Production Process and Costs
The article presents essential concepts regarding production costs. Firms are looking for methods of increasing their profitability. Cost minimization is one of the vital processes that organizations should consider to increase revenue. Besides, the firms should ensure that the products are available to the consumers on time. Walmart is experiencing the challenge of maintaining low costs for its operation processes.
The article presents several concepts that the retailer can use to address the challenge of the increasing costs. The pandemic has increased the costs associated with employee compensation and sanitization measures (Lee para.3). The scenario shows the difference between the fixed and the variable costs in the short run. Clearly, the compensation of the workers and sanitization materials are forms of variable costs. Thus, the above expenses have increased the cost of sales in the company. Besides the labor costs, part of the expenses is attributable to the shift to the e-commerce platform. The current situation shows that the cost in the short run is usually high due to fixed and variable costs. The company’s online platform had not developed, and thus, the sales were still low.
What I Have Learned
One of the interesting things that I have learned is the way an organization can address the problem of negative gross margin. A company should increase the volume of sales in order to address the margin problem (Lee para.4). As the sales volume increases, the fixed costs will remain constant. Therefore, only the variable expenses will play a substantial role.
I have learned the strategies that a business firm can apply to manage costs in the short and long run. The costs of a firm are usually different in the short and long run. Walmart has been experiencing an increased cost of sales, which has the potential for frightening investors. The cost of sales is usually high in the initial stages after the launch of the product. The shift to lower-margin products has also affected the income that Walmart generates (Lee para.3). The initial stages are associated with increased costs because of a narrow range of consumers. The company must focus on promotional strategies to win new consumers. The low-margin products will increase the firm’s operating income as many consumers begin acknowledging and purchasing them. The shareholders do look at the company’s operating and net income to determine if they can invest in a company. The e-commerce platform is one of the measures for reaching many consumers.
How the Class Material Was Applied
The information in the article is related to classwork because it shows how an organization can minimize its costs. The operating margin increases as the firm increases its volume of sales. Walmart’s lower-margin products will become profitable as the consumer base expands. Therefore, the company can use the opportunities available to increase its sales volume to improve its operating margin. The current measures are realistic and align with the concepts presented in the course.
In summary, the article presents concepts related to operating costs and income. Besides, it has shown the variation in the costs in the short and long run. The business firm must handle its short-run costs to reach its long-term expenses. Walmart will also be able to increase the volume of its higher-margin products in the long run. The above situation will help in offsetting the retailer’s costs. The online platform enables the firm to reach other consumers who are browsing the internet. Increasing sales volume improves the operating income of an organization.
Work Cited
Lee, Jinjoo. “Don’t Be Spooked by Walmart’s Rising Costs.” The Wall Street Journal, 2020. www.wsj.com/articles/dont-be-spooked-by-walmarts-rising-costs-11589907321. Accessed June 22, 2020.