PRODUCTION MANAGEMENT- CASE TO EXPECT IN THE EXAM

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Like I said before, you have been given two cases i.e. case 3 and case 4. You should expect this one below as exam case:  It has been solved so, just be reading it before exam so that you know what to do.

XYZ COMPANY

In October 2006, top management of XYZ company announced its plan to relocate its manufacturing and assembly  operations by constructing a new plant in Abuja.  The firm, a major producer of pick-up campers and camper trailers had experienced five consecutive years of declining profits as a result of spiraling production costs.  The costs of labour and raw materials had increased alarmingly, utility costs had gone up sharply, taxes and transportation expenses had climbed upward steadily.  In spite of increased sales, the company suffered its first net loss since operations were begun in 2000.

When management initially considered relocation, they closely scrutinized several geographic areas.  Of primary importance to the relocation decision were the availability of adequate transportation facilities, municipal tax structures, an adequate labour supply, positive community altitudes, reasonable site and other financial inducements.  Although several communities offered essentially the same incentives, the management was favourably impressed by the efforts of Abuja Power Holding Company to attract clean, labour-intensified industry and the enthusiasm exhibited by the Federal Capital Territory Officials who actively sought to bolster the economy by enticing manufacturing firms to locate within its boundaries.

Two weeks prior to the announcement, management of XYZ company finalized its relocation plans.  An existing building in Redgecrests industry Park was selected, initial recruiting was begun through the Abuja employment office and efforts to lease or sell some of its property were initiated.  Among the inducement offered to the Ridgecrest to locate were: 

i.             Exemption form country and municipal taxes for five years

ii.           Free water and sewage services

iii.         Construction of loading dock at the industrial site

iv.          An agreement of issue N500,000 in industrial bonds for future expansion.

v.            Public financed training of workers in local industrial school

In addition to these inducements, other factors weighed heavily in the decision to locate in a small town.  Labour costs would be significantly less than those incurred in Abuja Municipal Area Council, organized labour was not expected to be as powerful and utility costs and taxes would be moderate. All in all, management of XYZ company felt that its decision was sound.  On October 15, the following announcement was attached to each employee’s pay cheque.

To: Employees of XYZ Company

From: President, XYZ Company 

The management of XYZ Company regrettably announces its plan to cease all manufacturing operations in Kaduna on December 31, because of increased operating costs and the unreasonable demands forced upon the company by the union.  It has become impossible to operate profitably; I sincerely appreciate the fine service which each of you has rendered to the company during the past few years.  If I can be of assistance in helping you find suitable employment with another firm, please let me know.  Thank you again for your cooperation and past service. 

Question:

a)   Evaluate the inducement offered by the XYZ Company to the community leaders in Ridgecrest industrial Park

b)   What problems would a company experience in relocation its executives from heavily populated industrialized areas to a small rural town?

c)    Evaluate the reasons cited by the President for relocation. Are they justifiable?

d)   What responsibilities does a firm have to its employees when a decision to cease operation is made?

SOLUTION TO CASE OF XYZ COMPANY

Evaluation:  The inducement offered by XYZ company to the community leaders in Ridgcrest Industrial Park are as follows:

1.   EXEMPTION FROM COUNTRY AND MUNICIPAL TAXES FOR FIVE YEAS

One of the causes of increased production cost in XYZ coy is high tax payment.  An exemption from country and municipal taxes for five years would help save so much costs that would have been incurred on tax payment for the next five years.

2.    Free Water and Sewage Service

This offer eliminate the cost of constructing a borehole which would have cost XYZ Company hundreds of thousands to construct.  The offer also eliminates the cost of discharging its sewage. 

3.   CONSTRUCTION OF LOADING DOCK

Since the company is into construction of heavy equipment (Loading dock) loading dock is required for its operations.  The offer would save the company huge amount of money that would have been spent in it construction.

4.   AN AGREEMENT OF ISSUES N500,000 IN INDUSTRIAL BOND FOR FUTURE EXPANSION

This offer has made an alternative source of finance available to XYZ company when the company needs to finance a project  of about N500,000

5.    Public Financed Training of Workers In Local Industrial School

This offer has eliminated the cost of tanning XYZ company workers

IN CONCLUSION:

All of these inducement offered would help the XYZ company achieve its desired low production costs.

Solution to (b)

i.             Loss of interest in the job by the executives which will result in drop in production level

ii.           There will be high labour turnover

iii.         There would be problem of adaptation by the executives

Solution to (c)

Yes – the reasons cited by the president for relocation are indeed justifiable.  If in spite of increased sales, the company continues to experience a declining profit owing to continuous growth in cost of labour, raw material, utility cost, taxes and transportation expenses, then it is of no need continuing operation in such kind of business location or environment.  There is no point operating a business if continuous increase in operating cost and the unreasonable demands forced upon the company by the union has made it impossible to operate profitably.

Solution to (d)

There company responsibility will be to assist them if the need arises in referring them to other company or introducing them.

Benefits will be paid to them for the years they have served.