Clayton Industries

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DATE: February 23, 2012

TO: Clayton Industries Management

Dan Briggs - CEO Clayton Industries

Simonne Buis - President Clayton Europe

FROM: Peter Arnell - Manager Clayton SpA

RE: Action Plan for Clayton SpA to Increase Sales & Profitability in the Italian Sector

EXECUTIVE SUMMARY:

Clayton SpA, the Italian subsidiary of Clayton Industries, faces numerous obstacles that are causing the company to lose profitability as well as its standing in the market it once had. Declining sales, a global recession, stiff competition from Asian manufacturers, inflated operational costs, and decreasing demand for the product are all reasons why Clayton SpA is forced to reevaluate the Brescia Italy plant and make a sound business decision as to its fate. After discussions and meetings with other plant management and personnel, three options were proposed: invest additional monies into the Italian division and revive operations, target production towards absorption chillers rather than the compression chillers, or wait about six months and observe the activity of the economy before making any type of financial decision. Targeting production towards absorption chillers is the best option for Clayton in order to regain its position financially and its competitive position in the market.

INTRODUCTION

Clayton Industries, a business based on sales of window mounted air conditioning units sold in residential and small commercial units, was formed in 1938 in Milwaukee, WI. In the 1980's, the company decided to expand into commercial operations in North America and saw an opportunity for growth in the European market. It achieved this growth through the acquisition of four other companies, including Corliss - a company that manufactured HVAC units and AeroPuro - an Italian manufacturer of compression chillers. Clayton did an organization restructure in order to accommodate the global expansion and developed a new entity, Clayton Europe, to handle the European acquisitions. These acquisitions enabled Clayton to be a dominant force in that market until the global recession in 2009 at which point Clayton's international divisions saw a decline in sales. Clayton SpA, the Italian division of Clayton Industries, was the most negatively impacted, suffering a 19% decline in sales and experiencing revenue losses of $1 million per month (Bartlett & Barlow,2010,p.3). Internal mismanagement, an exaggerated workforce, and the view of air conditioning units as an unnecessary "American luxury" by European citizens all contributed to the rapid decline in sales and loss of revenue. Facing competition from Asian manufacturers that were making the same product more efficient and less expensive also proved to be an obstacle for Clayton SpA. This contributed to the need to offer a better product at a cheaper price for Clayton SpA to remain competitive and profitable in this market. In reaction to all of these issues being faced by Clayton, all country management was asked to participate in a "10/10/10" plan which entailed cutting days receivables and days in inventory by 10 days each and reduce the labor force by 10%. The "Top Four in Four" initiative was also presented to country management in which they were asked to develop a plan where the product for which their division was responsible for selling would be in the top four of the European market share in four years. In this report are the options being considered and plans presented in order for Clayton SpA division to rally back from the losses it has suffered financially.

INTERNAL/EXTERNAL ANALYSIS

SWOT ANALYSIS

• One strength is that the Clayton European division is now being led by more effective and goal-oriented management. The fact that they were also hired from other more successful sectors of the company enables this division to be led by individuals who already know the business and the company and draw from prior plans in...
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