Case
2014 STUDENT C ASE C OMPETITION
The Student Case Competition is sponsored annually by IMA® to provide an opportunity for students to interpret, analyze, evaluate, synthesize, and communicate a solution to a management accounting problem.
Starfire’s Dilemma
Capacity at What Cost?
By Thomas L. Albright, CPA; Paul E. Juras, CMA, CPA; and Russ Elrod
F
ounded in 1968 by Alan James, Starfire Trucking Company has grown into a sizeable operation with 90 trucks and 180 trailers. Recently,
FHP Technologies, Starfire’s largest customer, submitted a proposal to James to add delivery routes that would improve the efficiency of FHP’s supply chain. With Starfire already operating at (or near) full capacity, James is uncertain that his company can handle the additional routes.
James feels that accepting the offer might require
adding more trucks and possibly incurring additional debt. The issue is whether the rates offered by FHP are high enough to offset the associated risks of growing the fleet. Although James has grown his business organically through the years by reinvesting profits, the company has incurred debt from time to time to replace older equipment (usually in blocks of five trucks). He knows that the slim profit margins associated with trucking, coupled with a downturn in the economy, could spell disaster if
Starfire were saddled with too much debt.
August 2013
I
S T R AT E G I C F I N A N C E
55
2014 STUDENT C ASE COMPETITION
Roger Simmons, Starfire’s operations manager for the past 16 years, reviewed the FHP proposal and thought it was a great opportunity for the company. He approached
James to talk about it, and within 10 minutes they were in a closed-door meeting going over the pros and cons of the offer. Simmons began: “Alan, this is a huge opportunity for us to grow the business. Not to mention, as FHP becomes more dependent on our services, we will be in a stronger position to negotiate future rate
The Student Case Competition is sponsored annually by IMA® to provide an opportunity for students to interpret, analyze, evaluate, synthesize, and communicate a solution to a management accounting problem.
Starfire’s Dilemma
Capacity at What Cost?
By Thomas L. Albright, CPA; Paul E. Juras, CMA, CPA; and Russ Elrod
F
ounded in 1968 by Alan James, Starfire Trucking Company has grown into a sizeable operation with 90 trucks and 180 trailers. Recently,
FHP Technologies, Starfire’s largest customer, submitted a proposal to James to add delivery routes that would improve the efficiency of FHP’s supply chain. With Starfire already operating at (or near) full capacity, James is uncertain that his company can handle the additional routes.
James feels that accepting the offer might require
adding more trucks and possibly incurring additional debt. The issue is whether the rates offered by FHP are high enough to offset the associated risks of growing the fleet. Although James has grown his business organically through the years by reinvesting profits, the company has incurred debt from time to time to replace older equipment (usually in blocks of five trucks). He knows that the slim profit margins associated with trucking, coupled with a downturn in the economy, could spell disaster if
Starfire were saddled with too much debt.
August 2013
I
S T R AT E G I C F I N A N C E
55
2014 STUDENT C ASE COMPETITION
Roger Simmons, Starfire’s operations manager for the past 16 years, reviewed the FHP proposal and thought it was a great opportunity for the company. He approached
James to talk about it, and within 10 minutes they were in a closed-door meeting going over the pros and cons of the offer. Simmons began: “Alan, this is a huge opportunity for us to grow the business. Not to mention, as FHP becomes more dependent on our services, we will be in a stronger position to negotiate future rate