Southland College Kabankalan City, Negros Occidental

Strategic Management

JK Cement

Submitted By: CHERRY PIE G. TIAGA BS Accountancy

Submitted To: MR. JAN MARK CAHILIG, CPA, MBA

July 17, 2013

JK Cement

I.

POINT OF VIEW: Dr. Ancheta (has the higher in JK Cement)

II.

OBJECTIVES: 1. To evaluate whether JK Cement should go to design and build the new plant or contract it out as a turnkey basis in order to expand. 2. To determine the best design, construct, and setup of plant operation, for the

expansion of JK Cement.

III.

STATEMENT OF THE PROBLEM: What must be the decision of Dr, Ancheta about the unusual expansion of JK Cement in order to increase their productions to supply the projected demands?

IV.

AREAS OF CONSIDERATIONS: 1. The Company JK Cement started operations in 1968. It is located very near Metro Manila where the demand for cement is most concentrated. JK Cement makes use of the domestic market and 15 percent of Metro Manila market.

2. Internal and External Factor Analysis Summary (IFAS and EFAS)

Internal Strategic Factors Strength Product Quality Market Location Workers Market demand Mr. Geroso (VP of engineering) Weight Rating
Weighted Score

Comments Key to success Good, Well trained Good demand

0.15 0.05 0.05 0.10 0.15

5 3 2 4 5

0.75 0.15 0.10 0.40 0.75

Weaknesses Production output shortage Procedure done manually Increase cost(cost overruns) Total Scores

0.30 0.20 0.20 1.00

3 2 3

0.90 0.40 0.60 4.05

Low production process It cause delay

External Strategic Factors Opportunities Agreement with foreign suppliers High tech production process Increases production output New Machine and Equipment Threats Opportunity cost If the expansion will not done on time. First time such an expansion Exchange Rate Total Scores

Weight

Rating

Weighted Score

Comments It is good for the company go for this contract. Advantage to the workers The demand

0.15 0.20 0.10 0.05

3 5 3 2

0.45 1.00 0.30 0.10

0.10 0.15 0.15 0.10 1.00

3 3 4 2

0.30 0.45 0.60 0.20 3.40

We encounter this threat if we go in turnkey

3. TOWS Matrix
Strengths Product Quality Market Location Workers Market demand Mr. Geroso (VP of engineering) Opportunities Agreement with foreign suppliers High tech production process SO Maxi-Maxi Strategy The design of Mr. Geroso in turnkey expansion will have double expected output. WO Mini-Maxi Strategy Change the production procedure using computer for the expansion. Contract with foreign Weakness Production output shortage Procedure done manually Increase cost(cost overruns)

 Increases production output New Machine and Equipment

Change the production process using computer in controlling and monitoring the production process as well as the product quality. Workers must well train to know how to operate the new machine and equipment and production process. ST Mani-Maxi Strategy Mr. Geroso have strategic plan about the expansion setup in order to finish in within 2years or 24 months. Increase more quality if the expansion done on time.

suppliers in order to decrease cost Increase production using new equipment, machine and high tech production process.

Threats Opportunity cost If the expansion will not done on time. First time such an expansion Exchange Rate WT Mini-Mani Strategy Buy machine and equipment in low exchange rate to decrease cost. The expansion must done on time to have a high tech production process procedure.

V.

ALTERNATIVE COURSES OF ACTION AND ANALYSES

1.

JK Cement industry will enter into a turnkey agreement with a foreign supplier.

A turnkey agreement would have the supplier design, construct, and set up plant operations and then turn over the plant operation to the client company. Advantages: If this expansion was push through, JK Cement expected its output to go from 1,670 tons to 3,170 tons of cement per day. In term of 40kg bags produce, output was expected to go from 41,700 bags to 91,700 bags per day. With the expansion, output was then expected to be more than double. One thing nice about entering turnkeyforeign supplier gives our company a quotation and then bears all the risk with regards to cost overruns.

Disadvantages: We must consider the exchange rate may affect in buying the equipment and spare part to our new operation setup. If the expansion will not finish within 2 years this mean an opportunity cost. If we accept turnkey, we dont develop our local know-how and we have to be dependent on foreign suppliers.

2.

JK Cement industry will rely on local or in-house engineering know-how and

upgrade the output capacity of the JK Cement plant by modifying certain parts of its cement production process and uses computers in controlling and monitoring the production process as well as product quality. Its a high tech production process. Advantages: In this action we were able to get a cost P785 million for upgrading the JK plant capacity through modification. This cost would already include all the local manufacturing components. Compare to turnkey that will cost us $120 per metric tons a year and we must consider also the exchange rate. This means substantial cost saving to us! With this expansion to develop our local know-how, and we are able maximize local content, we have flexibility in hiring local contractors, and we wont have to be dependent on foreign suppliers. Disadvantages: Its output is not the same in turnkey the foreign suppliers that give more than double expected output but it increase more compare to the old production that

counter shortage. Expansion is costly, need money and its not easy to convince our creditors that the company need lots of money for it.

3.

JK Cement industry will combine the old machine with the new one. Advantages: It minimizes cost of JK Cement industry. And its easy to the worker to operate this production process because not totally the whole operation will change for this production. Disadvantages: Its costly but not too much, also need money. And if we combine the old machine and the new one for sure it may not work well together because of this our quality product are affected and also our employee.

VI.

CONCLUSION: Alternative # 2