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Case Study: County Line Markets Working Capital Management
Louis D'Antonio and Ron Rizzuto
Journal of Financial Education
Vol. 33 (WINTER 2007), pp. 74-88
Published by: Financial Education Association
Stable URL: http://www.jstor.org/stable/41948578
Page Count: 15
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A key issue confronting County Line Markets (CLM) was to improve the management of its working capital. One aspect of its working capital management was to reduce cash balances at its 67 store locations so as to free up funds to support CLM's expansion to 100 stores. The other aspect of working capital policy required an increase in inventory to support CLM's "advance purchase" policy. In the retail grocery industry, it is quite common for manufacturers to offer retail grocers "deep discounts" on merchandise to reduce their inventory. CLM viewed the ability to take maximum advantage of advance purchase opportunities as a key ingredient in its competitive strategy. CLM's advance-purchase model was developed as an alternative to an EOQ (Economic Order Quantity) model. CLM's advance purchase model, for nonperishable merchandise, trades-off storage, carrying and handling costs against cost of goods savings from the advance purchase. CLM's management was utilizing the general framework of the advance purchase model to justify to the bank its increased investment in inventory.
Journal of Financial Education © 2007 Financial Education Association