Hello could you please answer the following questions and give steps as to how you came to these answers and how to solve them for the correct answer, I'm having difficulty with these review questions. Thank you. I attached the case as images.
Question 1 (30 marks)
Read the case Western Cabinets - Building a Cabinet or Building a Transformation? Complete the following requirements.
Required:
a)Reformat the value chain for Western Cabinets into Porter's value chain format described in Lesson 3 Note 1.Under each primary and secondary activity list the activities as Western Cabinets and identify value creating processes. (15 marks)
b)Identify the key cost drivers and suggestions for competitive advantage for Western Cabinets.This will include areas of advantage they currently hold and areas where they could create competitive advantage. (15 marks)
Note: When answering this question, you can refer to parts 1 and 3 of the StrongBrit case in Lesson 3 to see how they formatted both the value chain and the key cost drivers/suggestions for competitive advantage.
Question 2 (20 marks)
Assume that in 2016, Dubbledore Industries changed its processes and trained workers to recognize quality problems and fix them before products are finished and shipped to customers. Quality is now at an acceptable level. The selling price for its key product, RBK10, was increased in 2016 to reflect an increased price for direct materials and additional conversion costs needed to deliver a higher quality product. Sales have increased, even with the increase in price, and returns have decreased. Dubbledores' managers attribute this to higher quality and a price that is still less than their main competitor, Ginko Corporation.Information related to the RBK10 product for the current period and prior period follows:
2015
2016
Units of RBK10 produced and sold
19,000
21,500
Units returned
1,150
550
Net sales in units
17,850
20,950
Selling price
$23
$26
Direct materials (kilograms) used
47,500
51,600
Direct material cost per kilogram
$1.25
$1.35
Manufacturing capacity in units
23,000
23,000
Total conversion costs
$115,000
$149,500
Conversion cost per unit of capacity
$5
$6.5
Selling and customer-service capacity
100 customers
120 customers
Total selling and customer-service costs
$11,000
$12,600
Total selling and customer-service capacity cost per customer
$110
$105
Advertising staff
4
4
Total advertising costs
$24,000
$28,000
Advertising cost per employee
$6,000
$7,000
Conversion costs in each year depend on production capacity defined in terms of RBK10 units that can be produced, not the actual units produced. Selling and customer-service costs depend on the number of customers that Dubbledore can support, not the actual number of customers it serves. Dubbledore has 95 customers in 2015 and 115 customers in 2016. At the start of each year, management uses its discretion to determine the number of advertising staff for the year. Advertising staff and its costs have no direct relationship with the quantity of RBK10 units produced and sold or the number of customers who buy RBK10.
Required:
a)Calculate the operating income of Dubbledore for 2015 and 2016. (4 marks)
b)Calculate the growth (both revenue and cost effect), price-recovery (both revenue and cost effect), and productivity components that explain the change in operating income from 2015 to 2016. (10 marks)
c)What type of strategy is Dubbledore pursuing: cost leadership or value leadership? Support your answer using the variances calculated in question 2 (i.e., explain how the variances may demonstrate the company is pursuing a particular strategy). (6 marks)
Question 3 (30 marks)
Lesson 2, Note 5 presents an interactive tool that can help you assess the five forces for any industry.Using this tool and Internet research, analyze the five forces in the high-end car manufacturing industry (such as BMW, Mercedes, Infiniti, Porsche, etc.) to identify how each of Porter's Five Forces affects the level of competitive intensity in the industry. If you follow the questions in this interactive tool for each force in your analysis, it will help to direct your discussion and draw conclusions.
Required:
a)In paragraph form, describe how each of the five forces impacts the level of competiveness in the high-end car manufacturing industry. (20 marks)
b)Complete the following chart to summarize the strength of each force and provide recommendations to luxury car companies to reduce the effect of the force. (10 marks)
Competitive
Force
Strength
1= weak
2= moderately weak
3=moderate
4=moderately strong
5=strong
Suggestions to Help Mitigate Force
Threat of New Entrants
Power of Buyers
Power of Suppliers
Power of Substitutes
Internal Rivalry
Question 4 (20 Marks)
Wondergardens Ltd. operates amusement parks similar to those such as Six Flags, Universal Studios, and Disneyland. Wondergardens' mission is to provide high quality family entertainment that exceeds guests' expectations and creates lifelong memories. To achieve this goal, Wondergardens strives to provide safe, clean, friendly family environments at reasonable prices. In addition to the amusement parks, the company operates a community outreach program. Through volunteerism, it offers educational and recreational programs (e.g., after school programs for children and teenagers, employment-related training for adults) and special events at its facilities.
Wondergardens' president, Roland Coaster, has asked you to lead a team of employees in developing a balanced scorecard for its parks.
REQUIRED:
a)Describe the type of competitive strategy you believe Wondergardens is pursuing and your reasoning. (4 marks)
b)Develop a balanced scorecard for Wondergardens including four measures in each of the four perspectives (financial, customer, internal operations, and learning and growth). Make sure your measures are specific, measurable, attainable, and relevant. (16 marks)
IMA The Association of EDUCATIONAL Case Case Journal ima Accountants and Study Financial Professionals in Business ISSN 1940-204X Western Cabinets - Building a Cabinet or Building a Transformation? Mark Klassen Suresh Kalagnanam University of Saskatchewan University of Saskatchewan INTRODUCTION 3. Medium cabinet companies (Western Cabinets) 4. Micro cabinet companies "How can I transform the company?" This was the main question occupying the mind of Mr. Smith, who became Mr. Smith believes that competition is getting tougher the CEO of Western Cabinets following the death of the and is eroding margins and profits. On the one hand, big box founder in 2007. Not long after assuming office, Mr. Smith stores such as Ikea and Home Depot offer cabinets at very felt that the company was at a crossroads but was unsure low prices, and their ability to offer customized solutions as to whether it required a change in the business model/ is improving. For example, Ikea has recently offered a strategy or simply better execution. Mr. Smith has observed modularized cabinet solution that customers can design on its a number of issues - strategic, operational, personnel, website. Moreover, the big box stores and large manufacturers financial, and control; he is keen on finding both short-term have the ability to achieve economies of scale through forming and long-term solutions. strategic alliances with key suppliers, thereby significantly Western Cabinets, founded in 1980 by cabinetmaker lowering their costs. Still, their ability to customize and Sam Dod, manufactures and installs high-quality cabinets offer unique solutions is not as good as the medium cabinet in residential homes and condominiums. (See Appendix companies, but this is improving as they invest in technologies I for the mission and vision of the company.) Sales are to link customer choice with manufacturing flexibility. One predominantly made directly to the homeowner or through notable trend is the increase in imports coming from China. contractors who are either renovating or building new homes. The cost of the Chinese cabinets is low, but there have also By 2009 Western Cabinets' revenues had grown to $60 been quality issues with the products. Product imported from million and it had more than 300 employees. Growth was China is also difficult to customize and is more appropriately primarily achieved through expansion by adding showrooms suited for the basic cabinet product lines. Big box stores in each major city in western Canada. experience warranty and customer satisfaction issues as the existing modularized products don't completely match the EXTERNAL ENVIRONMENT customer's expectations. The relationships between big box stores and their suppliers (including large manufacturers) can The industry is best described as fragmented, with the major be strained as both parties point the finger at each other and players in the industry as follows: neither wants to deal with the dissatisfied customer or bear the cost of warranty. The big box stores and large manufacturers 1. Big box store retailers (e.g. IKEA, Home Depot) are relatively stable, in that new entrants have not surfaced in 2. Large cabinet manufacturers that industry segment over the past few years and future new IMA EDUCATIONAL CASE JOURNAL 1 VOL. 4, NO. 4, ART. 1, DECEMBER 2011entrants are unlikely. Approximately one-third of the industry companies over the years, as firms try to create economies revenue is generated through this segment. of scale, but eventually-whether growth is created At the other end of the competitive spectrum are the through acquisition, organically, or through expansion-the micro cabinet companies that primarily consist of independent dominating market forces of increased customization at carpenters who build customized cabinets out of small shops lower cost seem to prevail. The economy recently turned or at the customer's site, with virtually no overhead. They may recessionary, but there are signs the economy may now be in have a few employees but typically exist as a sole proprietor a recovery mode. The president is now asking a fundamental business. They can offer some degree of customization question: Should Western Cabinets alter its business model through the "hands-on" craftsmanship, but they often do and strategy, or should it just execute better? not have access to all of the raw materials sourcing that even medium firms like Western Cabinets do. They have THE VALUE CHAIN limited ability to produce, given their capacity constraints, and are often noted as being slow to deliver and lacking The current value chain of the company consists of six steps professionalism. The trend, however, is that micro cabinet (see Appendix 2), described below. makers are beginning to have the ability to produce more customized cabinets and have access to alternative sources RESEARCH AND DEVELOP NEW CABINETS of supply through the internet. They also enjoy the benefits The research and development (R&D) team, consisting of of technology advances in the tools they use. The number five full-time equivalents (FTEs), researches cabinet trends of micro cabinet companies in the industry varies with the in the marketplace, surveys customers, and designs new economic cycle. When the economy grows, the number of cabinet products. The R&D personnel are also responsible micro cabinet companies increases because carpenters are for making design adjustments to existing cabinets, to ensure attracted to the industry and there are few barriers to entry, As that a quality product can be manufactured by Western the economy cycles downward and demand falls, some micro Cabinets. For example, if warranty or high manufacturing cabinet companies close their operations because exiting the costs are continually occurring for a specific product line, industry is also easy. The micro cabinet companies represent the R&D team investigates how the cabinet design could approximately 20% of the industry. be amended to manufacture the product more effectively. The remainder of the industry is occupied by the Mr. Smith's preliminary assessment is that the R&D team medium-sized companies like Western Cabinets. Most spends the majority of its time making adjustments to the small to medium-sized companies started as micro cabinet existing product line. companies and grew over the years. In the cities in which it operates, Western is one of the larger firms; typically DESIGN CABINETS FOR CUSTOMERS there are two or three other medium-sized firms that This process begins with the customer visiting a showroom. Western Cabinets competes with. Each of the competitors Customers may be renovating a kitchen or installing a generally has customers and value chains similar to kitchen in a new home. Alternatively, the customer may Western's. Competition among the medium-sized cabinet be a contractor building a new home or renovating an companies is fierce, with the continuing theme of increased existing one; in many situations the contractor represents customization at lower cost. The competitive forces of cost the homeowner. Regardless, the customer can choose from and customization appear to be dominant no matter what a variety of cabinets, ranging from basic low-cost cabinets geographic region or product line Western expands into. to more customized higher-cost ones. The most significant Nonetheless, it has maintained a decent reputation with driver of the product mix has traditionally been the economic respect to its core value drivers: customer service, lead time cycle. In economic downturns, renovations and low-cost of cabinets (the time between when a customer initiates a cabinets are popular, and in economic upswings, new homes design to the final step), servicing for warranty, quality, and and customized cabinets are popular. Mr. Smith feels that operational efficiency. Mr. Smith feels that other medium- Western has followed a reactive approach to the product sized cabinet companies face structural issues similar to mix, meaning the business model has really focused on Western's, and he is positive that all of these companies manufacturing products that are in demand by customers. still orient their business around the manufacturing of the The showrooms have a number of cabinet displays that cabinets as opposed to a more customer-centric business customers can view to assist in the selection process. Upon model. There has been some consolidation of medium-sized selection of the base model, customers can select the add- IMA EDUCATIONAL CASE JOURNAL 2 VOL. 4, NO. 4, ART. 1, DECEMBER 2011ons and discuss any customization with the salespeople, who meet customer needs. Ensuring accuracy often requires the are also designers. Finalizing the customer specifications order entry staff to dialogue with designers to correctly capture may take anywhere from just two or three hours for the the intricate needs of customers, especially on the complex basic cabinets to as much as two days for the customized cabinets. Mr. Smith feels that the order entry function is very ones-e.g. curved cabinet with a hand-painted finish and administration-oriented and sometimes duplicative in nature; built-in lighting. There are approximately 35 designers however, he also noted that order entry staff often finds errors located throughout the showrooms in the western Canadian that could have been costly downstream. cities. Some designers focus exclusively on homeowners, while others have specific contractor accounts. According to MANUFACTURE CABINETS Mr. Smith, the contractor is an important customer segment Once the order is generated in the information system, it is because the contractor can influence the homeowner's scheduled for production. Although Western uses a certain choice. For that reason, he believes that it is important level of automation, it is not comparable to the level of for Western's salespeople to enhance and maintain their automation that large manufacturers use. Cost and space are relationships with contractors. major constraints with respect to the level of automation. Mr. Smith's assessment is that the focus of designers is Wood and paint account for 60% of the manufacturing predominantly on designing the cabinets, exemplified by the costs. Currently Western does not have the buying power fact that many of the designers used to work in manufacturing to negotiate costs with suppliers, largely due to the use of or research and development. He has seen a few designers numerous suppliers and small order quantities. This makes who appear to have developed a more customer-centric focus, the procurement process both cumbersome and inefficient. making house visits and interior design recommendations for Similarly, the other support functions of scheduling, customers. From a value perspective, Western does not charge warehousing, and inventory management are also inefficient, the customer for the design; however, there is certainly value primarily because these were developed over the years in an created at this stage that is captured in the final price of the uncoordinated manner. cabinets. Basic cabinets that do not require sophisticated design The remaining 40% of the costs account for labor and or designer involvement have lower prices, whereas high-end overhead, which are largely fixed costs. Manufacturing customized cabinets that require greater designer effort have accounts for 120 FTEs, of which 110 are directly involved higher prices. Mr. Smith is wondering if there is not a further with production. Mr. Smith feels that such a large portion of "untapped" value component where the product offering is fixed cost can prove to be costly to the company, especially more innovative (e.g. Bluetooth technology embedded in the during slow periods. Moreover, any price drop to increase cabinets, sound systems and video systems built into cabinets, sales volume can prove costly due to the low margins and incorporating hologram and LCD screen technology - see high fixed costs. Appendix 3) and the designer engages with the customer at higher level (e.g., designer becomes an interior decorator for the DELIVERY AND INSTALLATION end customer or project manager for contractors to coordinate Finished cabinets are delivered and installed by one of multiple trades in the home-building process). Overall though, Western's 25 experienced installers. The cabinet price he has been somewhat frustrated because getting good includes delivery and installation, and varies depending information, such as customer profitability, customer behavior upon the installation complexity that the designer anticipates information, and sales statistics, is difficult with Western's based on his or her judgment. Installation is an important existing information systems. step in the value chain because the customer can directly interact with the installer and also observe the installation ORDER ENTRY process. A bad experience with the installer or perceived The next step in the value chain is order entry, where nine quality of installation often leads to customer complaints. FTEs key the specifications of a customer order into the This is also the stage when the customer actually sees the information system. This step is critical because customers' completed cabinet and makes an assessment of whether it preferences, as understood by designers in the previous matches with the specifications, which can determine the step, are translated into manufacturing codes. This may take customer's satisfaction level. anywhere from two hours for simple cabinets to up to three days According to Mr. Smith, this step of the value chain can for the more complex ones. Accuracy of data entry is important significantly impact the reputation of the company. Although in order to eliminate the manufacture of cabinets that do not he believes that the installation process is working well, he IMA EDUCATIONAL CASE JOURNAL 3 VOL. 4, NO. 4, ART. 1, DECEMBER 2011recognizes that the installers have had a long tradition of be honest, though, I think some employees have lost the working independently. He also wonders if there is not a passion and wonder where Western Cabinets is going. We greater value opportunity for the installation process wherein also have a significant number of new employees because installers could become more professional and take on the of the staffing changes we made and the tight labor market. role of a project manager to include plumbing, flooring, and We now have a mix of experienced and inexperienced other aspects of home-building. This expanded role might employees, which impacts efficiency. This has led to a mix be more attractive to contractors as it partially relieves them of behavioral issues such as work ethic and proper conduct in from taking on the coordination role. the workplace." Mr. Smith also commented on performance and FOLLOW-UP WITH CUSTOMER AND WARRANTY accountability. "I am really trying to promote accountability THE CUSTOMER across the organization. I implemented a bonus program This step in the value chain involves three FTEs and based on organizational performance; however, individual essentially is comprised of ensuring that the job is completed performance varies across the organization. I have tried to the satisfaction of the customer. As an example, the to standardize practices and set targets for most positions, installer will call the customer service team if a component but the reality is that some designers sell twice as many of the cabinet is missing from the package. Mr. Smith feels cabinets as others. Often our top sellers bypass established that this step is reactive as opposed to being proactive; procedures to speed up quotes to customers. The plant it exists to resolve customer complaints rather than to manager states that customer complaints and warranty anticipate problems and deal with them before the fact. He issues are often a result of a problem with the design, not is not surprised, however, because the company is still about how the cabinets were built. The install manager's main transforming wood into a cabinet. complaint is that there is a lack of communication between the designers, the plant, and the installers. To address the ADMINISTRATION lack of communication, the previous management invested The administrative team consists of 15 FTEs, including the $2,000,090 in an enterprise resource planning system two president, vice-presidents (VPs) of marketing and finance, years ago; however, it failed miserably, and we are now left plant manager, human resources manager, information with antiquated legacy systems. The technology investments technology manager, and three store managers, who are and the economic cycle have put cash flow pressures on us." members of the management team. The remaining six Finally, Mr. Smith talked about planning and budgeting. employees are spread throughout the organization in "I also introduced a budgeting process to increase various supporting roles. Although the composition of the accountability and control. There have been complaints that administrative function is adequate, there may be a need to the budget doesn't really inform management on the key shift the resources across the supporting roles, depending on value drivers: customer service, lead time of cabinets, quality, any changes to the company's direction. and operational efficiency. Our managers also complain MANAGEMENT CONTROL ENVIRONMENT that the budgeting process is labor-intensive, untimely, and doesn't contribute to Western Cabinets' understanding the risks in its external environment. We also are trying The founder, Sam Dod, died in 2007, following which Mr. to tighten control by limiting the number of people who Smith was hired as the CEO, along with a management have the authority to purchase. Materials are our biggest team consisting of qualified professionals. Sam was directly expenditure, and we feel that there is substantial potential involved in the day-to-day operations and knew each of his for savings in the supply chain." employees by name. In contrast, Mr. Smith prefers a much more professional approach to management. A POTENTIAL BUSINESS MODEL With respect to internal operations, Mr. Smith observed as follows: "I am trying to change the culture, because the The company appears to be squeezed between the big box old culture was centered on the founder, Sam Dod. Sam was stores and the micro cabinet businesses. Mr. Smith feels that everywhere and spent a significant amount of time talking simply fixing control issues may not help the organization and motivating employees. I am trying to implement more grow. "I know we have execution issues, but I am leaning business processes and controls. I want to run Western towards revamping Western Cabinets' business model. I Cabinets like a business, not a micro cabinet company. To am rethinking the company not only from a traditional 'low IMA EDUCATIONAL CASE JOURNAL 4 VOL. 4, NO. 4, ART. 1, DECEMBER 2011cost vs. differentiation' strategic decision, but rethinking PART 3 - EXECUTING USING THE APPROPRIATE MANAGE- the entire business model and challenging how the MENT CONTROL SYSTEMS company creates value. For 30 years this company has been 1. Give advice to Mr. Smith on how you would change the about the wood. I don't know if we should be about the management control systems to improve execution. wood anymore. I think value creation is about solving the 2. How would you use technology to support your chosen customer's problem. For the customer, the problem isn't business model/strategy or support strategic execution? that they need a cabinet; the problem is much more holistic. For example, the kitchen may be the solution to web- enabling a sound system, an internet system, or an integrated APPENDIX 1: MISSION AND VISION appliance offering. The kitchen becomes the central hub for all technology and entertainment home investments. Cabinets become "wired' to enable customer solutions MISSION STATEMENT across an array of technology and entertainment issues. As Our mission will be to create superior cabinetry, provide a "problem solver,' Western Cabinets should de-emphasize excellent customer service, and foster employee success. manufacturing to the point of questioning whether Western Cabinets should even be involved in manufacturing. Value VISION STATEMENT creation would occur at the design stage as the designer We will be the most respected cabinet manufacturer in solves the customer's problem. I envision customer site North America. We will create cabinetry that our customers visits with 3D virtual technology to illustrate the possibilities will be proud to have in their homes. Our team will realize of embedding solutions into the cabinets (e.g. Bluetooth, these goals in an environment that promotes integrity, and wireless, technology consoles, and sound systems - see rewards hard work and dedication. Appendix 3). The question is not a strategic one positioned by a low cost/differentiation model. In fact, standardized solutions could be manufactured, either by Western Cabinets or outsourced, for the most common customer problems. ABOUT IMA The fundamental question is, 'What is our optimal business With a worldwide network of more than 65,000 professionals, model and how is value created?"" IMA is the world's leading organization dedicated to Mr. Smith picked up his can of Coke, looked across the empowering accounting and finance professionals to drive plant floor, and wondered, "How should I transform this business performance. IMA provides a dynamic forum for company? How can I make it happen?" professionals to advance their careers through Certified QUESTIONS Management Accountant (CMA") certification, research, professional education, networking and advocacy of the highest ethical and professional standards. For more PART 1 - ASSESSING THE "AS IS" ENVIRONMENT information about IMA, please visit www.imanet.org. 1. Assess the external environment of Western Cabinets. 2. Assess the internal issues at Western Cabinets. 3. What is Western Cabinets' business model and strategic position? PART 2 - DEVELOPING THE APPROPRIATE BUSINESS MODEL AND STRATEGY What do you think of Mr. Smith's idea to create a new business model? Why? 2. What do you think Western Cabinets should do strategically? From a business model perspective? Why? 3. Do you think the fundamental issue is strategic, business model, or execution? IMA EDUCATIONAL CASE JOURNAL 5 VOL. 4, NO. 4, ART. 1, DECEMBER 2011Appendix 2 Value Chain 1. Research 2. Design 3. Order entry 4. Manufacture 5. Delivery 6. Follow-up with and develop cabinets cabinets for cabinets and customer and new cabinets for customers production installation warranty customer Customer visits Sourcing Showspom Purchasing Fleceiving Warehousing Inventory management Scheduling Appendix 3 Pictures Left: "Small business [independent contractor|" approach to manufacturing. Right: Western Cabinets' automated approach Examples of Western Cabinets' prototype Bluetooth and hologram technology. IMA EDUCATIONAL CASE JOURNAL 6 VOL. 4, NO. 4, ART. 1, DECEMBER 2011
