“For over 35 years, Browne’s has grown with our established retailers and the market. Our policy has been to expand gradually, and to finance expansion projects internally, through the reinvestment of profits. By doing this, we have built a solid, reputable firm while avoiding long-term debt. As a result, Browne’s is unwilling to risk a costly, debt-financed expansion on the basis of marketing plans that may or may not be realistic. For us, the risk of overexpansion and damage to our relationships with our long-standing retailers is too great”.

Dieter emphasized that he was confident that his sales objectives could be met, and praised Browne’s as the only established producer in the area that had the combination of reputation and capacity to work with Dieter to fulfil his plans. Therefore, in Dieter’s view, Browne’s must agree to expand its manufacturing operations very soon. He acknowledged that it would be three years before the expanded plant would be operating at capacity; however, he believed that by doing the entire expansion in one phase, the costs would be reduced by about 25%. However, Smith was adamant. Dieter reminded Smith that due to its rapid growth in the recent past, Dieter’s now accounted for over 20% of all of Browne’s sales, and told Smith that if Browne’s would not agree to his proposal, he was considering building his own plant and that Browne’s would lose all those sales.

Dieter estimated that it would cost $1.8 million to build a plant large enough to produce the volume of product called for by his sales forecast. While he knew he could not use its full capacity until 2009 at the earliest, he wanted to build the complete facility all at once, as he estimated this could save as much as 25% on the final cost. He approached local business people and financial institutions to raise financing for his planned plant, but was unsuccessful. The business people were not willing to put forth as much equity financing as he had counted on, and without enough equity, the financial institutions were unwilling to make the loans that the project required.

However, Dieter was able to find financing in another community within the market area that he planned to serve. There, after ten local business persons and other investors indicated their willingness to provide the necessary equity financing for the plant, a bank was prepared to provide mortgage funds and to finance Dieter’s working capital through a line of credit. Because of financing limitations, the plant was approximately three-quarters of the size that Dieter had originally planned.

Alternatives & Decision Criteria

Dieter could try alternative banks for the full line of credit. Reading through this article, he is very adamant on proceeding further with the factory and with the investors on board he may be able to find a bank willing to provide the full amount.

He could also try to negotiate further with Browne for either further discounted goods or better-quality products instead of expanding with a new factory. While the opportunity is available for Dieters, Browne is a much larger distributor accounting for much more than just Dieter’s share. Looking from Browne’s perspective even if Dieters makes up that 30% by 2010 and they need to expand plant capacity, they will have the means to do so.

Lastly, Dieter’s could move to a different distributor for either the expansion plan or as a product provider. Dieter’s could make up 20+ percent of Browne’s Sales in coming years based on their calculations, meaning they would lose a fifth of their total sales starting in 2005 and only losing more each year if Dieter’s decides to move to a different provider.

Each of the alternatives above provide a certain risk to reward ratio, however it is evident that the first and the second are lower risk options then the third because they can be done quickly and quietly, with little to no risk at all. Other criteria that should be considered when picking an alternate idea should include expenses, timelines, and if the move is worth the move from the current standing with the Browne distributor.

The whole explanation above is to be able to answer the below:

Analysis

1. Separate section from Alternatives.

2. Do whatever analysis you think is necessary to evaluate each alternative keeping in mind your decision criteria

3. Pros/Cons is acceptable, but I’d prefer sentences and paragraphs.

4. If your analysis has a large financial component, place table at the end of the section that summarises the financial results of the alternatives.

Please answer the 4 questions of analysis above!