Inner City Paint Case

Topics: Balance sheet, Liability, Current asset Pages: 7 (1721 words) Published: November 13, 2011
Industry Eight Small/Medium Entrepreneurial Ventures

Inner-City Paint Corporation
Donald F. Kuratko and Norman]. Gierlasinski


Stanley Walsh began Inner-City Paint Corporation in a run-down warehouse, which he rented, on the fringe of Chicago's" downtown"business area. The company is still 10cated at its original site. Inner-City is a small company that manufactures wall paint. It does not compete with giants such as Glidden and DuPont. There are small paint manufacturers in Chicago that supply the immediate area. The proliferation of paint manufacturers is due to the fact that the weight of the product (52'12 pounds per 5-gallon container) makes the cost of shipping great distances prohibitive. Inner-City's chief product is flat white wall paint sold in 5-gallon plastic cans. It also produces colors on request in 55-gallon containers. The primary market of Inner-City is the small- to medium-sized decorating company. Pricing must be competitive; until recently, Inner-City had shown steady growth in this market. The slowdown in the housing market combined with a slowdown in the overall economy caused financial difficulty for Inner-City Paint Corporation. Inner-City's reputation had been built on fast service: it frequently supplied paint to contractors within 24 hours. Speedy delivery to customers became difficult when Inner-City was required to pay cash on delivery (CO.D.) for its raw materials. Inner-City had been operating without management controls or financial controls. It had grown from a very small two-person company with sales of $60,000 annually five years ago, to sales of $1,800,000 and 38 employees this year. Stanley Walsh realized that tighter controls within his organization would be necessary if the company was to survive.

Five mixers are used in the manufacturing process. Three large mixers can produce a maximum of 400 gallons, per batch, per mixer. The two smaller mixers can produce a maximum of 100 gallons, per batch, per mixer. Two lift trucks are used for moving raw materials. The materials are packed in 100pound bags. The lift trucks also move finished goods, which are stacked on pallets. A small testing lab ensures the quality of materials received and the consistent quality of their finished product. The equipment in the lab is sufficient to handle the current volume of product manufactured. Transportation equipment consists of two 24-foot delivery trucks and two vans. This small fleet is more than sufficient because many customers pick up their orders to save delivery costs.

This case was prepared by Professor Donald F. Kuratko of Ball State University and Professor Norman J. Gierlasinski of Central Washington State University. This case was edited and revised for 5MBP-7th Edition. Copyright © 1984 by Donald F. Kuratko and Norman J. Gierlasinski. Reprinted by permission.



Case 27

Inner-City Paint Corporation



Inner-City performs all operations from one building consisting of 16,400 square feet. The majority of the space is devoted to manufacturing and storage; only 850 square feet is assigned as office space. The building is 45 years old and in disrepair. It is being leased in three-year increments. The current monthly rent on this lease is $2,700. The rent is low in consideration of the poor condition of the building and its undesirable location in a run-down neighborhood (south side of Chicago). These conditions are suitable to Inner-City because of the dusty, dirty nature of the manufacturing process and the small contribution of the rent to overhead costs.

Flat white paint is made with pigment (titanium dioxide and silicates), vehicle (resin), and water. The water makes up 72% of the contents of the product. To produce a color, the necessary pigment is added to the flat white paint. The pigment used to produce the color has been previously tested in the lab to ensure consistent quality...
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