As a result of your recent graduation from CMU’s MSA program, you are offered a position as Vice-president of Manufacturing at Utica Plastics and Rubber, Inc. You are excited because this represents the single biggest salary increase in your life and it allows you to relocate to a warmer climate..
Shortly after arriving at work, you are given a report which shows these pertinent ratios for your manufacturing division:
Fiscal Year ending October 31 2009-2010 2010-2011 2011-12
Inventory Period 88.7 days 110.4 days 120.8 days
Sales Returns & Allowances 3.9% 4.7% 10.7%
Cost of Goods Sold Ratio 37.5% 27.4% 33.5%
Sales $70M $75M $85M
Change in selling price per unit 0.0% 1% 1.1%
Further analysis by your departmental staff revealed that the employees of Utica’s largest supplier of plastics, Toledo Plasteel, Inc. have been threatening a strike since early 2000. A strike is imminent, perhaps as early as October 15, 2013. Although Imperial Plastics, a major competitor of Plasteel, has offered to step in and supply all of Utica’s plastic needs, they are 12 per cent more expensive and their quality is not as good as Utica’s quality. The contract expired on October 1, 2013..
The industry benchmark for sales returns and allowances is 4 per cent; the benchmark gross margin ratio is 81%.
Utica’s largest competitor, Penelope’s Plastics and Molds, Inc. has increased prices 4 times during the past three years and their quality standards are considered the highest in the industry. Returns are less than 1%. Currently, their prices are approximately 5 per cent above Utica’s prices.
Required for Utica Plastics and Rubber, Inc:
1. Prepare a memo to the President of Utica Plastics and Rubber, presenting your analysis of the above facts. Suggest ways in which the company might improve their operations; but also compliment the company on their accomplishments.
2. Suggest at least three other financial ratios, statements, financial tools or analyses you would like to have used in order to better prepare yourself to become a successful Vice-president of manufacturing. Be sure to explain how they would have helped.