Eagle Machine Company

Eagle Machine Company

I. Major Facts

• Eagle Machine Company may have to close its doors if management cannot find a way to increase sales while decreasing costs.
• The president states that the company must break even in the next quarter and demands a profit of 5%, an increase in sales of 20% and cuts in labor, material and overhead for the next year.
• Sally Stone, the director of supply management, a department responsible for buying and expediting, is expected to fix the situation, and come up with a plan within one week to be presented in an executive committee meeting.
• Eagle Machine has $12 million in inventory on hand and a 10% cut would save approximately $300,000 in carrying charges.  
• Sally has 3 supply managers and four clerks in her department where $370,000 a year is allocated for the department’s salaries and expenses, and $43.2 million per year are used for purchases which majority is in sheet metal, castings, forgings, stampings, fasteners, and subassemblies. The president also wants a 10% cut in payroll and operating cost from her department.

• Raw stock inventory is $12.2 million, and the marketing manager controls finished goods stocks.
• Production, inventory control, receiving, and traffic is a function of the manufacturing manager who reports to the president, as does Sally.

II. Major problem

Sally Stone’s department needs to take the lead on cutting cost for Eagle Machine Company but she has minimal control over the manufacturing and marketing managers who are also able to make some meaningful cuts.

III. Possible solutions.

Option 1 -

1. The supply management department needs to cut costs. Sally could reduce management by 2 and add 2 clerks which would reduce the salary total. There is also room to reduce cost buy cutting fringes and expenditures.

Advantage: Reducing management while increasing clerks on an equal scale should reduce Sally’s payroll while maintain her departments productivity.  Cutting fringe benefits and department expense accounts will reduce Sally’s internal budget.

Disadvantage: By letting go good managers Sally takes a chance that she will lose her best assets.

Option 2 -

1. Sally could suggest incorporating the manufacturing managers’ duties to her department, therefore, decreasing the amount of employees in the manufacturing department.  This will also help in producing a supply chain management structure that absorbs all duties in one process and department. This type of restructure could enable cost saving because that could help the company grow and save more than 10 percent.

Advantage: Having a united supply chain management structure helps decrease time of communication and decreases errors. A good implementation would save the company much more than 10%.

Disadvantage: There is no disadvantage however it might be hard and time consuming to do such big step of merging two departments together.

Option 3 -

1. Sally can suggest an order to build system to the manufacturing manager as a solution for reducing inventory.  Eagle Machine would reduce the inventory on hand by only ordering what they need for production for the next production date.

Advantage: By using this type of system Eagle Machine could reduce the carrying charges for the next quarter while keeping expenditures of purchasing down to what is only needed.