CASE I

Southern Recreational Vehicle Company

Submitted by:
Junio, Jovy Kate C.
Jagonob, Bena B.

Submitted to:
Engr.Charito C.Labao, MBA

March 6, 2016
 Southern Recreational Vehicle Company
In October 2001, the top management of Southern Recreational Vehicle
Company of St. Louis, Missouri, announced its plans to relocate its
manufacturing and assembly operations to a new plant in Ridgecrest,
Mississippi. The firm, a major producer of pickup campers and camper trailers,
had experienced 5 consecutive years of declining profits as a result of
spiraling production costs. The costs of labor and raw materials had
increased alarmingly, utility costs had gone up sharply, and taxes and
transportation expenses had steadily climbed upward. In spite of increased
sales, the company suffered its first net loss since operations were begun in
1982.
When management initially considered relocation, it closely scrutinized
several geographic areas. Of primary importance to the relocation decision
were the availability of adequate transportation facilities, state and
municipal tax structures, an adequate labor supply, positive community
attitudes, reasonable site costs, and financial inducements. Although several
communities offered essentially the same incentives, the management of
Southern Recreational Vehicle Company was favorably impressed by the
efforts of the Mississippi Power and Light Company to attract clean, labor-
intensive industry and the enthusiasm exhibited by state and local officials,
who actively sought to bolster the states economy by enticing
manufacturing firms to locate within its boundaries.
Two weeks prior to the announcement, management of Southern
Recreational Vehicle Company finalized its relocation plans. An existing
building in Ridgecrests industrial park was selected (the physical facility had
previously housed a mobile home manufacturer that had gone bankrupt due
to inadequate financing and poor management); initial recruiting was begun
through the state employment office; and efforts to lease or sell the St. Louis
property were initiated. Among the inducements offered Southern
Recreational Vehicle Company to locate in Ridgecrest were:
1. Exemption from county and municipal taxes for 5 years
2. Free water and sewage services
3. Construction of a second loading dockfree of costat the industrial site
4. An agreement to issue $500,000 in industrial bonds for future expansion
5. Public-financed training of workers in a local industrial trade school

In addition to these inducements, other factors weighed heavily in the

decision to locate in the small Mississippi town. Labor costs would be
significantly less than those incurred in St. Louis; organized labor was not
expected to be as powerful (Mississippi is a right-to-work state); and utility
costs and taxes would be moderate. All in all, the management of Southern
Recreational Vehicle Company felt that its decision was sound.
On October 15, the following announcement was attached to each
employees paycheck:
To: Employees of Southern Recreational Vehicle Company
From: Gerald OBrian, President
The Management of Southern Recreational Vehicle Company regretfully
announces its plans to cease all manufacturing operations in St. Louis on
December 31. Because of increased operating costs and the unreasonable
demands forced upon the company by the union, it has become impossible
to operate profitably. I sincerely appreciate the fine service that each of you
has rendered to the company during the past years. If I can be of assistance
in helping you find suitable employment with another firm, please let me
know. Thank you again for your cooperation and past service.

Problem Identified:
Strengths
Weaknesses
Opportunities
Threats

Questions for discussion

1. Evaluate the inducements offered Southern Recreational Vehicle

Company by community leaders in Ridgecrest, Mississippi.
The inducements that was offered to Southern Recreational Vehicle
Company is very enticing,and at the same time a fair one.The
inducement meets the primary considerations the company wants to
address by relocating its operations-the taxes,utilities and
transportation costs. It will be a great benefit for the company if they
will be exempted from country and municipal taxes for five years.
Also,the free construction of loading docks at the industrial site will be
of great help for the faster loading and unloading of materials and
goods. The quality of labor will not be also a problem,because they will
be trained in a local industrial trade school to work efficiently and
effectively. These inducements are quite extraordinary, so the
management should also consider that there must be something
undesirable about locating in that community.
2. What problems would a company experience in relocating its
executives from a heavily populated industrialized area to a small rural
town?

A major problem in relocation decisions is the reluctance of executives

to move from industrialized, heavily populated areas to small, rural
towns. Often, the educational, recreational, and cultural opportunities
are lacking. In addition, residential housing, shopping facilities, medical
facilities, and adequate police and fire protection play an important
role in the deci sion of executives
3. Evaluate the reasons cited by OBrian for relocation.Are they
justifiable?
Matters of economics are certainly justifiable reasons to relocate. If a
firm can generate more revenue, operate more efficiently, and
experience lower costs at another site, relocation should certainly be
considered.

4. What legal and ethical responsibilities does a firm have to its

employees when a decision to cease operations is made?

Whenever the management of a firm decides to cease operations in a

given location, it has the responsibility to aid its employees in finding
suitable employment in that community. Such assistance can take
various forms, including personal con- tacts with other employers and
personal recommendations. In addition, the employer has a
responsibility to notify its employees of the decision as soon as it has
been finalized in order to give each worker ample time to find
employment elsewhere. Finally, severance pay should be considered in
an attempt to alleviate financial hardships on workers who have been
unsuccessful in their attempts to find employment elsewhere.
 CASE II

Ambrose Distribution Center

Submitted by:
Junio, Jovy Kate C.
Jagonob, Bena B.

Submitted to:
Engr.Charito C.Labao, MBA

March 6, 2016
Ambrose Distribution Center

The Ambrose family owns a small regional chain of retail stores. Their best-
known products are audio CDs, concert DVDs, DVD players, and audio
accessories. Currently, the family utilizes the services of an independent
contractor to supply their stores by truck. The family is not completely satisfied
with the timeliness and reliability of the contractor. The family has researched
the issue of distribution centers, and has come to the conclusion that it will
discontinue its contract with the trucking contractor, and go forward with its
own distribution center (DC).

Coincidentally, the chain has 10 outlets5 in Texas and 5 in Oklahoma. These

outlets are located in 10 cities as shown in the table; also given are the
annual tons of merchandise required at each outlet.

The familys research shows that there are two distinct capacity
configurations for distribution centers: "small" and "large." The small version
can support 5 retail outlets; the large can support 10. Annual fixed costs for
the small are $2,000,000 each; each large has annual fixed costs of
$3,600,000. The familys cost accountant treats variable costs as proportional
to the amount of merchandise moved through a facility. Last year, that
proportion was 35% of the value of merchandise. The organization recognizes
that the other major cost is shippingit must consider transportation costs of
$2,00 per ton-mile. (A load of 40 tons moved 10 miles is 400 ton-miles.)

The locations are shown in the table at right. Each distance unit equals 40
miles.

The family has contacted Robert Piland, a professor in Texas, to serve as its
consultant on this project. It asked Professor Piland to answer several
questions. Should the chain construct one large distribution center or two
small ones? Where should the distribution center(s) be located? What will be
the annual total costs associated with each choice? What considerations
other than cost should be considered in making this decision?

Company analysts have done forecasts of growth and demand, and suggest
that the 10 stores may become more alike in size in the future, and that each
will need to be supplied with approximately 600 tons of merchandise per
year. If this demand forecast is valid, would Pilands recommendation (one
distribution center or two) be any different?

DISCUSSION QUESTION

Prepare Robert Pilands report to the Ambrose family

Problem Identified:

Strengths

Weaknesses

Opportunities

Threats
 1. A company is considering the relocation of its manufacturing plant
and administrative offices from a small city in Northern China to a
similar-sized city in the South.Approximately 20% of the residents of the
city are employed by the company,and many others are employed in
business such as banks,personal services,restaurants,shopping centers
and supermarkets that would suffer a decline in business if the
company decides to relocate.Does the company have a social
responsibility to factor into its decision the impact that its move would
have on the city?Explain your reasoning.

Social responsibility is important to a business because it demonstrates to

both consumers and the media that the company takes an interest in wider
social issues that have no direct impact on profit margins. In this case a
company is considering a relocation of its manufacturing plant and
administrative offices that would result in loss of job of 20% city residents and
decline of other businesses. Social responsibility should be factored also in
making location decisions. The company should consider the adverse effects
of their actions not just for their benefit but also for their employees and
acustomers.

Being part of the scheme that helps disadvantaged people or those

otherwise in need can help boost morale for employees within the
responsible company

2. The owner of a fast-food franchise had exclusive rights to operate in a

medium-sized Metropolitan area.The owner currently has a single outlet
open,which has proved to be very popular, and there are often
waiting lines of customers. The owner is therefore considering opening
one or more outlets in the area.What are the key factors that the
owner should investigate before making a final decision?What trade-
offs would there be in opening one additional site versus opening
several additional sites?
Franchising is a policy of marketing goods, services or technology, which is
based upon a closed and ongoing partnership between legally, and
financially separate and independent undertakings, the franchisor and the
franchisees. In such cases the franchiser provides its individual franchisees the
right, and imposes the obligations to conduct a business in accordance the
franchisors concept.

The right entitles and compels the individual franchisee, in exchange for a
direct or indirect financial consideration, to use the franchisor's trade name,
and/or trade mark and/or service mark, know-how(*), business and technical
methods, procedural system, and other industrial and/or intellectual property
rights.

Along with getting the rights and being obligated to the concept of
franchiser the franchisee have to go through many investigations regarding
the acceptance of the brand and long term sustainability because opening
a new outlet always carries huge investment, effort and the risk as well. Some
of the very important factors to be investigated are:
Skills & capabilities of the owner: The owners capabilities and skills that is
required for the extension of business is the very first factor to be considered.

Market Research: An extensive market research need to be conducted,

which have to include the consumers buying behavior and the market of
competition as well.
The Cost versus Revenue Analysis: It is needed because that would help if the
investment is worthwhile or not. It has to be done because it is a waste of
time to open a new outlet if there is no profit. The rent of outlet,
compensation of employees, infrastructures, construction cost are some cost
that has to be finalized and probable

Location: It is another very important aspect because location has the main
role in success and failure of the business. The distance of one outlet with
another has to be carefully analyzed so that the

existing outlet may not collide with the new one. Movement of people
around the new location is also important part.
Customers & service: The demand of customer also has to be analyzed
because opening fast-food restaurant in a place where people desire to
spend long hours or partying would not be the good idea. The outlet has to
be able to provide the fast and fine service as the name is fast food. For this
the team design and well trained employees are needed.

Test & Hygiene: Hygiene is the main concern of people having fast-food
nowadays if the restaurant is not able to maintain hygiene then that wont
last long. And if new outlet is not able to serve the test as the old one then
that may upset their customers that factor also need to be considered.
Team Building: There is no any argument that team can perform better than
individual. The major objective of team building should be on achieving its
goal. With the help of team, productivity can be increased whether it is in
term of decision making, working condition or quality. Also members of the
team are motivated when they work in team.

While opening several additional sites we can capture the market and know
them gradually. After studying and knowing the market we can stick with the
profitable market and leave the rest. Presence of the company will be better,
hence providing better opportunities. It will obviously be costly compared to
opening one additional site but with the proper management and control
system it can be turned into profitable business.

Conclusion

While launching any business location planning is very important. Success

and failure of any business or franchising depends on how effectively and
smartly the location has planned. When opening new outlet in the new
location many aspect should be taken into consideration. Outlet might be
popular in one location but there is no guarantee that it will popular in
another location also. Due to various aspects like consumer buying behavior,
customer taste, income level, may be culture and others may affect the
business and therefore they should be carefully analyzed before establishing
new outlet. It should also be kept in mind that the new outlet should not
cannibalize the old outlet or vice versa. Certain amount should be paid to
the parent company which should be made clear in the beginning. The right
franchise can give a head start whereas if wrong can lead to severe loss.