"Growthopportunitiesarealwaysaccompaniedbychallenges,"exclaimedtheCEOofGeoBab.Shethenwentontoexplainwhyyou,aconsultant,werehired.

GeoBab started business in the city of Waterloo in 1951 as a manufacturer of televisions andelectrical products. Television manufacturing was discontinued in the 1970s. GeoBabremained in the electrical products business, which over time required it to enter many newmarkets.Newproductshadtobeconstantlydevelopedtomaintaingrowth.Thelifeofmanyofthoseproductswasshort,andthusmanyproductswereexitedafterafewyears.Inaddition,competition and the need to be cost effective obliged GeoBab to locate new plants in ChinaandIndia,andtoenterintooutsourcingarrangements.Alongtheway,GeoBabalsoacquiredabout 30 small manufacturing plants. The result has been that GeoBab now has 36 plantsworldwide.

Systemsintegrationattemptswereaconstantchallengebecauseofacquisitions,outsourcingarrangements, and new product implementations. If there had been a uniform enterpriseresourceplanning(ERP)System,theCEOsaid,therewouldhavebeenfewerproblemsforyoutoresolve.

Sung, one of the older, larger divisions, has been subject to a series of problems, which thedivision's general manager and his controller have not been able to resolve. The CEOintroducedyoutothegeneralmanagerandthecontroller.Theyexplainedthatthesaleshavebeen lagging behind expectations, with the recently completed year being typical of the lastthree.Abiggerproblemhasbeenthatforthefirstyearindecades,actualprofitshavebecomenegative.YouareshowntheoperatingstatementinExhibitI.

Afteraquickreviewoftheoperatingstatements,youaskediftherehavebeenanychangestothe manufacturing process. You were told that the only change has been the use of a newsupplierforthemajorcomponents.Thenewsupplier,ELManufacturing,wasanacquisitionbyGeoBab that occurred late in the previous year. The acquisition was premised largely on ELbeingabletoreplacemostofSung'sexistingsuppliers.ThecomponentsfromELhavedefects,whereas the previous suppliers provided defect free components. Consequently, morematerialsandlabourwereneeded,andreworkandspoilagewerechargedtooverhead.

Youaskforinformationonthecostofqualityandcustomersatisfaction,and

youreceivetheinformationshowninExhibits2and3.YouarealsoinformedbythedivisionalgeneralmanagerthatELwantsahigherpriceforthecomponentsbeingsuppliedtoSung.Thegeneral manager at Sung is opposed to any increase in price paid to EL because the marketpriceislessthanwhatELcurrentlycharges.(YouconfirmwithanindependentsourcethatEL

ispresentlychargingSungfivepercentoverthemarketpriceforthecomponents.)

Twodayslater,theCEOintroducesyoutothegeneralmangerofEL.ThefinancialstatementsforELare containedinExhibit4.YoulearnthatallofEL'sproductiongoestoSungatamarkupovercost sufficienttoyielda20percentROI,whichisGeoBab'smarkupforsettingtransferpricesbetween divisions.

Thisarrangementstartedatthebeginningoftheyearthatjustended.ThegeneralmanagerofEL wants the markup to be increased in order to earn a 25 percent ROI, which he says isconsistent with what is earned by other, independent firms making the same components.(Youconfirmthatthoseotherfirmswereearning25percentROIs.)

Required

UsingtheCaseapproachshownatthebeginning,respondtotheCEO'sassignmenttoresolvetheoutstandingissues.Pleasemakesuretoincludeanexecutivesummary.

MARKALLOCATION-50marks

Executivesummary-20%(10marks)

Report-80%(40marks)

CSACHS10 Group Capt SUNG ELECTRONMY DIVEHIN For the Thar Ending Lavoier JI TIE ITH Manufacturing overtral Contribution margin Selling Net operating honor SUNG ELECTRONKS CIVISHIN Working caphal Net Food much 1543 2105