Strategy Deployment in Business Units by Maik Schlickel

Author:Maik Schlickel
Language: eng
Format: epub
Publisher: Springer Berlin Heidelberg, Berlin, Heidelberg

4.9 MX

The MX company has two production facilities. It produces head lamps in Mexico City, and in Guadalajara it produces rear lamps, single-function lamps, and interior lighting. MX thus supplies the North American market with all the product varieties manufactured by CORE. The product portfolio of MX is similar to that of CN. By way of comparison: in business year 2009/2010, MX produced approximately 40 % more head lamps, 60 % more rear lamps, and 75 % more single-function lamps than did CN. However, MX produces only a third of the CN volume of interior lighting. The company context of MX is a complicated one, involving as it does two distinct production facilities and the entire range of CORE products.

Profitability and CID Targets. MX is a turnaround story. In business year 2008/2009, MX’s earnings before taxes were a negative 20.4 %. As a result, headquarters assigned MX an extremely ambitious CID target for business year 2009/2010. Even though this target amounted to almost 18 % of forecast MX sales, MX was able to reach that goal. In so doing, MX made a (small) profit in earnings before taxes for the first time since its establishment.

Sales Price Conditions. One reason that MX had been losing money is high materials prices, which in turn were caused by conditions in the North American automotive market. Because MX wanted to increase its share of this tough market, headquarters acquired products whose sales price was less than their manufacturing costs. Moreover, the market for automobiles was itself characterized by strong discounts, which had been introduced by the “big three” US automakers in order to increase demand for their own products. Those discounts were passed on to automakers’ suppliers, and MX had no choice but to accept them. One OEM customer even demanded a multimillion-dollar payment before sending CORE any more business; when CORE refused, it stopped receiving new business from that customer. The Guadalajara R&D manager laments: “This is sad, because we make 30% of our current sales with this customer.” Another customer urged MX to take over the business from a bankrupt competitor. After MX agreed, it found out that the acquired products were of poor quality; this episode further burdened its profitability.

Process Mastery. The CORE COO explained the company’s hard times as follows: “MX had trouble with their profitability because they overestimated their production processes in terms of capability and capacity.” According to the plant manager in Mexico City, “[t]he productivity is still too low at MX. Currently, we have a ratio of 1.6 direct operation employees per indirect employee. The target is a ratio of 3 [to 1].” In addition, there exist other limitations on their process mastery. At least once per week the Mexico City facility experiences a blackout, a process interruption that increases scrap; also, there is no additional space available into which the facility could expand. These circumstances, when combined with the relatively higher wages in Mexico City, make it hard to establish sound processes and competitive production there. According to MX executives, it is thus likely that the company will soon concentrate most or all of its business in Guadalajara.

Download

Copyright Disclaimer:
This site does not store any files on its server. We only index and link to content provided by other sites. Please contact the content providers to delete copyright contents if any and email us, we'll remove relevant links or contents immediately.