Wilkerson Company Case

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Harvard Business School Case- Wilkerson Company

Harvard Business School Case- Wilkerson Company

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Transcript

  • 1. 1
    Wilkerson
    Ella Shen
    Donna Huang
    Summer Hu
    William Lu
    Nora Wang
    Alex Zhang
  • 2. 2
    Agenda
  • 3. 3
    Company Overview
    Objectives
    • Understand the underlying reason of Wilkerson’s decreasing margin
    • 4. Combat the declining margin
    • 5. Profit maximize
    Backgrounds
    • A mid-sized manufacturing company for water purification system
    • 6. It specializes in producing of 3 products:
    • 7. valve, pump and flow controller
    Strategy
    • Has only one producing department, where all components are machined and assembled
    • 8. Uses volume-based costing because it is less costly
    3
  • 9. 4
    Manufacturing Process
  • 10. 5
    Market Analysis- PEST
  • 11. 6
    Porter’s 5 Forces Analysis- Rivalry
  • 12. 7
    Porter’s 5 Forces Analysis- Buyer Power
  • 13. 8
    Porter’s 5 Forces Analysis- Supplier Power
  • 14. 9
    Porter’s 5 Forces Analysis-Threats of New Entrance
  • 15. 10
    SWOT
    Strengths
    High quality product
    Customer loyalty
    Just-in-time deliveries
    Weaknesses
    Cost accounting system
    Non-value added activities
    Opportunities
    Potential profit in flow controller
    Threats
    Fierce competition
    10
  • 16. 11
    Competitive Strategy
  • 17. 12
    Problems:
    Inappropriate cost allocating method
    Overhead @300% of direct labour costs
    Reasons
    Usage of overhead activity is not in proportion to the volume of output
    Wrong cost drivers for overhead expense
    Implications
    Causes
    Misleading Profitability Analysis
    Inappropriate Pricing Decision
    Ineffective cost management
    Problem
  • 18. 13
    Alternatives
  • 19. 14
    VBC v.s ABC
  • 20. 15
    Profitability
  • 21. 16
    Flow Controller
  • 22. 17
    Status Quo
  • 23. 18
    Alternative 2- drop flow controller line
    3.04% Increase
  • 24. 19
    Alternative 2:Drop the Flow Controller
  • 25. 20
    Alternative 3: Adjustment to flow controller
    Goal
    • regain net profit to 10%
    • 26. G.M on flow controller: increase to 27%
    Implementation
    1. solely on price adjustment
    2. reduce cost then increase price
    • price increase by 50%
    • 27. breakeven point analysis  8.7% reduction in cost
    • 28. price need to be set around $143
  • 21
    Per unit cost under ABC
  • 29. 22
    Alternative 3: Adjustment to flow controller
  • 30. 23
    Matrix
  • 31. 24
    Implementation- Master Plan
    Change volume base costing to activity based costing
    High
    Increase the price of Flow Controllers
    0.5 years
    Reduce the cost of non-value added activities
    Medium
    Reduce the price of valves and pumps if price competition occurs
    1 year
    Low
    Time from Today
    1.5 years +
  • 32. 25
    Limitations
    • Unable to determine the demand curve and supply curve
    • 33. So does the equilibrium price and quantity
    • 34. All price and cost given for flow controller is an average
    Risks & Mitigation
  • 35. 26
    Thank you for listening!
    Questions?
  • 36. 27
    1. US Government Info: Bush Tax Cuts: It's Your Money http://usgovinfo.about.com/library/weekly/aa010201a.htm
     
    2. Bureau of Economic Analysis, Department of Commerce http://www.bea.gov/newsreleases/national/gdp/2000/gdp200a.htm
    3. Gross Domestic Product by Industry for 1998–2000 http://www.bea.gov/scb/pdf/2001/11november/1101gdpxind.pdf
    References
  • 37. 28
    Volume-Based Costing
  • 38. 29
    ABC Cost Driver Rate