Johnson Turnaround Case Study

Topics: Balance sheet, Inventory, Management Pages: 5 (1481 words) Published: April 28, 2012
Executive Summary

In November 2009, the Chairman of Johnson Pte Ltd (JPL) had purposely hire Azmi as the company’s chief executive officer (CEO) to plan and execute an appropriate turnaround strategy for the company. JPL is a Hong Kong public non-listed subsidiary of a fast moving consumer goods (FMCG) group of companies based in the southern Indian region. JPL manufactured and distributed a range of products such as noodles, bread product, frozen chicken, pastries, yeast, and fat. It also traded in commodities such as oil. It owned a chain of restaurants and retailing outlets. JPL had on average, 1000 employees including 80 general administration staff.

JPL was wholly-owned by the Indian government before 80% of its shareholdings were acquired by the Hong Kong group of companies after 20 years operating. The objective of the takeover was the strategic priority to gain rapid international market share as well as to increase its ability to service an expanded and geographically dispersed customers based in the Middle East and the Indian subcontinent states.

The company was structured into four main functional units namely, the Sales and Marketing, Finance and Accounting, Production and Services, and Human Resource Management. Each functional unit headed by a director, and together with the CEO, they formed the executive management team of the company.

According to the Chairman, the company has been overwhelmed with problems ever since the takeover. The sales figures are keep declining but the operating costs are up. He suspected that the underlying causes of those problems are from the company’s credit control and inventories management.

The Protagonist

Azmi has been determined to be the protagonist in this case. He had been personally chosen by the Chairman of JPL to be the CEO of the company commencing in November 2009. The main task given to him by the Chairman was to plan and execute an appropriate turnaround strategy for the company. To have that to be done, Azmi had been reviewing the company’s financial statements and also focusing on the company’s credit control and inventories management. Prior to the reviews, he had found several problems that cause the downturn of the company.

The Problems

There were a few retail outlets owned by the company were persistently incurring losses, perhaps because of non-strategic locations. This problem worsened the conventional high operating costs that JPL has to face because of the rising of the raw material prices.

While reviewing the financial statements, Azmi found out that for the year ended 31 December 2008, the company had incurred a loss of $10.14 million. This was prior to the excessive spending in advertisement and promotional cost which amounted to $5 million in 2008.

Azmi also found out that the company’s account receivable was poorly manage which cause the debt kept multiplying over the year. There was a significant $40 million total provision made for bad debts in the accounts over a 10 year period. Upon investigation, he discovered that the problem stemmed from wholesale distributors who were defaulting.

The company also had been having negative cash flows in 2008 as well as the preceding years. This was due to the mismanagement of inventory and account receivable as well as the poor asset management.

There were insufficient bank guarantees given by the dealers and wholesalers for the goods taken on credit up to one month. The company’s overall account receivable showed an average overdue more than 90 days. The company also accepting the placement of motor vehicles as part of collateral for the goods obtained.

Azmi observed that there were a number of empty factories with old steel structures intact for the last 10 years. Azmi found heaps of obsolete spare parts left untouched in the store room while inspected the company’s assets. Azmi run through the fixed asset motor register and he realised that the most of the vehicles...
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