Here goes the second case study. Let the war begin......
Question ( Source : Wharton Case Guide 2002 – Case 6 - Page 24 )
Our client is a specialty chemical manufacturer. More specifically, this is a $50 million division within a multi-billion dollar conglomerate. Our client runs one chemical plant, with common facilities in terms of vats, mixers etc, to produce chemicals for four major markets. First is textiles, which are chemicals that are dumped into large vats with cloth designed to leach out unwanted minerals from cloth. Second is fibres, which assist in the extension and spinning of fibers and add lubricity. Third is metal working, which again creates chemical additive fluids designed to soften metals for shaping. Fourth is oil fields, which has chemical products that also add lubricity to the oil wells and drilling equipment.
Our client is currently losing $8 million per year. We have been hired to determine whether or not the business can be turned around, and help the client determine how to do it if possible.
You know what to do. Start firing the questions. Try to use the profitability framework this time
Best of Luck !!!!!
~~the data i will like to have from you is the total share of market value in dese sectors...like 10% in first,30% in second.
ReplyDeleteplease give a pie chart or table for this.
(because he does not seem to be a monopolist and i dont know about competition and other stats)
~~and also the market opinion or the industry opinion of the products because a person cant be betrr in all 4 things simultaneously as like previous case some prodocts may be causing non profit...
~~4 things means 4 diifernt setups,probably dere may be technology/manufacturing issues,,is dat so???
is dere any thing like arranging industry for premade parts(i m not getting in ma mind the right word here)....
~~any new law being imposed on his manufacturing sector??are all people in sector at loss or he alone is??
please answer for dese questions
also tell the stat for his rival,any labour dispute or partnership breakage etc....
ReplyDeletei want to know the individual market of textiles , fibres , oil fills , and metal working.......
ReplyDeleteindividual revenue and percentage of individual in total cost......
also,,fibres market, oil fills and metal working all manufacture products that add lubricity.....So why 3 markets have common product......?????
ReplyDeletethat may be the cause of loss..
what is the response of customers???
ReplyDeleteis the sale good???
there are four different chemicals so is it ok to use common mixers and vats???
I THINK THE LEVEL OF LUBRICATING EFFECT MAY DIFFER!!
ReplyDeleteDONT U THINK ONE CAN SERVE MULTIPLE FUNCTIONS:
METALS,FIBERS,OIL FIELDS,ETC??
I DONNO THINK SO,4 PLANTS ARE JUSTIFIED TO ME!!
hello client:
ReplyDeletewe shall begin with a few introductory questions.
please answer them.
1. you told us that you supply chemicals for 4 markets-textiles, fibres, metal working and oil fields. please let me know if the chemicals you manufacture for all these markets are all different or same? i.e. Are you preparing different chemicals for textiles and for metal working?
2. how much do the 4 markets contribute to the sales? and if the chemicals produced are different, then do they have same costs? which one is the most expensive to manufacture?
3. since your company is a part of a large conglomerate, does your company have clients within the conglomerate?
4. would you mind telling me the time needed in the manufacture of each chemical? since the facilities are common, proper time sharing is important.
5. are there frequent problems of corrosions of equpments due to several chemicals being manufactured?
6. how often does the cleaning of equipments take place? how much does every cleaning cost in terms of money and time?
p.s. if the company does 'Processing work' too, then please mention the cost and time of both manufacture and processing combined.
no response from the company for two days.
ReplyDeletei think my questions drove the client away :D
@all... The client (reference to the senior management) is busy chalking up the strategy to be followed for the next decade :)
ReplyDeleteJokes apart, please be patient. The post answering all your queries would be put up on Monday. We need to do justice to your queries and that requires a lot of time input; which we are running short of, right now.
Another issue that needs to be addressed is the prize that needs to be given out to the winners. That would be sorted out by Monday too.
In the meantime, rack your brains and keep digging deeper!!!
Cya
there is a need to anaylse the four sectors individualy
ReplyDeletewhat are the present stats for the sectors involved?
the present taxation policies ,the present competitors ?
what is the present demand of the customers?
n finaly how are these sectors interrealted to each other?
do answer to the above said..
1.if the chemicals are A,B,C,D. please tell me the cost incurred in producing each chemical separately.
ReplyDelete2.also please mention the sales from the chemicals A,B,C,D separately.
since a 50mn$ company is undergoing an annual loss of 8mn$ (nearly 1/6th its total worth), there might be something seriously wrong with the price setting strategy or 'production selection' strategy-which to produce and how much to produce..
i think he will be ruined in next 5-6years
ReplyDelete10 years he must not plan for
:)
this must be resolved at earliest...
:)
.............................................
one more:
what is growth rate for 4 sectors
is it -ve for some secs???
becoz
20%p+ 10%p- 10%l- 30%l=loss
another question:
ReplyDeletedoes the company keep its clients waiting before delivering them the desired chemicals?
i.e. if a promised date of delivery is 10th April, and the product is nit delivered till 17th April, the clients might be refusing to buy the chemicals at a later date.
wat about the client relationship??
ReplyDeleteand general opinion of the product??
has there been recent hike in raw material???
i think the company has the habit of keeping the clients waiting..
ReplyDelete:D
case solved ;)
we are not clients sumeet...we are consultants
ReplyDelete:D
hey buddy which college are u in??
please do tell.....
or join me at orkut
find my name as same above.
:P
its a habit man...
ReplyDeleteu keep the clients waiting, so u keep the consultants waiting too...
inference drawn ;)
i am from NIT
Chill guys .. I had fallen ill so couldnt post entries to the blog for the past week . My apologies for the same.
ReplyDeleteWatch out for the next post and answers to your questions later tonite : )
aye aye captain..
ReplyDeletewe didn't mind it, we were just having some fun :)
get well soon :)
get well soon sir.......
ReplyDeletehope for early recovery..........
Thanks guys… well here goes
ReplyDelete@ gagan … The market share in all 4 divisions is as follows :
Industry size Our share
Textile 500 15
Fibre 300 10
Metalwork 300 15
Oil 90 10
- Please ask specific questions as to what you want to know about the market opinion
- No there are no technology / manufacturing / capacity issues
- No new laws. The company does not have information about the profitability of its competitors
- No dispute, partnership breakage etc
- No recent hikes in RM costs . Please asks specific questions about client relationships. Which clients?? For which products ??
@ Pari… The market share in all 4 divisions is as follows :
Industry size Our share
Textile 500 15
Fibre 300 10
Metalwork 300 15
Oil 90 10
- I did not understand your question about % of total costs . Be more specific please
- Your point about common markets is moot. The company has different customers for different products. If the product was common any customer would buy anything. This is not the case
@ shagun… Yes it is ok to use common mixtures and vats. Please ask specific questions about the sale and response of customers. The sale of which product in which market and what customers are you referring to…
ReplyDelete@ Sumeet… ok so u have fired another torpedo of questions : ) . Here are the answers . lets c what you make of them ..
- Yes chemicals for all markets are different
- Sales are as follows : Textile 15 , Fibre 10 , Metalwork 15 , oil 10 ( all in $ million )
- Costs of chemicals are roughly same in terms of raw material, labour and overhead. Packing costs are slightly lesser for the metal work and logistics are easier but not significantly so.
- Half of the fibre sales go to an internal client in another division
- Time is properly shared in manufacturing
- No issues with corrosion, cleaning processing work etc
- There are no issues with service quality. It is regarded as better than industry standard especially in metalware
@ namrata… Please ask clear questions about what stats u want for each sector
- Taxation policies are uniform
- Regarding other questions be more specific
Get cracking guys . Next post tomorrow night !!!
as mentioned, the costs are almost same, but packaging costs are less in the metal segment.
ReplyDeletealso, the quality has been appreciated by the industry.
so, the focus of the company must be brought to the metal segment to tap a larger share in the 300 mn$ market.
few questions based on the supplied information:
1. does the client within the group get special discounts on the dealings done by the company ? or does the company give the chemicals free to them ? fibre chemicals worth 5mn$(half of 10 mn$) are given within the group, that might make a huge difference.
2. packaging costs of other chemicals are higher than the metal chemical. the selling price of metal chemical must have been accurately fixed to ensure a healthy profit margin. but did the company take into account that the packaging costs of other chemicals were higher, and hence did the company fix the selling price of other chemicals higher ?
if the company has priced all chemicals at the same selling price, the company would have neglected the difference in packaging costs of the chemicals. hence the other 3 products would be incurring losses. while only metal incurring profits. that might be dragging the company into major losses.
3. the oil sector has the maximum market share, so did the company keep the prices very low to gain such a high market share? because when metal chemical is the best product offered by company, still the market share for metal is much lower than that of oil chemical.
please answer them
if the comapny is losing 8 mn$, the total costs must be 8 mn$ more than the sales., i.e. 50 + 8 =58 mn$.
ReplyDelete1. is there any wastage of produced chemicals? like due to improper inventory control?
2. is the company isolated from all other money draining areas such as loans etc. ?
@ sumeet …
ReplyDeleteHow can you conclude that the company should focus on the metal side. This might be the case if the segment is profitable. If it is loss making it might not be the right thing to do. Do you have any data on the metal segment profitability. Lower packaging costs and industry appreciation might or might not translate into higher profits. Think about it
- No special discounts for internal supplier
- How can you conclude that the selling price of metals is accurately fixed and how do you assume that this division is in profits
- The disproportionately large market share in oil is because we have a proprietory technology which makes our product unique. How can you assume metal is the best product for the company??
- No wastage and the division is isolated from all other money draining areas ( money draining areas !! what is a money draining area ??)
how many tonnes of each chemical does the company produce and sell ?
ReplyDeleteassumption that chemical for metalware is the best product of the company was made on the basis of the statement: "There are no issues with service quality. It is regarded as better than industry standard 'especially' in metalware"
@ sumeet….
ReplyDeleteProduction has been mentioned earlier Textile 15 , fibre 10 , Metalwork 15 and oil 10 ( all in $ million )
No issues with service quality and the service quality being better than the industry does not make this product the best for the company. I suggest you dig deeper into each division and how profitable it is for the company. What problems does the company have with each division. What would ypu want to know specifically ???
sir, you have given me the sales values for each chemical. what i want is the rate of selling, or the selling price of each chemical(say in terms of dollars/tonne).
ReplyDeletemy exams going........didnt log in for long…..was not in touch......
ReplyDeleteso the funda next is:: customer relation i meant that what sort of relation with customer is with the all 4 sectors??
individually.......and how many competitors and clients(i m talking about big clients or firms only)
→what a customer thinks when we buys your product??
like is it expensive,etc,,,,,
i also want to know:
→what is growth rate for 4 sectors..
is it -ve for some secs???
becoz
20%p+ 10%p- 10%l- 30%l=loss
tell in watevr form u want...
some sec may be negative,some positive some may be at par,etc etc,,
do tell....and if negative do tell me reasons for the same like bad service,technology,etc
any production problem???
→is there any sector in which the cleint is BIG DADDY????
ReplyDeletei mean dat where he has edge over others???
→tell me about transportation, nature(type of customer),services, sales management, delays in delivery, for each sector individually...
→the above is to analyse the market scenario of 4 secs...
ReplyDelete→i also want to know dat the product we sell has Wat significance in terms of client,i mean is the industry of client dependent on product(i m not saying buy from u,just in general product type:lubricant)
or more specifically we can say what amount is spent on our product in industry of client.....give chart for various factors....like othr materials being buy by client company,etc.....full details please....
i dont know whether it has some relevance or not but lets see....please answer if its consequent oriented.....
please answer my query as like:
→what is growth rate for 4 sectors..
is it -ve for some secs???
becoz
20%p+ 10%p- 10%l- 30%l=loss
because wat impression i m getting in my mind is dat we may have to implement strategies to do with sectors in loss....because share percentage in TFMO is 3,3.3,5,11 percent...
answer will make picture clear....
examination week at NIT..6 exams..monday to monday..will try to sneak a peek though... :D
ReplyDeletemention the Selling price of each chemical please.
BEST OF LUCK DUDE@SUMEET
ReplyDeleteAND SIR PLEASE REPLY!!
thanks a lot mate... :)
ReplyDeleteexams over... and the wait on this forum is not yet over....
ReplyDeletethis is it... end of discussion... :D alas, the company could not be saved...
ReplyDelete