CASE STUDY 1 (MAF671)

1.0 INTRODUCTION

The purpose of this report is to evaluate and analyse the current position of Cold Cuts Ltd
(CC) after the occurrence of the problem in the case study and recommend few suggestion to
resolve the issues.

The case is about CC that was a manufacturing concern in Singapore specializing in

refrigeration components. Fuzzy Frost Alpha (FFA) is the technological component brand
developed by CC and being exported worldwide. However, the refrigeration technology
doesnt altered much since its invention. Any improvement became subject to easy copying
and the greater automation of the manufacturing process had always been feasible.

One day, there was a meeting Mr. Dali as Managing Director of CC with Mr. Nelly, the Supply
Manager from their biggest customer, Secconz, an original equipment manufacturer of
refrigeration products. The agenda of that meeting was issued by Mr. Nelly that informed the
price charge by CC is too high over the material cost. In addition, Secconz request to lower
the price of since they faced a lot of competition from China who have been able to produce
at much cheaper price. CC needs to think this matter wisely in order to keep its relationship
with the biggest customer. Furthermore, the supply contract is almost ended. Losing Secconz
may give huge impact to CC.

Apart from that, there are situation when Mr. Dali receive a phone call from Mr. Rithisak, the
Plant Manager in China which is a new venture that had CC began a year before. Mr. Rithisak
told that a contingent of their trade officials gave a surprise visit. They was informed that US
International Trade Commission has begun investigation on the exports from China to to the
US. Although, CC confident that they act according to law, US International Trade Commission
stated that the price of the product is much lower than the fair value. If they find CC is guilty,
CC will either need to close down the operation or at the very least levy a huge anti-dumping
tax. However, there was some ethical issue arise from this situation when they offers some
bribes to CC if want to settle the case smoothen.

Thus, from this situation, there are few analysis must be made to help CC board in making
decision how to handle and solve the issues arise. This report consists of solution and
recommendation as it is required as mentioned in lesson plan for this case study.

1
 CASE STUDY 1 (MAF671)

2.0 1st ISSUE

Since Secconz, the biggest customer of CC requested for lower price for the component had
been supplied, its might burden Mr. Dali to make decision. A lot of competition from China
who have been able to produce product as much as similar like them at cheaper price may
the main factor why Secconz ask for that. In addition, CC didnt want to lose the business
relationship have been made in order to maintain revenue contribute by Secconz that is about
one third of total sales of CC. Thus, there are a few solution might be suggested to Board of
Director (BOD) during the meeting as below:

SUGGESTED SOLUTIONS

1. Cutting overhead cost in manufacturing and revise pricing strategy.

In order to decrease overhead cost when it comes to manufacturing is by reducing

the amount of products that is unnecessary. This means the only way to reduce the
cost come from designing the product that is simple to make by uses inexpensive that
are robust and reliable. Apart from that, lean manufacturing or six sigma also can be
implement during the manufacturing cost. These programs will increase the
productivity because it get rid of waste and poor quality, which means the products
are produce more quality and not wasting time or energy on production costs.

2. Review and re-evaluate Standard Operating Procedure (SOP).

To increase the efficiency and effectiveness in manufacturing products, CC needs to

review and re-evaluate the operational processes from bottom to top management.
Unnecessary steps or procedure that CC needed before this but not anymore must
be trim out from the operation. Other than that, by making improvement or new
change will enhance productivity of work indirectly can increase the quality of product
and reduce the unnecessary cost.

3. Use new current or updated technology.

In the era of technology, it is important for every business to have a proper adoption
of current updated technology. High installation cost and maintaining service might
be the reasons why entrepreneurs are reluctant to adopt new updated technology.
The learning curve also can be the addition reasons of this. Thus, CC needs to be out
of this situation by adopting the right technology products for business that can save
money in the long term and save time in production. It is important for business
owners and managers to stay informed on the latest technology products in their
industry.

2
 CASE STUDY 1 (MAF671)

4. Convince the client.

Last but not least the suggested solution for the first issue by convince the client.
Since CC sell high price of their product compare to others, they needs to convince
the client by explaining and that the product is produce more far better quality than
the competitors that is long lasting for use.

RECOMMENDATION

From the suggested solution have been listed above, the most suitable recommendation to
the BOD is by choosing the first solution that is cutting overhead cost and revise the pricing
strategy. Based on my point of view, this idea is recommended because in order to keep the
business relationship had been made with Secconz, it is also be able to save costs and time
in producing products supply to Secconz. Thus, there is no need to wasting time and energy
during the manufacturing process.

3
 CASE STUDY 1 (MAF671)

3.0 2nd ISSUE

The second issues began when the United States (US) International Trade Commissions start
investigation on CC products that being exported to US from China. They are stated that
product is pricing too much lower compare to the fair value. However, Plant Manager from
China, Mr. Rithisak saying that, they are act according to low. Its become complicated
because there is a chance to close down the operation in China or at the very least levy a
huge anti-dumping tax on CC. This situation leads to the ethical issue when US International
Trade Commissions want some bribes to smoothen the thing out for CC.

OPTIONS & RECOMMENDATION

1. Seek legal advices from World Trade Organization (WTO) or paying the huge anti-
dumping tax.

CC may seek for legal advices from WTO in order to set the price in foreign country.
Although Mr. Rithisak believe that they (CC) have acted according to law, sometimes
there are some issues that cant be predict in future. Just like the situation face by Mr.
Rithisak, they need to seek advice or information from the legal or world body about
the anti-dumping tax in order to revise the product price. Apart from that, they may
refer with the Anti-Dumping Agreement that had been made because everything
acted according to law. Paying the huge anti-dumping tax were the others option but
it will burden to the company, if they were not guilty.

2. Take action towards the person that making bribes or ignore the person.

Ethical issues such as bribes or corrupt can be happens in any kind of situation. For
this case, since US International Trade Commission starts the investigation about the
anti-dumping tax activities, they want some bribes from CC management in China to
smoothen the thing out. So the best option in order to get out of the dilemma by taking
action towards that person. Reporting to their top management (US International
Trade Commission) and local authorities may be the best option for CC. For instance,
Mr. Rithisak can refer or report to FBI, IAACA (International Associates of Anti-
Corruption Authorities) or INTERPOL. The role of the body just like the legal body we
have in Malaysia such as SPRM (Suruhanjaya Pencegah Rasuah Malaysia), a body
that can be refer is there any suspicious or case related to bribe issues. Ignore the
person that want bribe were another option for Mr. Rithisak.

4
 CASE STUDY 1 (MAF671)

4.0 ANALYSIS

4.1 FINANCIAL ANALYSIS

EUROPEAN
SECCONZ
CUSTOMERS
PER UNIT ($)
PER UNIT ($)
DIRECT MATERIALS 40 40
DIRECT LABOURS 10 10
DIRECT COSTS 50 50
FACTORY OVERHEAD 8 8
MANUFACTURING COSTS 58 58
MARGIN BEFORE MACHINERY
DEPRECIATION & ADMIN. 82 42
COSTS
SELLING PRICE 140 100
ANNUAL REQUIREMENT
25,000 50,000
(UNIT)
25,000 * 140 50,000 * 100
ANNUAL SALES
= 3,500,000 = 5,000,000
25,000 * 82 50,000 * 42
MARGIN
= 2,050,000 = 2,100,000

According to analysis made above, losing Secconz may give huge impact to CC since
Secconz contribute about one third of annual requirement of sales. Thus, the solution and
recommendation was given after CC considering didnt want lose only local customer that they
have. Although the price is quite bit higher than other competitors, there were a few
recommendation may be suggested in order to keep the business relationship with Secconz.

5
 CASE STUDY 1 (MAF671)

4.2 SWOT ANALYSIS

SWOT analysis is an analysis made to identify the companys strength, weaknesses,
opportunity and threats. Since the product manufacture by CC have been faced some
problems in market, they needs to analyse by using SWOT in order to improving their product
supply in future. Below are the SWOT analysis made based on product being manufacture by
CC.

STRENGTHS WEAKNESSES

Specializing in refrigeration components that Selling price higher than others competitors
have own brand or products known as The manufacturing cost is high
Fuzzy Frost Alpha (FFA) system; Do not have proper price strategy
Products are being worldwide & only Lack of knowledge about anti-dumping tax
Singaporean supplier for FFA technology
Enable perishable items to be stored far
longer than conventional fridges

OPPORTUNITY THREATS

Expansion to China Competitors in China produce similar

Invest in new market products at cheaper price
Bribery
Might loss the biggest customer Secconz

6
 CASE STUDY 1 (MAF671)

5.0 CONCLUSION

As conclusion, losing Secconz (the biggest customers of CC) will give huge impact to the
financial of the company CC. It is about one third of sales will drop from existing revenue
stream. Thus, there are a few strategic option that may be suggested during the meeting with
BOD of CC. There are by cutting overhead cost in manufacturing and revise the pricing
strategy, review the company Standard of Procedure (SOP), used new updated technology and
convince the client. However, the most effective way may be recommended to BOD is by
cutting overhead manufacturing cost and revise the pricing strategy. Just in time manufacturing
or lean manufacturing can be the additional solution in reducing the cost of producing profucts.

In addition, CC also need to seek for legal advises about anti-dumping tax and revise the
product price by referring with the Anti-Dumping Agreement. This is to ensure that the price
of the product being exported are act according to law. In case of bribery, CC should take action
towards the person who propose the bribe such as report to the upper management of US
International Trade Commissioner or to the legal body such as International Associates of Anti-
Corruption Authorities (AIAACA) or FBI for further investigation or action.

Generally, the company should implement a strategy for combating possible the practices of
bribery includes organizational measures, measures concerning corporate management and
staff and, very importantly is monitoring measures adapted to the size of the company and the
markets or sectors which it is operating.