'Berkshire Threaded Fasteners Case Essay\r'

'Berkshire thread FastenersBerkshire Threaded Fasteners Company has recently lost their president, John Magers. The consequenceing grant of his inexperienced son Joe Magers has range to the fraternity’s leaving of confidence. Brandon Cook is the recently constitute public manger who was hired to turn the company near after(prenominal) a blemish of $70,000 in a good business year. As a ingredient of an outside consulting firm I pitch been called in to give advice on the problems the company is facing. The judgment of conviction occlusion has been updated to the present prison terms.\r\nManu featureuring ProcessSee accessory A for the detailed manufacturing process. In short, holdfasts begin as wires, rods and bars which be so cut to length, headed and finally threaded. What should be n wizd is that this special(prenominal) manufacturing process called cold forming is high-speed, high- pile, economical and has low wastage. such economies of scale forget a llow Berkshire to offset the real high make ups of cold-forming equipment.\r\nBusiness St localizegyA c arful epitome is wishinged in ensnare to come up Berkshire’s business dodging. At first one would theorize it was point of intersection s foreveral(predicate)iation because of the inelastic beseech in the short electioneering. But one affair that should overly be famed is the fact that for most goods, demand is more than more(prenominal) than scathe elastic in the long run than in the short run. This excite with the fact that Berkshire is convinced that it could not individually bid expenses without suffering substantial volume dec beginnings, and that all the products of the different manufacturers in the pains are genuinely similar, corroborate that their business strategy is in fact cost leaders. Another piece of evidence that to a fault supports this strategy is the fact that the major focus of their beting transcription seems to be on cos t reduction.\r\nPlace in the EconomyThe industrial fastener industry has been experiencing modest harvest-home since the 1990s with an average per annum r in meterue growth rate of 3.6% ; though the chassis of employees wee remained relatively the same. The northwestern Ameri suffer fastener industry is still anticipate to grow by some 4% per year despite the competition from foreign countries. However this do represents a parentage from the 9% growth special K which occurred in 1998.\r\nThe North American fastener ware is strongly tied to the output of automobiles, aircraft, appliances, agricultural machinery and equipment, and the building of commercial buildings and infrastructure. The more these industries prosper, the greater the demand and prospects for the fastener will thither be. There has been as ever expanding market for fasteners in the 21st century in the aero set industry. In fact a 9% one-year growth in fasteners for this industry can be expected. Mot or vehicle gross sales have as well as summationd by 9.6% from 2005 to 2006. Unfortunately housing starts have exactly increased by 0.7% from 2005.\r\nIn the prospective analysts expect metal fasteners to face competition from the adhesives industry as more products are being make with plastic, a product best joined unneurotic by adhesives. Also buyers have this instant been demanding advanced and diverse fasteners which are also more surroundingsally friendly- fasteners that maintain lubricity without the use of cadmium, a suspected carcinogen. So the industry is boringly shifting its focus to more highly engineered, technologically advanced fasteners.\r\nSWOTStrengths:1) Newly appointed Brandon Cook has wide executive experience in manufacturing products similar to that of Berkshire.\r\n2) Berkshire operates in a capital intensive industry. But as a percentage of follow sales, Berkshire’s labour costs are 24.69%. This suggests that they e really still retain the ir employees even when they could have make without them or that they pay very high salaries to a few workers. This shows that Berkshire has either very loyal employees or very skilled employees- both being assets. Weaknesses:1) Joe Magers is not very experienced and the company is facing losings in the production of the 200 and lead hundred serial’.\r\n2) As a percentage of total sales, Berkshire’s stock-still costs are 47.37%. This is much higher(prenominal)(prenominal)(prenominal) than what a worth competitive manufacturer manage Berkshire should have had.\r\n3) Berkshire pays 49% of all its wages and salaries to administrative and sales employee, when the industry average is 27% . This shows short(p) decision\r\nmaking processes of the firm.\r\nOpportwholeies:1) If product lines are discontinued, with the plain capacity and skilled labour force they can branch out into the production of more diverse fasteners. This ties in with the fact mentioned previous ly that buyers are straightway demanding more specialise products. Threats:1) Berkshire operates in an industry where a few of its competitors are much larger.\r\n2) The industry is dominated by Bosworth who dictates the prices that are charged for fasteners.\r\n3) Buyers are slowly demanding more specialized fasteners.\r\nProblemWhat is very evident is that the company is losing money on its products. In the previous time period they had incurred a blemish of $70,000. Berkshire is unsure if it is the ending of the production of the ccc series or the price decisions of the atomic number 6 series. These alternatives need a careful outline in do to make informed decisions that will help turn the company almost.\r\n alternate #1 Status QuoQuantitative Analysis:In order to determine if the company should â€Å"do nothing,” is to predict the future notes clings and exonerate income (loss) for the moment half of the year. See Appendix B for this calculation. The pred icted crystallize income is in fact a loss of 1134. Yet, pull in income may not be a faithful representation, so interchange immixs have also been faced. The predicted specie flow is a nix essence of 388. These metres while better than alternative #3 (drop the three hundred series) is not as good as the funds flow and net income amounts for alternative #2 ( compress price trains of the speed of light series).\r\nOne very definitive thing that needs to be noted is the fact that multivariate costs are indeed relevant. stiff costs remain constant even after the production is stopped, nevertheless uncertain costs increase and decrease with production. Therefore the total contribution boundary line for this alternative was calculated to be 1504 which does show this alternative in a better light specially when in comparison to its net loss and cash flow figures.\r\nqualitative Analysis:The trim production of the 100 series as a contribute of the price aim remaining the same will have a significant impact on Berkshire. The reduced production may lead to employees badgering about the fact that they may be rigid off to such an extent that their productivity is importantly geted. Berkshire could also develop a written report of charging higher prices than the industry standard and they could end up loosing more and more buyers to competitors.\r\n pick #2 Change price level to $2.25 for the 100 seriesQuantitative Analysis:In order to determine if the price level needs to be dropped a few calculations are needed. First a prediction of its impact on the net income and cash flows for the second half of the year is needed. These calculations are shown in Appendix C. The predicted net income figure is a loss of 1035. The predicted cash flow is a negative amount of 289. While these figures do seem abysmal, what should be noted is that in comparison to the other alternatives, these figures are much better. Both the net loss and negative cash flow amoun ts in this alternative is 99 land than the â€Å"status quo” alternative and 338.58 lower than the â€Å"drop 300 series” alternative. This hints to the fact that maybe the price should in fact be dropped.\r\nAnother fact that backs this trust up is in the calculation of the parting gross profit (CM) for both price levels, based on info from the first half of the year. Table 2 in Appendix A shows this calculation. While the CM of the virgin price level is lower than that of the original level (0.96 vs. 1.16), the fact that they will sell 250,000 units more (and accordingly a higher total CM for the late-sprung(prenominal) price) clearly makes up for this difference. The success of the unfermented prices level will be contingent on the number of units sold. What is very dangerous about this alternative is that if in the future the demand in the market for this product line slumps, only a very humiliated amount of money will be on tap(predicate) to be used to pay off the fixed costs.\r\nQualitative Analysis:The change in price level will not have much of an aftermath on the employees of Berkshire because they would still be producing around the same amount of units (1000000 vs. 996859). They would not have to touch on about being laid off. What will be affected is Berkshire’s reputation. If they had not changed they would have genuine a reputation of charging high prices. The reduction of the price would put them at par with Bosworth.\r\n preference #3 Drop 300 seriesQuantitative Analysis:In order to determine if the 300 series needs to be dropped a few calculations are needed. First a prediction of the impact of its removal on the net income and cash flows for the second half of the year is needed. The predicted net income figure is a loss of 1373.58 and the predicted cash flow is calculated to be a negative amount of 627.70. The net loss figure calculated is the highest loss of all three alternatives and the negative cash flow amount is also much higher than the alternatives as well. This hints to the fact that maybe the 300 series line should not be dropped. Also, if the 300 series had been dropped at the beginning of the year it can be seen that there would have been a loss of -183. See the calculations for these amount in Appendix D.\r\nAnother aspect that backs up this assertion is the calculation of the Contribution Margins for all three product lines based on first half information. Even though Berkshire incurred a loss of .22/unit in the first half for series 300, when you calculate the CM it is a whole new story- the CM of 300 is a positive number- 1.15/unit, this means that Berkshire would in fact incur an even greater loss if they chose to halt production. The 1.15 per unit would no longer be available to cover some of the fixed costs. What is also surprising is the fact that the 300 series Contribution Margin is not far behind from that of the 100 series (the most profitable product line) and equal to that of the 200 series.\r\nA few other very important observations also need to be interpreted into account. First, since many products do cover all their variable costs, no product line would ever be dropped if only a contribution margin epitome were conducted. Second, even though the 300 series covers its variable costs and part of its fixed costs, it proves to be deck the stairs par when considering full costs. Finally, in the long run all costs are variable, so the 300 series in this time frame is in fact a poor product line.\r\nQualitative Analysis:If the 300 series was dropped it would have a significant qualitative impact on Berkshire and its employees. solely the employees who were involved in the production of this line would either have to be laid off (which would have a negative impact on the reputation of the firm), or they could still be retained (which would lead to them obtaining a deep sense of respect and dedication to the firm). Also the employees wh o would be shifted around would gain a greater skill set and hence live on very valuable assets to the company.\r\nEvaluation of the alternativesComparison Table1) Profitability2) Timeliness3) Consistency with Strategy.\r\nAlternative #1-$11347 daysnot as muchAlternative #2-$10354-7 daysYesAlternative #3-$137410-14 daysNot as much1) Profitability:The primary mark of all businesses, no matter how big or small, is profit. That is why as a criterion, Profitability was inclined the number one rank. The three alternatives can comfortably be evaluated on this criterion by examine the net income figures. Alternative #2 easily succeeds in this criterion. Despite the fact that it does have a net loss, the loss was not as great as that of Alternative #1 and #3. One important thing that should be noted is the fact that perhaps the second half of the season is always a slow period and that is why the net income figures are so low.\r\n2) Timeliness:Berkshire operates in a business environm ent where if firms that lag behind in decision making, execution of instrument of policies etc, they will be left behind with no profits. That is why Timeliness was given the rank of two.\r\n surprisingly Status Quo would have an implementation time of around 7 days. Since keeping the price level of the 100 series the same at 2.45/unit would case in them producing 385332 less number of units (See Appendix E for the calculation), time would be need to shift employees around to new jobs in the firm, possibly exclude atomic reactor a warehouse or even transfer the machines used to produce the 100 series to now produce a different product line.\r\nAlternative #2, â€Å"reduce price level” would probably only take 4-7 days to implement. The only thing Berkshire would need to do would be to inform their current buyers of their new price level and perhaps also to kick upstairs the lower price in a specialized fastener industry journal.\r\nAlternative #3, â€Å"drop the 300 se ries” would probably take around 10-14 days. Not only would Berkshire need to shift employees around, close down a warehouse etc, as a result of producing a lower number of 100 series units, but they would also have to announce the dropping of the 300 series line to its buyers, move even more employees around (or possibly lay them off), close even more warehouses down, move machinery around the manufacturing space etc. This would be a very time consuming process.\r\nOverall Alternative #2 would set ahead in this criterion as it would have a less time consuming implementation time and process.\r\n3) Consistency with Strategy:This criterion was given a rank of three because while necessary in the evaluation, Profitability and Timeliness do have a greater importance. In the short run Alternative #2 had the greatest consistency with strategy. Berkshire is a cost leader, and reducing the prices of the 100 series ties in very well with this strategy. Alternative #1 and #3 chose not to reduce the price and this decision conflicts with their cost leadership strategy.\r\nConclusionOverall I would recommend that Berkshire implement Alternative #2- reduce the price level of the 100 series, as it did win in all three criteria. But one important thing needs a re-mention. The CM per unit of the reduced price level was lower than that of the higher price level. It was only because of the higher volume of sales did it manage to have a higher total contribution margin. In the future if sales volumes drop, despite the price change Berkshire would incur toilsome losses. At this present time Alternative #1 and #3 are both very dead and will still be in the future. At least Alternative #1 is not as unprofitable at this present time but what happens in the future will all suppose on sales.\r\nRecommendations for Specific Action1) Chose a date when the price change will come in to effect and make sure all current buyers are aware of this well ahead of time.\r\n2) Advertise in newspapers, journals etc to get the message across to new buyers that Berkshire has reduced its prices.\r\n3) All forms, documentation, accounting systems etc should be changed to take into account the new price level.\r\n4) Make sure that there are people at hand to question the market and evaluate whether demand is going to decline for the 100 series.\r\n5) Make sure that there are researches available to study the market for new trends and new types of fasteners that could be produced in the future.\r\n'