Q3.

AutoElectrix is a family-owned company located in East Sussex. For over thirty years the company has supplied components to the automotive industry. Initially the company manufactured basic components, but over time the production process has become more sophisticated and now full wiring systems are made. Although the production process has become more sophisticated, many other areas of the business have not changed at all. The company is finding that it is becoming increasingly difficult to control costs and remain competitive. Jim Sparks, the son of the original owner, is managing director of AutoElectrix. He has generally resisted change at the business, trying to stick to the methods he learnt from his father. They worked thirty years ago, so they should work now. Some things never change, he is fond of saying. Another favourite saying of his is: If it isnt broken, dont try to fix it! Most employees are fiercely loyal to Jim, as he has never laid off an employee despite some tough times in the motor industry. Some of the employees have been with the company since Jims father started the business, and although it is generally acknowledged that they are not as productive as they used to be, there is no talk of them being laid off. Were a family, and families stick together, Jim maintains. Because of rising costs and falling profits, Jim has been persuaded by the other shareholders in the business (his brothers and sisters), to employ a management consultant to investigate the business and suggest improvements. You have recently joined a Brighton-based consultancy firm, and you are given the assignment of studying Jims business and identifying areas for improvement and cost-cutting.

Required:

1) Describe the steps that you would have to take to implement an Activity-Based Management system in AutoElectrix.

2) Explain how ABM could help AutoElectrix to reduce operating costs, and why it is a better approach than, say, analysing expenses by expense type?