JCL Carpets

Our client JCL Carpets is a family owned carpet manufacturer and seller. They serve residential and commercial clients, which they serve through various distribution channels, mainly wholesalers, though they do a small amount of direct sales to large accounts. They operate a single factory, 5 days a week with 10 hours in a day. They are considering the purchase of a new piece of equipment, a yarn printer that will enable them to print colors directly onto the carpet. They have hired you to explore this potential purchase.

Our client JCL Carpets is a family owned carpet manufacturer and seller. They serve residential and commercial clients, which they serve through various distribution channels, mainly wholesalers, though they do a small amount of direct sales to large accounts. They operate a single factory, 5 days a week with 10 hours in a day. They are considering the purchase of a new piece of equipment, a yarn printer that will enable them to print colors directly onto the carpet. They have hired you to explore this potential purchase.

The framework should focus on determining the incremental cash flows provided by the investment decision. Question 1: What should the client consider in order to decide whether to make this purchase? Analysis: The interviewee should first brainstorm some creative answers like revenue increases, cost savings, but eventually should try to understand the full carpet manufacturing process and where this new technology fits in. Question 2: The current manufacturing process: 1) Purchase colored yarn and load into spools 2) Load spools onto the weaver then cut, roll and store the weaved carpet until shipment New Process 1) Purchase uncolored yarn and load onto spools 2) Load spools into the weaver 3) New machine will ink, dye, and then dry the weaved carpet 4) Cut, roll and, store the carpet The machine costs $23 Million What do you think you need to do to understand if it’s worth it? Analysis: The candidate should fully understand the process and see the difference, and try to brainstorm where there could be cost savings in the new process (the uncolored yarn vs. colored yarn). She should also see the benefit of operational flexibility in being able to color the carpet closer to the requirements of the end user. Question 3: Based on the information you have so far, what should the client do? Analysis: The interviewee should get the numbers correctly, and also understand that the client is barely profitably without taking into account opportunity costs and discounted cash flows; thus, it is not worthwhile. Question 4: What potential ways do we think we can make this machine worthwhile for the client? The interviewee should first brainstorm some basic answers like revenue increases, other cost savings; another possible suggestion is to start to charge their customers based on how late they have to decide the color (guide them toward this answer as needed). Eventually, she should start to consider segmenting their customers based on how flexible they need to be on their order requirements. Lastly, she could suggested pursuing a newer high–end market.