Cumberland Gasket Company, Inc Essay Example

from independent groups regarding the risks of inhaling asbestos dust, stricter rules have been introduced. There were indications that the government will soon implement the rule of having one-tenth 5-micron fiber. Mr.

Barlow concluded that significant changes were necessary for the business to continue, and he faced three options:

• To completely cease production of asbestos-based products.
• To process asbestos-containing products underwater or in another liquid.
• To invest in new equipment and relocate production to an isolated room.

The main objective of this report is to analyze the alternatives presented to Cumberland Gasket Company Inc. regarding the future operations and manufacturing of asbestos-containing products. In order to determine the most suitable solution for sustaining and expanding the company's successful business within the asbestos product industry, we will assess and evaluate the following factors influencing both the company itself and its market: The Cumberland Gasket Company, Inc. is a merger of three smaller companies - the Michigan and California Divisions which specialized in automotive parts, along with Maryland Division which produced parts for oil processing industry. As reported in 1977, the Maryland Division achieved $20 million in sales.

In the same year, the Michigan and California Divisions achieved $60 million in sales. The merger was intended to aid in serving a geographically diverse national market while preserving each division's independence, giving general managers substantial decision-making authority. The merger increased the company's market impact and elevated the positions of vice presidents with increased power. Mr. ___, a vice president, held a notably influential role.

Barlow has complete authority and the ability to make important decisions, but he would be held personally accountable if he makes a wrong choice. He

has been the vice-president of the Maryland Division of Cumberland Gasket for 3 years and is highly dedicated to achieving excellence in his work. Moreover, he has over ten years of experience in manufacturing industry products.

Mr. Barlow is committed to enhancing the manufacturing of asbestos-related products at Cumberland Gasket Company Inc.

Company Policy

Cumberland Gasket Company Inc's policy consists of producing asbestos-related products that adhere to Occupational Safety and Health Standards. Moreover, the company adopts a prudent approach to capital investments, only evaluating those with a payback period of six months or less.

The previous statement clearly indicates that the company's primary goal was to generate profits quickly.

Fabrication Division

In Maryland, the fabrication division manufactures different parts primarily used in petroleum processing equipment, such as pumps and valves. Some of these parts are made from asbestos to withstand wear and heat, making them vital components for oil processing equipment. The division in Maryland comprises two plants: an older plant and a plant built in 1976. Both plants produce products related to asbestos but the older plant has limited capabilities in manufacturing such products and reducing exposure to hazardous asbestos dust.

On the contrary, the new plant offers the necessary equipment for reducing asbestos exposure, including a new liquid filtration system and relevant testing equipment. Most asbestos processing occurred at this plant, resulting in a cleaner environment and increased scheduling flexibility. The case study reveals that while the Fabrication Division had minimal profitability, products containing asbestos made a substantial contribution. Losing the asbestos business would have a severely negative impact on not only the Fabrication Division but also other divisions within the company. Hence, it can be assumed that the Fabrication

Division is a crucial Strategic Business Unit for the entire company.

Attitudes and Risks Associated with Asbestos

The case study investigates different viewpoints and attitudes towards asbestos, including the occupational health hazards involved. It also evaluates the perspectives of various stakeholders, such as the company, its employees, customers, and government.

Company

In order to protect their workers from asbestos exposure, the company took extensive precautions. These precautions involved enforcing the utilization of protective equipment like masks and overalls.

Barlow believed that more should have been done to protect the health of workers and their families, despite efforts to comply with government regulations and maintain a secure work environment. The workers had a limited understanding of the dangers of asbestos and mistakenly believed they were similar to those of smoking. They also thought there were few ways to prevent exposure. However, medical records from retired and deceased workers contradicted this belief as their deaths were not attributed to asbestos exposure.

Despite inspections being carried out over the past two decades, it was known that asbestos-related illnesses could develop after a latency period of 20 to 30 years. Additionally, workers were frustrated with excessive government regulations during this time and therefore did not take the potential hazards of asbestos seriously enough. Although most workers had a nonchalant attitude towards inhaling asbestos, it can be assumed that they would pursue legal action against the company if they were to contract any asbestos-related diseases. Similarly, the families of affected workers would likely also take legal action against the company.

Customers

The main concern for customers centered around increasing costs and difficulties in obtaining products. They did not express concern about health risks since they did not have

direct contact with asbestos.

The Cumberland employees require a safe working environment, but this may lead to higher prices for customers. This could be problematic as customers might hesitate to pay more for products containing asbestos. It is crucial to raise awareness regarding the health risks associated with the production of such items.

Government

Prior to 1972, there was no legal obligation to adhere to the advice on asbestos exposure provided by the "American Conference of Governmental Hygienists." Companies like Cumberland did not demonstrate much concern about this matter because there were no legal consequences. Nevertheless, a privately funded organization (ACGH) drew attention to the issue of asbestos. In 1972, a minimum exposure standard of five 5-micron fibers per cubic centimeter was implemented.

Later in 1975, a 2-fiber standard was developed. In 1977, OSHA proposed a limit of one-half 5-micron fiber per cubic centimeter of air in an 8-hour period. Within just 5 years, the standards for asbestos exposure became increasingly strict, with the government intending to further strengthen these regulations. This demonstrates the government's growing concern on the matter. The case study reveals that both trade unions and OSHA exerted pressure on the government to implement stricter regulations and adopt new standards.

Consequently, stricter rules may be implemented due to growing pressure and concern about health risks.

Products

The Cumberland Gasket Company Inc. specializes in the manufacturing of various products to meet the needs of two significant industries:

• Products developed for the automotive industry (produced in the Michigan and California plants)
• Products designed for petroleum processing equipment (produced in the Maryland plant)

Among the products manufactured by the Maryland Division, approximately 15% were asbestos-related. It is important to emphasize that the

asbestos-based products were crucial for the oil industry. Failing to provide these products could disrupt the industry's supply chain, negatively impacting not only the petroleum industry but also related industries.

The Maryland Division's offering of both asbestos and non-asbestos products for the oil processing industry creates ideal conditions for "one-stop shopping" for clients. This means that customers who purchase washers and gaskets are likely to consider buying other related components from our company. By purchasing multiple products from us, buyers can strengthen the partnership between the two parties and reduce costs associated with sourcing from different suppliers.

Analysis of Economic Factors Impacting Asbestos-based Products

The consumer market has direct and indirect effects on the business market. Therefore, it is important to thoroughly analyze the economic factors that influence the demand and supply of our Cumberland Gasket Company Inc products. The following section provides insights into specific conditions that impact the demand and supply of asbestos-based products, as well as their potential influence on our market.

Industries highly value asbestos due to its specific characteristics, using it in the manufacturing of various consumer products. The demand for asbestos is influenced by the derived demand and acceleration principle, which means that the demand for a specific product affects the supply and demand for materials, components, equipment, and services associated with its production. For example, the need for electronic insulation is impacted by the demand for consumer electronics, subsequently affecting both production and demand for asbestos. A similar scenario occurs in brake lining production within the automotive industry, where there is a significant demand for asbestos. Considering asbestos-related products within derived demand provides insights into how price volatility is affected due to

the close relationship between supply and demand. In situations where there is an asbestos shortage, buyers fiercely compete to secure existing products or timely delivery – resulting in higher prices.

The concept of price volatility discussed above is applicable to the asbestos-based products market described in the Cumberland Gasket Company Inc. case study. In this market, there were only two companies, including Cumberland Gaskets, supplying asbestos products. As the demand for asbestos-products increased, both companies struggled to meet customer demands, leading to delays in deliveries. The limited number of manufacturers in this market contributed to the challenges faced by customers.

The automobile and petroleum industries are currently undergoing significant changes, while also facing an increasing demand for various products. Consequently, the need for finished goods that contain asbestos, such as pumps, valves, brake linings, and electronic insulation, is expected to remain constant. This suggests that there is a price inelasticity effect where the demand for asbestos will stay relatively stable despite any rise in its price. For example, Cumberland Gasket Company experienced a 16% increase in the price of asbestos in 1977, just six months after a previous 10% increase. However, the demand for products containing asbestos remained unaffected by this surge in raw material costs.

Assuming a 15% increase in the price of oil processing machines, it can be inferred that this would likely impact demand. As mentioned earlier, asbestos is a crucial material used in the manufacturing of various products across industries and for consumer applications. In the past, government regulations regarding asbestos use and exposure were relatively lenient, but subsequent studies revealed significant health risks associated with asbestos. Consequently, stricter regulations were implemented. These regulations

necessitated increased costs for asbestos and asbestos-based manufacturers, including expenses for equipment maintenance and upgrades, as well as worker protection.

The implementation of more strict regulations in the asbestos industry had various consequences. In addition to increased costs for workers, air testing, and special cleaning programs, manufacturers of asbestos-based products also faced restricted production and supply due to the new laws. As a result, clients experienced delays in receiving their orders. Given these circumstances, the industry sought out a suitable and efficient alternative material. Specifically for Cumberland Gasket Company, the company was unable to allocate resources towards researching and developing a substitute material.

Du Pont, a manufacturer of chemical based products, developed a substitute to asbestos that was more expensive and of inferior quality, leading buyers to be unwilling to pay for it. Interestingly, there is no effective substitute material for asbestos in certain applications. This lack of substitute material for asbestos results in a low level of cross-elasticity of demand, which measures the degree of price correlation between a product and its substitute. When there are more substitute materials available, the cross-elasticity of demand for asbestos increases.

The Market

The Cumberland Gasket Company, along with another company, are the only producers and suppliers of asbestos-based products.

The case study shows that there are indications of another competitor leaving the market soon. This suggests that the industry is an oligopoly, with only a few manufacturers dominating the market. As there are few companies in the asbestos-based product market, other industries, such as oil processing, heavily rely on products from Cumberland Gasket Company Inc. and their competitor. If there is a disruption in production and

distribution of asbestos products, prices for asbestos would likely increase as buyers compete for timely delivery. Alternatively, buyers may search for an alternative supplier, possibly an international one, however, assurance of timely delivery would not be guaranteed.

Regarding the asbestos-based product market, it is characterized by a small number of major companies and 20 to 30 smaller buyers. This market can be considered an oligopsony because it is controlled by a few small buyers who may have a disproportionate impact on the market. The Cumberland Gasket Company Inc relies on these companies to place orders and make final purchases of asbestos-based products. Since the market in which the company operates is an oligopoly, it may be difficult for the firm to charge more than the current price unless it can differentiate its products. In order to attract buyers and maintain a competitive advantage, Cumberland should focus on reducing costs and improving delivery, as its competitors are likely producing similar products.

Through pursuing a higher volume strategy of mass production, Cumberland is able to achieve lower costs.