Case Study
Passage with linked questions
Case Set 1
Case AnalysisPassage
Ramesh owns a soap manufacturing unit in Kanpur. He produces around 10,000 units of soap daily but finds it extremely difficult to directly sell his goods to lakhs of consumers spread across Uttar Pradesh. He approaches Mr. Sharma, a wholesaler, who agrees to buy large quantities of soap from him on a regular basis. Mr. Sharma makes full cash payment upon delivery, stores the goods in his warehouse, and then distributes them to hundreds of retailers across the state. Ramesh is now free to focus entirely on production without worrying about storage, distribution, or reaching individual buyers. He is also able to enjoy economies of scale because of the bulk orders placed by Mr. Sharma. This arrangement has proved highly beneficial for Ramesh's business.
Question 1: How does the wholesaler help Ramesh in achieving economies of scale?
- Mr. Sharma collects bulk orders and places them with Ramesh, enabling him to produce on a large scale.
- Large-scale production reduces per-unit cost, allowing Ramesh to benefit from economies of scale.
Question 2: What financial assistance does Mr. Sharma provide to Ramesh, and how does it help Ramesh's business?
- Mr. Sharma makes full cash payment upon delivery of goods.
- This ensures Ramesh does not have to block his capital in unsold stock, improving his liquidity.
Question 3: Explain any three risks that Mr. Sharma bears by purchasing and storing Ramesh's goods in his warehouse.
- Risk of fall in prices: The market price of soaps may fall after Mr. Sharma has purchased them in bulk.
- Risk of theft and pilferage: Goods stored in large quantities in warehouses are susceptible to theft and pilferage.
- Risk of spoilage or fire: Goods stored in a warehouse may get damaged due to spoilage, fire, or other hazards, and the wholesaler bears all such losses.