industry segment, and there is freedom of entry and exit. Customers have perfect knowledge and information about the products made by companies. As a result, the company does not have the ability to influence the market.
Recommendation
Wesco Inc. needs a production sound plan that will reduce the cost of goods sold without compromising on the quality of products produced. Some of the advantages that will be enjoyed by the company include a reduction in costs of labor through the elimination of time wastage and improving the flow process. Inventory costs will reduce significantly through reducing the need for excessive work-in-process inventories and safety blocks. Lastly, there will be an optimization of the usage of production equipment, increased capacity and improved on-time delivery of products. The data presented on the cost of goods sold and operating expenses can be sued to make predictions of the costs to be incurred thereby coming up with strategies that can be used to keep them at their minimum. For instance, the company can reduce the number of employees increase the number of automated machines which will assist in reducing labor costs. The cost of acquiring raw materials can be reduced through coming to an agreement with suppliers on the discount the company can receive out of purchasing in a lump sum.
Currently, Wesco has the largest market share in the United States when compared to its competitors. This indicates that the company should be in a position of acquiring improved machines of production that are automated to cut down on the number of employees required by the firm. This will narrow down labor costs. Also, the company purchases or construct its distribution points in regions that demand is high to reduce rent expenses. Even though buying raw materials in a lump sum will increase holding and transportation costs, the discounts given by suppliers should be more to cover the costs and the remaining turned to earnings to the Wesco Inc.
The company can sustain its success through closely monitoring the demand in the market as well as price elasticity. When the demand for products is high, the company should increase its supply to the market with similar proportions. The vice versa should be done when demand decreases.
References
Hall, S. (2016). What Happens to Price When Supply Decreases? Smallbusiness.chron.com. Retrieved 16 May 2016, from http://smallbusiness.chron.com/happens-price-supply-decreases-56280.html
