Case Analysis: Mueller-Lemhmkuhl GmbH
Name:
Professor:
Professor:
Institution:
Course:
Date:
Statement of the Problem
Operations of Mueller-Lemhmkuhl Company that is located in Germany, Europe and produces and sells apparel fasteners and attaching machines are noted to be faced with some complications as regards to attainment of organizational strategic goals. There is intense competition arising from price wars posed by Japanese Hiroto Industries that price their products at 20% lower than Mueller-Lemhmkuhl Company. Marketing, R&D and cost accounting systems ought to be re-designed so as to ensure that the firm attains competitive edge in the market, expand its operations, increase sales and profits not only in the short run but also in the long run. The loss of the market share to the Japanese Hiroto Industries that has been partially caused by forming a merger with the Atlas Group also has to be assessed since it is limiting attainment of comparative advantage in the industry (Kimmel, Kieso & Weygandt, 2008).
Executive Summary: Sound Solution to the Problem
Mueller-Lemhmkuhl Company ought to implement proper marketing strategies, revamp its cost accounting system and conduct what if analysis so as to assess the sensitivity of each of the costs incurred in relation to the revenue earned. This has an insinuation that issues relating to cost determination, marketing, research and development and effective management have to be implemented to ensure that the firm maximizes its profits. These stratagems will ensure that the organization competes effectively with other participants in the market. Mueller-Lemhmkuhl ought to adopt mechanisms that involves competing on a non-price approach so as to maintain customer relationships and increase profit margins. Porter’s five forces model has to be implemented so as to ensure that different segments of the market are reached through adoption on cost-effective marketing policies.
Analysis from Excel Spreadsheet to Support the Executive Summary
Mueller-Lemhmkuhl Company is involved in production of different apparel fasteners using automated and manual machines so as to cut on the costs of production. It has also formed an alliance with the Atlas Group that also offers apparel fasteners, though this has resulted in reduced geographical expansion prospects for the company. Hiroto Industries, which are the main threat to Mueller-Lemhmkuhl Company sell their commodities at 20% lower than the prices offered by Mueller-Lemhmkuhl Company. This has an implication that competing based on price wars would result in losses due Hiroto Industries possessing cost-advantage as they uses a cost-leadership strategy to capture wider market region. Porters’ Five Forces Model would be imperative in this context as it will ensure that more revenue is earned by the firm and make it expand its operations.
Market Condition Evaluation
Mueller-Lemhmkuhl Company is noted to the leading apparel supplier in the European market after forming an alliance with Atlas Company and thus gaining wider market share as compared to the Japanese firm. This competition is indicated to be aligned on production costs, with Mueller-Lemhmkuhl having an advantage in being located closer to a bigger market segment. Despite this, the production costs (wage and overhead) of Mueller-Lemhmkuhl Company are higher than those of the Hiroto Industries (Japanese firm). This means instituting R&D and using Porters Five Forces will ensure that effective decisions on marketing strategies are made so as to attain competitive advantage. The revenue for Mueller-Lemhmkuhl as at 1986 was estimated to be $103 million, insinuating that it was making substantial profits despite the rivalry from the Japanese firm. (Weygandt, 2012).
The executive team of the organization adopted diversification of its products so as to increase the firm’s revenue through selling different but related apparel fasteners. This diversification ought to be well managed through use of marketing, research and development as well as refurbishing the cost accounting method. This will ensure that all transactions or activities entailed in the manufacture of the products are considered in the computation of costs. This has an insinuation that investing in advertising, sales promotion and other product marketing strategies was pivotal in reaching many customers, not only in Europe but also around the globe (Weygandt, 2012). Continual evaluation of the operations and profitability of the firm has to be done so that suitable competitive strategies can be used to increase the organization’s returns. The firm has to strive to reduce the production costs and use competitive strategies other than price wars so as to attain competitive edge in the market and out do the Japanese firm.
Production Analysis
An assessment of the production processes of Mueller-Lemhmkuhl Company indicate that it has uses both manual and automatic machines so as to increase the production capacity, maximize sales and minimize production costs. The automated machines used in the production of fasteners are viewed to be effective and efficient as they produce many products simultaneously within a short period of time. They are also imperative in the whole manufacturing process as they help in reducing overhead costs such as the manual labor costs in operating the manual machines. Refurbishing the production can be done so that costs used in operating manual machines could be diverted to marketing or be retained as profits and enable the organization to make profits. In this context, it is portrayed that planning and appropriate cost analysis ought to be implemented so as to use only productive operational plans.
There is a need for the organization to conduct R&D so as to be cognizant of the market and consumption patterns of its clients so that the management can plan on marketing or promotional strategies to be used. For instance, Mueller-Lemhmkuhl Company is said to have segmented consumers into two groups; large companies purchasing large volumes of different commodities and smaller companies purchasing huge quantities of a major component. This segmentation of the consumers based on their volume of fasteners purchased is significant as it will enable the organization to make projections on sales, revenue and promotional/advertisement costs. Customer relationship marketing should be used as it enhances development of brand loyalty, maintenance of long term personal links and an eventual increase of sales and profits in for the company.
Sustaining quality production and service delivery to clients is also imperative as it will ensure customer satisfaction and development of consumer loyalty. These affirmations indicate that through the use of generic marketing schemes and use of the Porter’s Five Forces, cost-saving and efficient promotional stratagems can be implemented so as to cover wider market region, increase sales and profits for the organization (Weygandt, 2012). Mueller-Lemhmkuhl Company would not have to compete on price wars but by ensuring that the quality of the services and products offered is of high standards. It is evident that adoption of these strategies by Mueller-Lemhmkuhl will increase its sales and profit margins substantially. However, the markets’ condition and their viability ought to be evaluated through R&D before offering products and services to clients so as to losses.
What If Analysis for Mueller-Lemhmkuhl Company
What if analysis is an imperative model that enables the company to make judgemental and feasible decisions relating to cost accounting and maximization of its sales and profits. The computations in the excel sheet are based on Tornado and Spider chart analyses so as to ascertain the sensitivity and allocation of costs. Aspects put in consideration in this case relate to costs incurred in R&D as well as marketing using the Porter’s Five Forces Model so as to ensure that decisions undertaken facilitate profitability and wider market coverage. Through this analysis, operations of the organization will be coordinated and ensure that decisions made on cost accounting system and profit maximization are put in place.
Tornado chart for 10% variation on either side of the base value which is the actual budgeted value are used. If the company decides to increase marketing cost by 10%, there is a 65.07% variance. This has an insinuation that, if a decision to increase marketing or product promotion by 10%, there is an increase in net margins by $1,586 (8.3%). An increase in R&D by the same value results in an increase in revenue by $ 1162 (6.1%) on a higher variation. If Mueller-Lemhmkuhl GmbH Company varies the two costs by 25%, marketing increases by 20.9% ($3,965) and R&D 15.3% ($2,905) respectively. Detailed information is presented in the Microsoft Excel spread sheet (Edmonds, 2007).
Engaging in market surveys through R&D are vital as they will enable the firm to be cognizant with the preferences and demand as well as their market concentration. This insinuates that Mueller-Lemhmkuhl’s executive team can comprehend changes in the market and the economy at large and manufacture fasteners to suit the apparels that consumers have. Estimates of the projected costs in fastener production have to be done and be compared with projected earnings so that decisions on implementing suggested plans can be gauged. It is worth noting that these activities ought to be well coordinated and be carried out in a timely manner so as to avoid losses or unfounded decisions making that may make the organization to be overtaken by the Japanese firm.
Transaction cost accounting system ought to be adopted since it will encompass all cost elements in the calculation of production costs, pricing and decision making on appropriate marketing stratagems to use. It is through the consideration of all the costing elements that accurate standard costs for production of every item; either done using automatic or manual machines, can be determined and then proper prices can be set. There is a linkage between production costs and the prices charged regardless of those charged by other rivals in the industry. Assessing this correlation enables production and cost management officers to plan suitably what has to be done as regards to marketing, pricing and market segmentation so as to maximize profits.
In the excel spread sheet there are computations that show Mueller-Lemhmkuhl possible analyses that can be done. Tornado charts, allocation costs and sensitivity analyses are done through what if analysis so as to facilitate prosperity of the firm (Edmonds, 2007). Technological improvement such as using online order placement and marketing can be instituted so as to capture diverse market segments. Training employees and hiring qualified personnel has to be done so as to promote attainment of competitive edge in the market. Marketing strategies ought to be increased, research and development and planning implemented to meet customers’ needs since customer satisfaction leads to long term consumer relationships and increased revenue to the company.
References
Edmonds, T (2007). Fundamental Financial and Managerial Accounting Concepts, 1e. The McGraw-Hill Companies.
Weygandt, J (2012). Managerial Accounting: Tools for Business Decision Making, 6e. John Wiley & Sons, Inc.
Kimmel, P, Kieso, D & Weygandt, J (2008). Managerial Accounting. Tools for Business Decision Making, Fourth Edition. John Wiley & Sons.
