Tesu’s Strategy

Identification and Analysis of Alternatives to Solve Issues:

Strategy:

• Tesu’s strategy is Market Niche, as identified in Assignment A.

Immediate Problem:

• Cash flow issue and immediate large cash flow outputs coming up such as the government tax with no immediate cash holdings, and liabilities to suppliers and workers as well.

Other Relevant Issues:

• Profitability issue in recent years, may be largely associated with pricing issue since EW, LF & AC are selling for a price lower than cost, as identified in Exhibit 2 of case. Material cost makes up majority of cost so manipulating cost structure will do little in gaining profitability from sales, unless prices are changed.

• Production throughput issue with long backlog of orders, and still have more demand coming in from EMT. Tesu relies highly on its suppliers, specifically for the EW diesel engines, and these suppliers need to be paid promptly. In addition, EMT relies on Tesu entirely since their products are unique and no one else provides them. Most importantly though, Tesu relies entirely on EMT as a customer, since they are their main customer. EMT is much larger than Tesu and as such, the company faces potential threat of backwards integration from EMT if issues persist (strength lies in the reliability and quality in product thus far)

• Sales revenue being received from customer is not in sync with outgoing payments to suppliers. For example, Tesu faces having to pay suppliers this month, but EMT’s payment for the products are only expected to come in 2 months

Status Quo:

• Appendix 1 and 2 show estimated results with current course of action

• Customer (EMT) pays for product 2 months after receiving it, i.e. cash flows received two months later

• Payment for materials is at the end of each month for which the materials were purchased/used

• Follow current production plan of expected outputs and expected sales

Advantages:

• Relationship with suppliers and customer has already been established, and contracts of when payments are made have already been written up

• Plan already exists in preparation for 2013 so to follow it would be simple

Disadvantages:

• Appendix 2 shows cash balance will continue to deteriate and net cash flows will be negative each month for the full year, even dropping below 1 million Euros in June and July, with no significant improvement