CASE STUDY: Blaze Manufacturing

CASE STUDY: Blaze Manufacturing
Introduction
Blaze Manufacturing is a textile manufacturing company based in the upstate of New York,
United States. The company was founded in the early 2000s. The company specialized in the
manufacturing of bedspreads and curtains for institutional customers, which includes Hotels and
Hospital, and other hospitality outfits. This company operates as a job, and it does not mass
produce inventory items for sale through normal retail channels. Insted the company placed its
priority on producing goods to fill specific customer orders received. The company products are
relatively standard layout and of high quality; bedspreads in all kinds of bed sizes, and curtains
to fit various sizes of windows. According to the giving article each customer chooses the fabric,
the colour and the styles that go into making the items it orders. Personalized and customized is
also available for customers.
Identify the problem: Define the problem in financial terms
Blaze Manufacturing is facing problems in its manufacturing business. Local manufacturing
companies face additional costs compared to their foreign counterparts due to government
regulation, policies and environmental concerns. The high costs have increased Blaze
Manufacturing’s overall costs and have made it difficult to operate. Many textile manufacturers
in the United States of America have gone out of business due to the increased costs of
operations and manufacturing cost ( Causseaux & Caster, 2016). Although Blaze Manufacturing
has managed to survive and was able to scale through all the obstacles, it has faced struggles in
the past related to profitability. It has lost most of its customers to its foreign competitors and
there are concerns from its managers regarding its ability to survive in the nearest future.
Countries like China and India when the cost of labour are very low and government regulations
are not very rigids, it is very easier for competitors from those regions to produce with low cost,
compared to countries like the United States, Canada , and the United Kingdom.
Diagnose the Cause(s): What Operational Situation (s) created the problem?
One of the main challenges Blaze Manufacturing is facing is its management system. Joe had
been the Blaze Manufacturing’s president since the inception of the company and he has
BUS 5910 Management Capstone-Term 3, Unit 4, 2019-2020
served for at least twenty years of the company's existence. This may have been a hindrance to
the company’s operational and its ability to create more model ways of doing things in order to
beat the competitive market, as there was likely to be little chance to improve the company’s
operations and strategies by appointing another president or managing director. The other
operational concern that the Blaze Manufacturing faced was that Bill the salesman who joined
the company after Joe was underpaid, This caused the employee not to be motivated well
enough. Blaze Manufacturing paid him salary and an annual bonus which was based on the
company’s revenue ( Causseaux & Caster, 2016). The company is a small company, which had
little revenue at the end of each fiscal year. This meant that the salary Bill got at the end of the
year was not enough to motivate him for better performance.
Blaze Manufacturing failed to utilize financial rewards as a tool of motivation, to ensure its
employees are motivated to provide the company with the right results and better performance.
Monetary rewards are as effective as non-monetary rewards ( Kreisman, 2002).
This both provides the company and employees with win-win conditions if they are dispensed
effectively. In this case, the company should have tied the bonuses and other payments to the
performances of its employees. Such strategies would have helped the manager to become
motivated in executing their responsibilities. There is also a problem in the company’s reporting
system. First, Wendy the new manager is different from other managers and employees. He
earns a salary plus an amount of overtime. The problem with his allocation is that he also spends
time repairing and operating the plant. According to Wendy, Bob’s labour should be considered
indirect ( Causseaux & Caster, 2016).
Possible Alternatives
a. The margin analysis here represents the percentage of the total sales revenue that Blaze
Manufacturing keeps as gross profit after deducting the costs directly related to producing
the goods sold, and services provided. Blaze Manufacturing needs to use this analysis as
a decision-making tool to help the company maximize its potential profit. But fortunately
this transaction is not favorable and the results are consistent with Wendy’s original
conclusion. The only alternative here for both the company and customers is for the
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company to do price review with their customers. Blaze Manufacturing should ensure
that their customers have a good sense of how the company prices compare to the
services the company is offering and implication for the company losing money on this
transaction.
b. Variable Cost per Unit is higher than Selling price, which means that the contribution
margin per unit will result for the company to source for funds to cover the lost. The
profit margin ratio here compares profit to sales and portraits how the company is
handling its financial overall. Based on this, Blaze Manufacturing should not accept the
order at the current price, the company have two option here
1. The company needs to reprice the order by reviewing the price with the customer.
2. The company should reject the order, although this should be the last alternative,
as there is always a room for renegotiation.
c. The negative contribution Margin Ratio indicates that Blaze Manufacturing Variable
costs and expenses exceed the company sales, but the company has the alternative of
eliminate the negative contribution margin by:
1. Raise selling price
2. Reduce variable costs
3. Or do combinations of both, raise selling price and reduce variable costs.
If the customer will not accept the price increase in order for Blaze Manufacturing to cover its
variable costs, the company is probably better off not having the sales.
Recommendations
a. It is very important that the company takes into account that ecommerce and the internet has
made the world a global community, by which customers can order products and get it in a very
short period of time from any part of the world (Donald, 2010). Countries like China and India
have a very low labor cost, this means production costs are very cheap in those countries, and
customers can get cheaper prices for the same product from those countries, although the quality
BUS 5910 Management Capstone-Term 3, Unit 4, 2019-2020
might not be the same. So manufacturing and non-manufacturing indirect costs required to
manufacture the company Fabric, Curtain and bedspreads. I recommended that Blaze
Manufacturing review its fixed cost which includes the rent/mortgage payment for its corporate
office and factories, the property taxes and utilities expenses. Because this has a huge effect on
the cost of production. Blaze Manufacturing has to accept the reality that customers have
choices, customers can decide to take their business elsewhere, if the customers think he/she can
get a cheaper price for the same product or products.
b. Variable Operating Costs: These are the actual operations cost of the factories or plant and
are measured based on the number of operating hours and energy output of each unit of
production. Example Electricity, Natural Gas, other utilities, drag-reducing agent, corrosion
inhibitor, and cost incurred in connection with or related to the operation of the facility (Carroll,
1953). I recommended that Blaze Manufacturing review all of its variable operating costs,
because this has a huge deficit effect on the contribution margin.
c. I recommended that the company shouldn’t take Joe and Bill's suggestion, that suggested that
manufacturing overhead should be spread out over more units. This will not make the orders
profitable. If the company increases its sales in the same proportion as Joe and Bill suggested,
the company will experience larger losses. The reason is that since the order has a negative
contribution margin, selling more units will only increase the losses for Blaze Manufacturing.
The best thing to do is to renegotiate prices with the customers, if possible!
Conclusion
It Is obvious that Joe does not care about the ethical aspect of it proposal, rather, his concern is
all about the sales bonus is intended to gain if he can pull the sales through, rather than the
long-term viability of Blaze Manufacturing. Every employee holds the obligations of ensuring
that their company survives and runs a smooth operation that will benefit both the company and
its employees. The fact remains, that, there is no way a company can survive with a negative
contribution margin; every company needs to make money to keep afloat, and to carry out its
general operations (Ken, 2018). This can only happen when a company makes profit from its
product(s) and services.
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Reference:
Causseaux Wanda & Caster Bruce. (2016). The Impact of Inventory Valuation Methods on
Corporate Financial Reports .
Journal of business case studies . - Littleton, Colo., ISSN 1555-3353, ZDB-ID 2442106-6. - Vol.
12.2016, 1, p. 13-18
Kreisman, B.J. (2002). Insights into Employee Motivation, Commitment and Retention.
www.btedemo.com/retrieved/02/18/2020 .
Carroll Phil. (1953). How to control Production cost, 1st Edition. New York. McGraw Hill
Donald J. Wheeler. (2010). Reducing Production Costs. Knoxville. SPC Press, Inc.
Ken Wentworth. (2018). http://wentworthfinancialpartners.com/retrieved/02/24/2020.
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