- Pages: 3
- Word count: 576
- Category: Marketing
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In the early 1900s, the Automotive Component & Fabrication Plant (ACF) was the primary production site for Bridgeton Industries. All of the ACF’s products was provided to the Big-Three domestic automobile producers. At that time, the competitors were only domestic suppliers and other Bridgeton plants. However, later on, competition became stronger due to the foreign suppliers increased. In addition, the expensive gasoline and scarce caused the ACF loss their market share. At the end of 1986, engine plant—one of the ACF plant had to shut down due to the unsustain growth in diesel-powered cars. The physical machinery, equipment and building were written down and taken off the plant books. In 1987, Bridgeton Industries employed a strategic consulting company. On the one hand, the Strategic consulting company needed to examine Fuel Tanks, Manifolds, Front and Rear Doors, Muffler-Exhaust System and Oil Pans.
On the other hand, the strategic consulting company was also asked to classify all the five kinds of products in term of “world -class” competitive position and potential. After collecting data and doing interview, the consultants put the products in the following classification: Class 1: Fuel tanks (having costs equal to or lower than competitors’ costs) Class 2: Manifolds, Front and rear doors (having costs 5%~15% higher than competitors’ costs) Class 3: Muffler-exhaust systems and oil pans (having costs more than 15% higher than their competitors) For the class 1 product, it should be contained. Products in class 2 should be observed carefully for improvement. ACF should give up or outsource the products in class 3.
At the end of 1988, class 3 products were outsourced. Furthermore, ACF watched the class 2 products closely and tried to improve the productivity and lower the production required time. Unfortunately, manifolds fell to class 3 in 1990. Lewis thought the result does not make sense. He wanted to know the reason and what more should they do.
In my opinion, firstly, I would say that ACF should not only focus on the internal improvement, it should also pay attention on the emerging market. The market environment is changing all the time. ACF should realized these changes as soon as possible and make some modification on their productions and decisions due to the new market trend. Second, the consulting company should not use a single overhead pool. The overhead should be traced to each products. It is better to use the ABC costing system so that it is easy to delated the avoidable costs if the products are outsourcing or eliminating.
Third, when the consultants collecting data, they got information from external competitors. This kind of information may bias, so it may influence on the classification and examination of products. Finally, I think the manifolds should not be outsources. We know that two of the class 2 products were outsourced at the end of 1988. The profit in 1988 was $88524 and the overhead cost was $109890. The profit in 1989 was $57688 and overhead cost was $78157. The overhead cost was decreased by 28.88%, but the profit dropped 34.83%. The profit would drop more if we outsource. Therefore, we should not outsource or delate manifolds.
In conclusion, if ACF wants to get more accurate evaluation on products, ABC costing system should be adopt. The consulting company should also make sure the data from competitors is reliable. The manifolds should not be outsourced, because ACF would loss more money if they outsource manifolds.