Case Study: Blaze Manufacturing

Introduction

            This case study is about Blaze manufacturing, a textile company operating in upstate New York.  They specialized in making textile products such as bedspreads and curtains for institutional customers, primarily hotels and hospitals. In the past years, textile manufacturing companies in the U.S are faced with tough competitive pressure from foreign companies in terms of lower wages, environmental and safety regulations laws that were heavily imposed on the U.S companies by the Government (Causseaux, W. & Caster, B. 2016). These imposed regulations had significant production costs on domestic companies such as Blaze Manufacturing. In the recent past years, Blaze had managed to struggle through these tough seasons without making profits. Now due to loss of its long-standing customers to foreign competitors, Blaze managements are very concerned that they may not show a profit in the current year either (Causseaux, W. & Caster, B. 2016). Based on this information, my goal for this assignment is to explain some of the financial problems, recommendation and possible solutions that Blaze Manufacturing can take in order to be out of their financial problems.  

Here are the key members of this company:

            Joe president of Blaze since it was founded 20 years ago; Bill the lead salesman, Mike company controller retired, and Wendy is filling in as temporary staff. From the case analysis on there seem to be some ethical issues here because Wendy is an employee of Omega Consulting, while George assigned Wendy to filling the position of controller at Blaze. Plus, George created Omega Consulting for the purpose to invest in troubled companies then restore them to profitability, and after sell their investments at a substantial profit. George and his family currently own a significant amount of stocks in Blaze Manufacturing this is conflict of interest since George also owned Omega Consulting and also huge amount of stock from Blaze (Causseaux, W. & Caster, B. 2016).

Definition:

            According to business dictionary conflict of interest can be defined as a situation that has the potential to undermine the impartiality of a person because of the possibility of a clash between the person's self-interest and professional interest or public interest. A situation in which one party's responsibility to a second party has limits his/her ability to discharge its responsibility to a third-party (Business dictionary.2018). As little as it might sound, conflict of interest is very important issue that many companies don’t take lightly. With this case study, I will be looking at the financial in term of operational situation that causes the problem, possible alternatives, recommend a plan of action to implement and how important this case is to study of business.

Identify the problem: Define the problem in financial terms:

            Government Regulations: Based on government regulation here in the U.S, Textile manufacturing companies are faced with tough business decision compared to foreign textile companies. Foreign producer companies have advantage edge over U.S companies in term of paying lower wages, less government rules on the environment and safety.  Many domestic companies had close down because of this issue. Also, those that did not close down like Blaze manufacturing are not making profits. It has been financial struggled for Blaze in the past recent years and due to low price that foreign companies offer. Blaze have not run a profitable business in recent years. In spite of not making profit, they lost a number of their long-standing customers to foreign competitors, so now management is very concerned that Blaze may not show a profit in the current year either (Causseaux, W. & Caster, B. 2016).

            Strong price competition: From the cost analysis in this case study it shows that foreign textile companies can afford to charge very low price for the same product because they don't have additional overhead operation cost such as safety measure training, and proper waste disposal  that another problem that Blaze manufacturing have to deal with.

Diagnose the cause(s): What operational situation(s) created the problem?

            From diagnose of this case, I found that Blaze Manufacturing had management problem. First problem was with Joe, as a president of Blaze Joe was not willing to change ways of operation ever since the company was founded 20 years ago.

            Salary inequality is second operational situation affecting Blaze Manufacturing. Some of the staffs at Blaze were underpaid example was Bill the salesman who joined the company shortly after Joe was underpaid. Based on the analysis Blaze paid Bill salary and an annual bonus which was based on the company’s revenue and for years the company had no profitable revenue (Causseaux, W. & Caster, B. 2016). Which meant that Bill salary had not increase for years this in return can cause lack of motivation for Bill not to perform at his best. Another inequality as to do with Bob salary as plant manager, his earnings is different from other managers and employees. Bob earns regular salary plus an amount of overtime for doing other job within the company like spends time repairing and operating the plant (Causseaux, W. & Caster, B. 2016).

            Third, operational situation that created problem for Blaze Manufacturing have to do with their employee benefit package. Blaze can create a new program that will tie employee's bonuses and other payments to their performance this way employees can become more motivated.

Prescribe possible alternatives: The case study provides proposed solutions on page 16 of the case. Review and evaluate these solutions by providing pros and cons for each.

1. From the contribution margin analysis, presented in Table 2, shows if Blaze accept this order, it will create a negative contribution margin per unit. 

            Cons: Meaning that at this current selling price the variable cost per unit exceeds the selling price per unit.  These results are consistent with Wendy’s original conclusion.

            Pros: To me this order might not be profitable but accepting it will keep the company running and breakeven at the end. But if they reject the order based on the contribution margin analysis presented by Wendy, they will lose the customer and still wouldn't have profit so it a win or lose situation.

2. Accepting this order at the current price will reduce Blaze’s overall profits.  An unprofitable order like this one should either be re-priced (to be profitable) or rejected.  

Pros: Accepting this order at this current price will reduce Blaze's overall profits indeed but this type of order price can be renegotiate to something that will generate little profit at least above overall profits limit. 

Cons: Unprofitable order like this could lead to losing the customer if order reject or not re-priced

3. No other financial information would be useful in further analyzing this case.  In fact, no further analysis is needed: An order with a negative contribution margin reduces the company’s overall profitability and under normal circumstances should not be accepted.

Pros: I still believe other financial information could be useful in this case such as Blaze's raw material financial logs, past sales logs other foreign textile sales log to compare price for this type of order and properly calculate how bad this order will affect their contribution margin.

Cons: Blaze management can decided to take any action or they go with Wendy's recommendation.

4. Wendy has taken numerous actions that meet the IMA standard

With this last option, I truly believe Wendy's suggestions are right for the fact that she think first responsibility to solve Blaze operational problem is to start with communication follow by cost analysis  information to help aid management decision making process regarding the order. And finally, she present hypothesis to backup her analysis theory if taken.

Recommend a plan of action (decision/implementation)

            I really believe that Blaze Manufacturing should consider mass produce in their inventory items for sale through normal retail channels. They can all explore international opportunity where they can penetrate other culture. Wendy could report her discovered standard violations to the Financial Accounting Standards Board because  it is her ethical duty to report such violations, and any dilemma that arises in the ramifications of the financial report of a company. Moreover, as controller she can never let the desire to earn a better living and acquire more possessions get in the way of ensuring that they follow ethical guidelines for financial reporting.

In addition, each case study response should also state why this case is important and relevant to a study of business.

            This case study is important and relevant to study of business because explained in detail what domestic business owners are facing on daily basic in term of foreign competition. This case also discussed how cost analysis, gross margin versus contribution margin as tools good for analyzing product profitability. Finally, how to perform a proper profitability analysis.

Support your observations with research and logic. Discuss what limitations exist with the case study information provided. What other material would be important to your analysis?

             Limitation that I noticed with this case study is conflict of interest. Since Wendy work for Blaze and Omega Consulting, I feel she is giving all these suggestions to Blaze management just to benefit Omega Consulting. Because once Blaze Manufacturing reach good financial standard that of a substantial profit then it will be easy for George owner Omega Consulting to sell all Blaze stocks. This had happen in the past example with Enron and Arthur Andersen case where Arthur Andersen was the same private auditing company that Enron hired and also paid auditors(Brown, K. & Dugan, I. 2002). In this way the auditing company will never issue unfavorable financial report on Enron if they want to get paid. That is what I believe Wendy is going to do with Blaze Manufacturing.

Conclusion

            In conclusion, based on the past experienced and things happening daily around us, it really clear that great products are build by business owners who know how to tell their stories to target audience with similar interest. A good story telling always involves elements of some truth whether you are into manufacturing product or retail or just running a business, to me honest and trustworthy is the number one key in building strong customer relationships based on common shared values.

References

Brown, K. & Dugan, I. (2002, June 7). Arthur Anderson's' Fall from Grace Is a Sad Tale of Greed and Miscues.  Wall Street Journal. Retrieved February 24th, 2020 from http://archive.is/nwoK

Business Dictionary.(2018). Conflict of Interest. Retrieved December 10, 2019 from http://www.businessdictionary.com/definition/conflict-of-interest.html

Causseaux, W. & Caster, B. (2016). Blaze Manufacturing: An Ethical Analysis. Journal of Business Case Studies, 12(1), 13-18. Retrieved February 21, 2020 from https://my.uopeople.edu/pluginfile.php/592738/mod_book/chapter/210803/U4%20Blaze%20Manufacturing.pdf

Hill, D. (2012, December). Misrepresentation of Financial Statements: An Accounting Fraud Case from Turkey. Retrieved February 23, 2020 from https://www.researchgate.net/publication/255967967_Misrepresentation_of_Financial_Statements_An_Accounting_Fraud_Case_from_Turkey

Rowan, K. (2014, Apr 15). Conflict of Interest Examples: Avoiding Lawsuits in the Workplace. Retrieved February 24, 2020 from https://blog.udemy.com/conflict-of-interest-examples/