(Cost management: short term vs. long term) Northwest Metals Co. produces steel products for a variety of customers. One division of the company is Residential Products Division, created in the late 1940s. Since that time, this division’s principal products have been galvanized steel components used in garage door installations. The division has been continuously profitable since 1950, and in 2004, it generated $10 million of profits on $300 million of sales.

However, over the past 10 years, divisional growth has been slow; prof¬ itability has become stagnant, and few new products have been developed, although the garage door components market has matured. Company presi¬ dent John Stamp has asked his senior staff to evaluate operations of the Res¬ idential Products Division and to recommend changes that would improve its operations. The staff uncovered the following facts:

• Tonya Calley, age 53, has been division president for the past 15 years. Her compensation package includes an annual salary of $175,000 plus a cash bonus based on achievement of the budgeted level of annual profit.

• Growth in sales in the residential metal products industry has averaged 12 percent annually over the past decade. Most of the growth has oc¬ curred in ornamental products used in residential privacy fencing.

• Nationally, the division’s market share in the overall residential metal products industiy has dropped from 12 percent to 7 percent during the past 10 years and has dropped from 40 percent to 25 percent for garage door components.

• The division maintains its own information systems, which are essen¬ tially the same systems that were in place 15 years ago; however, some of the manual systems have been computerized (e.g., payroll, accounts payable, accounting).

• The division has no customer service department. A small sales staff so¬ licits and takes orders by phone from national distribution chains.

• The major intradivision communication tool is the annual operating bud¬ get. No formal statements have been prepared in the division regarding strategies, mission, values, goals and objectives, or identifying core com¬ petencies.

Given this information, identify the major problems in the Residential Products Division and develop recommendations to address the problems you have identified.

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