Kanthal needed an account management system, which could identify the hidden costs and hidden profits of the customers, to concentrate its marketing and sales efforts on profitable areas, and to support its strategy of growth and profitability. Traditional system was unable to the find the ordering costs, and it could not allocate the actual cost and individual profitability of a customer order. New Kanthal 90 Account Management system has the features to solve this problem. This system could identify the costs related to production, sales and administrative resources and to stocked and non-stocked items. This system could identify the profitable and non-profitable customers. This system has some limitations, but it has gotten potential to bring a change in strategy and to support Kanthal be highly profitable in the industry

Questions for Kanthal

1. 1. What was the Kanthal president, Ridderstrale, attempting to accomplish with the Account Management System? Are these sensible goals?

2. Why did Ridderstrale feel the previous system was inadequate for the new strategy? Why could there be hidden profit and hidden loss customers with the previous cost system? What causes a customer to be a hidden loss customer?

3. How does the new Kanthal 90 Account Management system work? What new features does it offer? What are the limitations that may limit its effectiveness?

4. Consider a product line whose products generate a 50% gross margin (after subtracting, volume-related manufacturing and administrative expenses form prices). The cost for handling an individual customer order is SEK 750, and the extra cost to handle a production order for a non-stocked item is SEK 2,250.

4a. Compare the net operating profits of two orders, both for SEK 2,000. One order is for a socked item and the other is for a non-stocked item.

4b. Compare the operating profits and profit margins of two customers A and B. Both customers purchased SEK 160,000 worth of goods during the year. A’s sales came from three orders, for three different non-stocked items. B’s sales came from 28 orders, of which 6 were for stocked items and 22 or non-stocked items

5. What should Ridderstrale do about the two large unprofitable customers revealed by the account management system?