For the exclusive use of W. HUANG
Harvard Business School

9-201-016

Rev. April 29, 1983

Allen Distribution Company
On June 16, 1967, William McConnell of the mid-Atlantic office of the Allen Distribution
Company was considering whether the company should extend a credit limit of $1,000 to the Morse
Photo Company of Harrisburg, Pennsylvania. McConnell had recently become credit manager of the mid-Atlantic branch office, where he assumed full responsibility for initiating and supervising the branch's credit policies. When he assumed this position, McConnell had asked the five credit representatives who had been handling the branch's accounts on their own to submit to him for review a few borderline credit accounts waiting for credit limits to be established. McConnell believed that his decision and method of analysis might prove helpful in setting the tone of future operations in the credit department. Therefore, he planned to write out his analysis and decision so that it could be circulated.
The Allen Distribution Company, a subsidiary of the Allen Electric Company, one of the nation's largest manufacturers of electrical appliances and lighting equipment, was a national wholesale distributor of the parent company's products. Merchandise sold by the Allen Distribution
Company ranged from refrigerators and television sets to electric light bulbs. Its competition included other nationally known wholesalers and small regional wholesalers of the Allen line, as well as wholesalers of a number of competing product lines.
The parent company sold goods to the Allen Distribution Company on the same terms as to independent wholesalers. Allen Distribution in turn usually sold its merchandise at the wholesale prices and on the terms suggested by the parent company, as did most other wholesalers of the Allen line. Allen Distribution maintained the