CASE - Deutsche Brauerei (DB)
The agenda attached (EXHIIBT 1) became the focus of Ms. Greta Schweitzer’s concentration for the next 24 hours. She relied on her team from her EMBA class in Frankfurt to assist her with the recommendations she would need to address this board tomorrow morning. Upon initial analysis, it became obvious that DB was in trouble with respect to the Ukraine market, much less the proposed capital expansion. Several items alarmed the team when we read the statements from both Lukas Schweitzer and Oleg Pinchuk. The sales and marketing manager has an obviously different approach than that which made DB successful in the past. Oleg Pinchuk has extended credit to its “distributors” which is causing a rise in sales and accordingly an increase in his salary (as it is based on sales). This needs to be corrected; given such a volatile environment and this firm’s recent history, a person in his position should earn a salary based on accounts receivable collections, rather than sales. Perhaps then, his discretion would be more restrictive with respect to extension of credit. Furthermore, if the distributors are in fact expanding and enhancing their stores by purchasing new equipment and restocking inventories, then obviously they have the cash to pay DB for their outstanding invoices. This raises considerable questions regarding the prudence of “trade-credit extensions” and compensation packages offered Mr. Pinchuk, and accordingly, we recommend his termination. A new salary structure and job description delineating required results can be negotiated with Mr. Pinchuk’s replacement. When considering adopting the budget for 2001, we must consider the proposed expansion and investments in new plant and equipment (warehouse and distribution center). With the overuse of short term debt and a borrowing rate over 2% higher than the government rate, it will be impossible to finance this capital expansion. We cannot recommend approval of the...
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