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Quality Metal Service Center

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by

Gina Eady

on 5 November 2013

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Transcript of Quality Metal Service Center

CASE 7-3
Strategy
1. Focus sales efforts on specialty metal users
2. Identify where these metals are consumed
3. Increase market share
Quality Metal Service Center
Mission: Build
Competitive Advantage
Differentiate
Creating a Niche
High Technology
Processing
Metal Usage Database
Key Success Factors
Market Share (as defined by company strategy, moving service centers to new geographic locations based on the specific need for certain metal types.)
Customer Satisfaction (Company advantage)
Customer Retention (Competitive advantage)
Customer Loyalty (Competitive advantage)
Quality
On -Time Delivery

Management Style
Decentralized
Tight control
Little autonomy
Organizational Structure
Formal hierarchy
Slower decision making
Strategy hindered
President and CEO Edward Brown
Voices concern
MCS inhibiting company strategy
Issue
Evaluation of the company’s investment centers
are based on the business unit’s ROA
Different incentives for investments across business units

Managers foregoing investment opportunities

Limited vision of growth

Fail to implement Quality’s strategy of growth
Another Consideration
Results can be misleading

Decisions to dispose of an asset

Inaccurately reward the business unit
Resolution
Evaluation of the company’s investment centers
should be based on the business unit’s EVA

Same profit objective
In Addition
Financially attractive

Incentivizes managers
Responsibility Allocation and Performance Measurement
Implementation of EVA measurement

Basis of ROA calculations
Land, Warehouse Buildings,
and Equipment
Disadvantages?

Advantages?
Leased Buildings and Equipment
Disadvantages?

Advantages?
Average Inventory
Intra-period inventory averages are preferable
Average accounts receivable balance
Take receivables at the book amount
Accounts payable
Average accounts receivable could be
stretched and inflated
Goal Congruence
Consistency or agreement of actions with organizational goals. It identifies the managerial principle that all of a firm’s subgoals must be congruent to achieve one central set of objectives.
Goal Congruence Issue
Problem is that the management control system is preventing the the District Manager, Kenneth Richards from supporting the company strategy
He desires a higher bonus but current structure is not supporting that
If they purchase new equipment, it seems his bonus percentage will decrease
Managers are setup with this management control system to make decisions that benefit their own personal bonus and not the companies goals and strategies to (increase sales and profits)

Resolution
The managers should be incentivized based on their ability to influence resource consumption and quality. For example, implementing new technologies, labor hours, direct materials, number of defective parts, on time delivery, and scrap. Managers influence input and output.
Change responsibility of who makes performance goals currently the District Manager sets the goals on performance and what should be attained
Give responsibility to the Vice President to set the performance standard have him work with the District Manager to make sure it incentivizes him and gives him the proper bonus deserved
Full transcript