National Fabricators Inc. is a company that specializes in the manufacturing of lockers, school furniture, toilet partitions, steel shelving, and is now currently owned by Tom Kruger after buying out $75,000 of shares from shareholders in 1992. The industry is very competitive as costs are rising and prices being cut while the economy declines at the same time. As the president of National Fabricators, Tom Kruger needs to bring the company back on its feet in order to generate profits and reduce its losses of $480,315 and outstanding bank loans of $784,000. Tom Kruger also predicts that sales would fall as much as 10% during the 1994 fiscal year due to government cutbacks on medical and educational spending as well as a sluggish level of consumer confidence. Tom Kruger is now faced with trying to get a 60 day extension for his temporary line of credit in order to get the company to start making profits again.
Problem Statement and Objectives
To save the company, Tom Kruger needs to get an extension of 60 days on his temporary line of credit so that he can keep losses to a minimum and start generating more profits. At the same time, the economy is declining, competitors are setting low prices, and the government is cutting back on educational spending. Tom Kruger realizes that his plant is not being utilized at full capacity and most of the operations were being primarily financed on bank credit due to insufficient cash at hand. To address these problems, Tom Kruger is now planning on developing a new plant layout for efficiency as well as requesting a line of credit extension in order to finance debt.
As we can see from the case, the metal industry is not an attractive industry because of high competition with low bids, unstable economy, high bargaining power of buyers, and high start up costs. Since the buyers have very little suppliers to choose from to do business with, it can be concluded that suppliers have bargaining power in this industry. Buyers on the other hand only have power when they are specialized at what they do and offer a very low price. Substitution is quite limited due to different specifications offered by the major companies. Barriers to entry on the other hand are very high due to the huge amount of capital needed to get a foot in to the industry. All in all competition is very high in this industry and one must bid aggressively in order to gain a contract. However, this is hard when everyone is giving their lowest bid.
Overall, for National Fabricators the weaknesses outweigh the strengths for due to its failure towards managing both finance and operations for approximately 10 years.
The threats also outweigh the opportunities mostly due the intense competition whcih provides a negative trend towards profits for National Fabricators within the industry.
• The company has kept all of their old employees at the management level and this will allow them to keep stability while the company is under new ownership.
• With a strong sales team being compenstated on a commission basis, this will isnpire each employ to work harder to make and close sales; which in the long run will increase company profits.
• National Fabricator has contracts from purchaser who are very unlikely to default on their payables, because majority of them come from the government.
• Mr. Kruger, is well experienced for this position mostly due to his education and qualifications
• The company lacks in a sufficient inventory management and cost management system, which impacts profits.
• With a deficiency of cash flow it forced the company to purchase materials from more costly warehouses other than Steelmills which is cheaper, which inreturn had increased manufacturing cost.
• Inproper scheduling and status reporting for work in progress caused a major...