CASE 14.2 RETURN ON EQUITY AND THE SCOR MODEL. Novelty, Inc., makes several as of customized novelty items, including 1-shirts and sweatshirts that are made in two facilities. One facility makes the large runs of T-shirts and sweatshirts ordered by large amusement parks and related large tourist destinations. The other facility runs small custom orders, even having the capability to custom-embroider various designs into the product. Both factories use the same raw materials in terms of the T-shirts and sweatshirts themselves, so their major differences are in how they use their machines. Bob Halvorsen is the head of Novelty, Inc. He believes in managing by the numbers, so he has been trying to compare the performance of the plant managers for the two T-shirt and sweat- shirt plants. He knows their raw materials are the same, but, after that, they are very different. He decides to use two sets of numbers to evaluate the two plants. He plans to promote whichever manager is doing the better job. The approach Bob takes is to compare their ROE, decomposed into parts, their return on sales, and a number of SCOR metrics that he has recently learned about. The information Bob gathers about the two factories is in the tables below. Sales Novelty, Inc. Basic Financial Performance Mass Plant Custom Plant $25,000,000 $25,000,000 $6,250,000 $5,000,000 $50,000,000 $75,000,000 $25,000,000 $20,000,000 15 Custom Plant 45 20% 3,125,000 Profit Assets Equity Novelty, Inc. SCOR Metrics Metric Mass Plant Raw materials days of supply % of order changes 10% Production volume 5,000,000 # of channels Forecast accuracy 75% # of defects or complaints Make cycle time 1 minute # of unique products made 100 Capacity utilization 60% Order fulfillment lead times 4 weeks # of shipments by channel 5,000 50 50% 250 3 minutes 500 30% 3 days 25,000 REQUIRED: a. Calculate the ROA, ROE, profit margin, asset intensity, and leverage for the two factories. When you are done, make sure that your profit margin times asset intensity times leverage equals the same number you got when you calculated ROE directly b. Which segment looks the best on these basic numbers? Why? C. Now look at the SCOR metrics. What do they tell you about the two factories? Specifically, which one looks more efficient? Which one looks more responsive? d. Given your answer to the above questions, which manager do you think Bob should consider promoting? In other words, which one is managing his plant most effectively given the strategy it is pursuing