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Case Study: Gian Auto Corporation

888 words - 4 pages

BACKGROUND OF THE CASEGian Auto Corporation is a manufacture and supplier of components for manufacturers and suppliers of parts for automobiles, van and trucks. The company maintains an excellent track record with over 10 percent increase in sales in each year. One of the critical success factors of company's business strategy is the location of its plants in favorable business environments and areas with lower wage rates. One of GianAuto's earliest plant is the Denver Cover Plant, which basically prepares and sews coverings, mainly leather and upholstery fabrics. The person who was in charge of operating the Denver Cover Plant was Ted Vosilo.ISSUES OF THE CASEGianAuto Corporation found an external supplier, which can provide coverings at a lower price than the Denver Cover Plant. The budget for Denver Cover Plant's budget was set at $82 million, whereas GianAuto can purchase those coverings from an external party at the price of $60 million.DENVER COVER PLANTBudget and Operating Cost for Year ending December 31, 2004 (000s omitted)Materials $32,000LaborDirect $ 23,000Supervision $ 3,000Indirect plant $ 4,000 $30,000OverheadDep- Equipment $ 5,000Dep.- Building $ 3,000Pension Expense $ 4,000Plant manager $ staff $ 2,000Corporate allocation $ 6,000 $ 20,000Total Budgeted Cost $ 82,000However, there are additional factors that should be considered before making the decision to shut down the Denver Plant:1. Blanket order had been placed with major suppliers to ensure sufficient supply for the coming year.Disadvantage: if order were cancelled due to the closing, termination charges of 15 % of direct material or $4,000,000 would have to be paid off.2. 400 plant employees would be laid offDisadvantage: Employees may not be able to find a handsome rewarding job matching Denver, which is the highest in the area and Denver has the obligation to source for new employment for its employee that could cost additional $ 1 million.3. Denver's early retirement plan:Disadvantage: The pension expense for the year 2004 would still be in force whether Denver Covers is open or not and this would cost the company $ 3 million4. Denver's Senior Management:They would not be affected, as they would still be responsible to manage three other plants. This would cost the wages for Plant manager and the staff $2 million per year.Q1: Explain Gian Auto's competitive strategy and how this strategy should be considered with regard to Denver Plan Decision. Identify the key strategy factors that should be consideredAuto's(GA) competitive strategies are as follows:-* GA upholds excellent customer services and reliability. As such, this attribute to the increase in sales of more than 10% each year.* Always endeavors for lower production cost which reflect in its actions of continuing outsource more of its productions to the cost...

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