QUESTION ONE CASE STUDY WHM is a manufacturing company employing 1,200 people which makes components for the automotive industry. WHM has had preferred supplier status with a major car manufacturer, MMM, for the last three months. This means WHM is guaranteed a minimum amount of business with MMM each week. The preferred supplier status is reviewed annually. MMM insists on a year-on-year reduction of 4% in the prices charged by WHM. WHMs current level of guaranteed business with MMM is K2 million per week which constitutes 95% of WHMs revenue. MMM operates a just-in-time production and purchasing system and it has a policy of not inspecting the components supplied to it by WHM. However, if there are two reports of any of WHMs components failing, either during production or later in a vehicle driven by one of MMMs customers, WHM would lose its preferred supplier status? WHM has a number of competitors which would like to replace it as MMMs preferred supplier. WHMs Managing Director, H, has the following objectives, which have been imposed upon him by WHMs Board of Directors: Maintain WHM's preferred supplier status with MMM; Keep WHM's expenditure within the limits set each year in the budget which is approved by its Board of Directors; Develop the management skills of WHM's 32 operational managers H is held responsible for the successful achievement of the objectives and he may lose his job if any are not met. H believes that the best way to achieve his objectives is by the use of a performance management system (PMS) which he has designed. Hs PMS is based exclusively on budgetary control. This PMS uses quarterly reports prepared by WHMs budget accountant. These reports compare budgeted and actual expenditure for each of WHMs 2,000 cost centres. The quarterly reports are reviewed by H and later discussed with WHMs operational managers. The operational managers are shown the aggregate amount of under or overspending in the cost centres but are not allowed to know the detail 3 underlying this. This is because H believes that the details of WHMs finances should only be known to members of the Board of Directors. All WHMs investment in new capital equipment, amounting to K20 million in the previous financial year, was spent in two of the manufacturing cost centres. WHMs investment proposals are originated and prepared by H and submitted for approval to WHMs Board of Directors. The operational managers are not involved with the preparation of investment proposals. To date, no investment proposal submitted by H has been refused by the board. Required (i) Evaluate the effectiveness of WHMs performance management system in assisting H achieve his objectives. [8 marks] (ii) Discuss how the Balanced Scorecard System could be applied in improving the companys performance as set by the Board. [12 marks] (iii) Recommend, with reasons, ANY TWO Key Financial Performance Indicators (KPIs) that would show managers the progress they are making towards maintaining Working Capital. [5 marks]