Problem statement :

Case revolves around the challenges faced by thread company named Lotus Thread Company
Limited. The Challenges are as follows :

1. Growing working capital cost eating profitability -- Too much inventory.

Revenue – Cost = Profitability

Rate of increase of stocks with respect to sales is increasing. Exhibit No. 1 depicts the
pattern.

Sales growth deteriorated from 35% to 13%, while inventory growth rate remained the
same. No selling and filling warehouses.

2. Right product not available at sales location even though they have enough inventory

At an average, less than 50% of stocks at each location are unsold. Right product was not
available at the sales location.

This justifies Mr. Kumar hypothesis that even though inventory cost are higher,