Case: Fabtek
EXECUTIVE SUMMARY
Fabtek has the ability to position themselves for profitable growth, but they need to fix their business, focus on key business drivers, and re-evaluate the area. Listed below are the key issues they face and the recommendations for improvement. Focusing on these issues and developing selection criteria for quoting would help Fabtek improve their current profitability and position them for growth. Fabtek should accept the Pierce Pike order as it closely matches Fabtek 's selection criteria for selecting orders.
Issue Recommendation
Lack of Sales Focus Fabtek states anyone can make a sell. This indicates the company places a low priority on training sales people. Fabtek needs to focus on direct selling
…show more content…
Fabtek has appointed a former marketing expert, Lightfoot, to lead operations. Lightfoot has indicated the need for a greater mark-up on labor due to uncertainty. However, customers are unlikely to pay for uncertainty. This approach will only inflate a quote and hamper the ability to make a sale based on "value" provided to the customer.
Reducing manufacturing overhead improving labor estimates on quotes is important because currently the marketing department does not trust cost estimates from the operations department. Marketing typically adjusts quotes to reflect market and corporate goals. This is a poor approach to address the bidding process and is likely a contributing factor the low success rate of quotes.
Manufacturing Costs are unreliable and the Bidding Process has a low success rate. Fabtek needs to train its manufacturing and marketing group to work together in estimating accurate costs, lead-times and understanding customer value in quoting a job. Fabtek should only quote business opportunities that fit the company 's selection criteria defined by Marketing and Operations. This strategy would increase Fabtek 's hit rate on quotes.
Too Many Markets
Fabtek currently serves 11 markets. They need to prioritize the business portfolio and reduce the number of markets served. Fabtek needs a new marketing approach with an increased focus on growth. The company 's methodology and the strategy should be adjusted to reflect market fluctuations, competitor
Assuming that the company’s goal is to maximize profits, the current cost system is not an appropriate tool for strategic planning. The ambiguity of the overhead costs per product makes it difficult to accurately analyze the cause and effect relationships of changes and/or improvements to specific product line.
To offer huge quality branded merchandise at 20% to 40% low prices below department stores. Provide one shop buying by arranging maximum house furnishing items (30,000 SKU) and offer superior service to make buying experience and BBBY so pleasurable that they become “word of mouth advertisers” of BBBY.
The company has been functioning well in terms of generating profit and demand so far. However, there will be a 20% increase in demand for the next month of operations as predicted by management, and the production and supply management's problems may come as a problem they can no longer afford.
Overhead costs need to be accounted for this way we can understand just how much cost goes into producing each unit. There are other cost factors that contribute to the product aside from labor and material. Since the projected and the actual sales volumes do not align Kelly should be concerned with the other
Only the incremental costs and benefits are relevant. In particular, only the variable manufacturing overhead and the cost of the special tool are relevant overhead costs in this situation. The other manufacturing overhead costs are fixed and are not affected by the decision.
On May 10 2008, Jake Fahri, a nineteen-year-old teenager with a long history of anger and violence issues, threw an oven-proof dish at a boy in a local bakery in London. The 12 inch dish shattered and a shard of glass shot through the boy’s neck, leaving the boy, Jimmy Mizen, who just turned sixteen, to bleed to death. After killing, Fahri went underground and did not hand himself over to police until three days later. Based on Fahri’s background of bullying at school and his uncontrollable temper, the public believed his tears and “apology” to the Mizen family were contrived trick to win sympathy. Indeed, he showed no remorse during the trail and was sentenced to 14 years. It is common for the families of the victims show extreme anger toward
Overhead costs are not in proportion to the production output because of the method they are using. This leads to inaccurate pricing and costing decisions. An Activity Based Costing System would help find the real relationship between the products produced and overhead.
choose the most appropriate and effective overhead rate, particularly, because it guides management in its tasks of product pricing, job costing, and budgeting. Businesses can use the single company-wide method or can opt for the departmental method. Auerbach
14. A decision to work closely with a limited number of suppliers for the purpose of ensuring that the proper materials are available at the optimal time is an example of:
Wilkerson employs a Normal Cost System, which means that they use predetermined overhead rates along with actual costs for direct material and direct labor. Normal costing systems are appropriate when overhead costs are a relatively small percentage of total manufacturing costs and product diversity is limited. For Wilkerson, normal costing does not make sense. Overhead costs make up over 50 percent of total manufacturing costs and their product offering is relatively more diverse. This indicates that the current accounting system in place may be distorting costs significantly. Supporting data:
However, this system was found to be “ineffective for costing and bidding individual parts.” Id. While some machines produced low cost parts at high volume, other machines were producing high cost parts at low volume, which created cost discrepancies between various machines and thus misallocation of
The Timken Company – a leader in the bearing industry, is considering acquiring the Torrington Company. Torrington Company, a leading manufacturer of needle roller bearings which is an engineering solution segment from Ingersoll-Rand. Both companies operate and compete in same business and therefore, Timken is seeking substantial operating synergies from this largest acquisition of its history. With this acquisition, Timken is increasing the size of company by almost 50 percent. And, Timken will continue to concentrate on what it do best by buying a company in an industry, where it has a leadership position built on decades of expertise. Timken expects to expand its worldwide business base with new products and services as both companies
1. Use the Overhead Cost Activity Analysis in Exhibit 5 and other data on manufacturing
Therefore, there is no doubt that it is significant to allocate overhead cost accurately for every production. If the overhead is calculated incorrectly, the selling price of the product will change. The company will not cover the cost and make a loss.
A Make-or-Buy Decision at Baxter Manufacturing Company Scenario Summary Baxter Manufacturing Company (BMC) is a leader in deep-drawn stampings. It has been in business since 1978 as a privately held company. The process for making these stampings is very involved and complex. BMC developed methods for efficiently producing large volumes of stampings while keeping their quality very high. BMC uses state of the art machines to make the stampings and they make all the tooling necessary for those machines. In the years since their founding, many changes have impacted the industry – especially when it comes to computer networks and software. In the 1980s many of BMC's customers went to Just In Time