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2. WERE ABIS STANHO PE SITE COSTS IN TABLE 2 DERIVED BY A TOP-DOWN OR BOTTOM-UP PROCESS? WHY?
ABIs Stanhope site costs in table 2 are derived by a bottom-up process. Team members are invited to participate in every step of the management process. The decision on a course of action is taken by the whole team. Bottom-up style allows managers to communicate goals and value, e.g. through milestone planning.
3. WHAT ARE THE ANSWERS TO STEVE WHITES QUE STIONS? ABI is already achieving an excellent return on investment (ROI). Wont this investment simply tend to dilute it
The investment in the Stanhope Project would not tend to dilute the excellent ROI achieved by ABI because it was in accordance with the new business strategy of the company. The strategy was to bid only on high margin products capable of sustaining their margins over a long time. ABI bid on BIG RED engines which would result in in 100 percent sourcing in both the original equipment market (OEM) as well as the replacement market with its high margins.
Will the cost in new equipment be returned by equivalent reduction in labour? Wheres the payoff?
Yes the cost in new equipment will be returned by equivalent reduction in labour as the company believes in maintaining small plants having maximum 480 employees.
What asset protection is there? This proposal requires an investment in new facilities before knowing whether a long term contract will be procured to reimburse us for our investment
According to ABIs strategic plan new products would be pursued only when their production process and design are of a proprietary nature and exist in areas where its technical abilities help to maintain a long-time position. ABI had a competitive edge in engineering of producing diesel engine components combined with the flexible manufacturing system which would help in producing engine components of other types with the same equipment. Hence, in this manner, assets would be protected.
Also factors like high tax-margins, loss of substantial volume to competition, innovation and creativity, capital resource allocation, product design are factors may be relevant to this issue.
5. HOW DO CHANGES IN ASSUMPTIONS MENTIONED BY THE OTHER MANAGERS AFFECT THE PROPOSAL?
The first manager makes assumptions that the sales forecasts may not be accurate. This would not affect the proposal as one of the main characteristics of the new plant is the flexibility offered by the FMS manufacturing system, thus it will be able to work with a number of other materials, operational conditions, productions rates and some other versions of the engine pistons. According to the second manager the assumption of market loss to the Japanese competitors seemed unlikely. Considering the increasing quality and competitive prices, this hypothesis should be considered, although even in the worst scenario the project is still profitable. Thus, it has not a great impact on Stanhope project. The second manager was also doubtful about the after-tax margins