Comfort Zone Case Study

Comfort zone is a major southeastern distributor of heating, air conditioning and refrigeration equipment, parts, and supplies with 45 stores in Florida, Georgia, Alabama, North Carolina, South Carolina and Mississippi. It was organized as a Florida corporation in 1961 with its headquarters in Jacksonville. Each of its stores operates independently as a sale and distribution entity. The company has a two customer base which are new construction and replacement and service repair. The cyclicality of comfort zone primarily depends on the revenue from both markets. The new construction revenue stream is extremely cyclical because it depends on the economic situation of the country. The US was experiencing in that same period early recession and

This increase results from the market expansion and the product development of comfort zone.
The company promotes their product through the channel of their local stores in many strategic states; states which during summer experience a high demand for air conditioning. They have approximately 8,000 customers consisting of mechanical, heating, air conditioning and refrigerators contractors, institutions, governmental units and a variety of commercial users such as supermarkets chains. As a differentiation strategy, each of the store is run by a manager who is responsible for the hiring and supervision of personnel and for sales, credit, purchasing, inventory and cost control.

They purchase on a regular basis inventory from approximately 250 manufacturers and suppliers. Special order items are purchased occasionally form an additional 400 vendors and have non-exclusive wholesale distributorship agreements with most of their suppliers. Most purchases are made on open account with terms 2/10, net 30. Comfort Zone is an asset intensive company with a TAT ranging from 2.2 in 1988 to 2.4 in 1991. In 1989, TAT peaked at 2.6 increasing sales significantly with only a small increase in assets such as inventories and PPE. The company experienced fluctuation in inventory, moving from 124 days in 1988 to 97 days in 1989 and going up again to 114 days in 1990 and down again to 110 in 1991. While the company in overall is experiencing tremendous sales growth, each store basically controls its own inventory regardless of the other stores, and that makes the overall inventory uncontrollable. Fixed Asset Turnover has been in great shape during those years, it moved from 36.5 in 1988 to 50.8 in 1989, and then from 42.1 in 1990 to 47.5 in 1991. The FAT in 1990 because the company acquired a lot of investments such as goodwill and PPE. The managers are paid based on net profits. They have little concern about enhancing inventory levels or other balance sheet items such as A/R or A/P. Similarly, as long as sales are being made and net profits are creating bonuses, the A/R