ABC Co. Marketing Strategy Case Essay Example

steam boilers comes from a nearby river. Electricity is purchased from a public utility.

Since seasoning takes quite some time, BBC usually keeps enough lumber on-site to sustain four months of operations. Although most of their lumber is purchased within a 200-mile radius of the factory, they also acquire significant quantities from distant parts of both United States and foreign countries. For example, mahogany lumber - which is used in almost half of their products - is imported from Latin America and Africa.

The majority of lumber arrives at BBC's yard by rail and is shipped FOB (free on board) from its origin point. Imported lumber travels by water to a nearby port roughly 100 miles away from the factory; then it continues its journey by train to reach BBC's facility. Some locally produced lumber also reaches BBC via truck, following an FOB basis as well.
Workers at Abs's factory use small power tools like saws, planers, lathes, and similar equipment; however, manual labor remains the primary means of production. The company's highly skilled craftsmen build their products using techniques that have been used for centuries. Furniture finishing is done by hand, with stains, varnishes, and other finishing materials being created by Abs's employees based on the company's formulas.

The labor force at Abs is stable due to craftsmen undergoing long apprenticeships and receiving relatively high wages compared to the community's standards. The management believes these wages are necessary because of the time and expense required to hire and train replacements for departing craftsmen.

Most finished furniture is shipped via contract carrier trucks, although some are transported by railroad. The trucking contract does not address any liability for damage during

transit. For export shipments, furniture is first transported by truck to the nearest port and then by water to the destination country. All shipments are made FOB (Free On Board) from the purchaser's warehouse.

Sales, including export sales, are only made on open account terms to Abs's established dealers. Export accounts are usually in the currency of the importer's country and payable in that same currency as well. On average, accounts receivable amount to one-eighth of annual sales.The accounts receivable records are stored on Abs's computer, which is located in the office section of the factory building's first floor. This computer also serves various functions such as inventory and production control, payroll management, and other accounting tasks. The computer equipment is owned by BBC.

A wooden partition separates the office from the warehouse section on the first floor. Only the office and computer room are air-conditioned, while the rest of the building is not.

Duplicate computer tapes, which are updated weekly, are securely stored in a vault located elsewhere in the city. BBC pays a monthly fee for this tape storage service.

The company owns small trucks that are used for moving lumber within its premises and for local pickup and delivery. These trucks are kept in the lumber storage shed when they're not being used.

In addition to trucks, lift trucks are also utilized for moving lumber and heavy items around both inside and outside of the factory and lumber storage area.

To transport materials, finished furniture, lift trucks, and other equipment between floors in the factory, there is a freight elevator. Automatic grillwork gates have been installed to prevent workers from falling into the elevator shaft. However, there is

no passenger elevator available. Workers can use either the freight elevator or open stairwells to move between floors.

For emergency situations like fires or other emergencies requiring evacuation from upper floors of the building, steel fire escapes have been added to its exterior walls.Mr. Carpenter, the grandson of the company's founder, is considered wealthy by local standards. However, his wealth is mainly tied up in BBC Manufacturing Company's stock. His income comes from his salary and dividends from the company. Abs has been consistently paying out most of its operating profit as dividends lately, but it only has a small surplus of liquid assets beyond what it needs to operate.

Although profits have stayed steady, they have been relatively low due to the inefficiency of the current factory facilities. Despite seeing growth in sales value, actual sales volume has remained nearly unchanged for years. This lack of growth can be attributed to two factors: limited capacity for expanded production in the existing plant due to spatial restrictions and lack of available adjacent land for expansion; also, new employee training takes a long time and slows down production expansion.

Mr. Carpenter has considered building a new factory within the same town but that would only make financial sense if they could sell the present plant. So far, no potential buyers have been found for it yet.Relocating outside of our current hometown is not feasible due to the importance of our skilled craftsmen. The sales manager anticipates a potential 30% increase in both the dealer network and sales over the next 5 years, but this is dependent on having production facilities. It would cost $2 million to rebuild our current

factory building as it currently stands. However, Mr. Carpenter refuses to construct a new mill-type building because of the high expenses associated with thick brick walls and heavy timber interior construction. Instead, a new one-story masonry and steel building of similar size, costing approximately $2 million, would be more suitable for Abs's needs.

Our present factory building has an estimated actual cash value of $1.5 million and is insured by BBC for that amount against fire and extended coverage perils. Other structures like the lumber shed, power plant, table, and lumber kiln are also insured for their actual cash values. The following table displays the actual cash value and replacement cost for each building:

Table 1: BBC Company Building Values

Building | Actual Cash Value | Replacement Cost
---|---|---
Factory | $1,500,000 | $2,000,000
Lumber Shed | $50,000 | $200,000
Power Plant | $230,000 | $300,000
Kiln |$2700 ,00 |$320 ,00

These values include coverage for the contents of the buildings and lumber stored in the yard.
Fortunately, BBC Manufacturing Company has not experienced any fire or extended coverage losses in the past five years. Prior to that period, only minor losses occurred. The estimated annual workers' insemination premium for the company is $165,000. Based on past experience and adjusted for inflation and current benefit levels, normal losses of $104,000 are expected each year. The most common claims have been minor injuries such as splinters in hands, minor dermatitis cases, and particles in eyes. More severe injuries have included back strains and finger losses due to power tools.

Currently, BBC has a 15 percent debit under the workers' compensation experience rating plan. The company faces various loss exposures including direct property

loss exposures, indirect property loss exposures,and liability exposures.

As for risk management suggestions for BBC Company, please refer to Case 2: Bite-O-Burger Company which is a publicly held corporation that owns and operates 843 fast-food restaurants across eleven states in the United States. These restaurants have a limited menu and are situated in standalone buildings with customer parking areas. All buildings within the Bite-O-Burger chain were constructed based on the company's plans and specifications and share enough architectural features to easily identify them as part of the chain. Additionally, each building is equipped with forced air heat and air conditioning.
The restaurants owned by Bite-O-Burger have varying estimated replacement costs based on their size, ranging from $175,000 for smaller ones to $300,000 for larger ones. On average, the combined actual cash value of the building and equipment is $205,000. The age of the restaurants varies as well; some are only a few days old while others are approximately 20 years old. Although all the restaurants belong to Bite-O-Burger, the newer ones have significant mortgages attached to them.

Bite-O-Burger's headquarters is located in leased space within a building in the business district of a Midwestern city. They occupy the upper three floors of a thirty-story building and their data processing center is situated on the top floor. All computer equipment used by Bite-O-Burger is leased directly from the manufacturer.

In addition to their headquarters, Bite-O-Burger leases a warehouse near their home office for storage and distribution purposes. This warehouse stores supplies such as paper cups, wrapping materials, and non-perishable food items. Perishable food items are purchased from local suppliers near each restaurant and delivered directly to those specific locations.

It's worth

noting that there is no refrigeration equipment at the company warehouse; however, each restaurant has its own large walk-in refrigerator. To distribute items from the warehouse to individual restaurants, Bite-O-Burger owns a fleet of 30 tractor-trailer units.The same units also transport goods from suppliers to the entrant warehouse when truck-load quantities are purchased. Smaller lots are shipped by common carrier FOB point of shipment. The values of the contents at the warehouse and home office are $15,750,000 and $3,200,000 respectively.

The values at both locations remain relatively constant throughout the year. Bite-O-Burger advertises extensively in newspapers in cities where it has several restaurants. Many advertisements feature endorsements of its products by prominent athletes and theatre personalities. Some advertisements include pictures of local people and their favorable comments on the company's food and service. Additionally, the company sponsors softball and bowling teams in some cities as part of its public relations program.

Bite-O-Burger's profit and loss statement along with an abbreviated balance sheet for last year can be seen in Tables 2-1 and 2-2. The company's operating results for last year were consistent with past years but sales and assets have been growing at a rate of approximately 20% per year. Table 2-3 displays Bite-O-Burger's fire and extended coverage losses for the past five years.Table 2-4 presents the acquired quotations for fire and extended coverage protection applicable to a blanket insurance policy covering both buildings and contents with a valuation based on actual cash value in the Asian region.