October 28, 2010
With the case presented on Shui Fabrics, the main problem is the labor cost; it is contributing to the low ROI of 5%.
The main objective of Shui Fabrics is to improve the ROI from 5% to 20%.
Ray Betzell can have a list of alternatives that he may consider to improve their ROI. One is to increase the sales in the Chinese market and internationally. But this option is incontrollable. It is depending on the marketing strategy that Ray will provide and it will induce an additional cost to the company. Another option is to decrease the cost. Focusing on this strategy will only adapt to the option of Ray’s boss, to decrease the labor force which in turn will provide a serious problem to the management. And besides, only the fixed cost can be controlled and thereby decreased. One last option is to decrease the workforce substantially by incorporating the more sophisticated technology. This strategy will lessen the fixed cost, which is the labor cost, but will need an additional investment on automation technology. Adding new technology will indicate an additional investment which in turn means an addition to non-current assets. This in effect will provide a negative impact on the ROA (Return on Asset). Low ROA connotes low ROI.
With the alternatives provided above, Shui may want to consider the lists of options that will be beneficial to both the company and its labor force. First is to utilize the strong labor force present in the organization by improving the efficiency of the people by providing trainings. Workers must be proficient enough in performing their specific tasks. Secondly, enhance the technical skills of those in the Support groups to improve the productivity of the production line. Maximization of the organizational resources can be obtained. Lastly, improve the hiring system. This means putting the right person in the right job. With this, delegation of work loads will be efficient and effective. 1....