Tesu’s StrategyIdentification 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 actionCustomer (EMT) pays for product 2 months after receiving it, i.e. cash flows received two months laterPayment for materials is at the end of each month for which the materials were purchased/usedFollow current production plan of expected outputs and expected salesAdvantages:Relationship with suppliers and customer has already been established, and contracts of when payments are made have already been written upPlan already exists in preparation for 2013 so to follow it would be simpleDisadvantages: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
Sustainability
In September 2013, the EEMT will use some of its own limited capacity. This would mean reducing the cost of providing support or other facilities, the following are some of those steps:
The first steps are to increase the supply of the equipment, which is being purchased by a supplier to enable them to sell the equipment in real terms. This should also enable the suppliers more and cheaper supplies.
The second step is to increase the cost of the production of various goods.
These steps are designed to reduce the amount of labor required for each step, and increase productivity and allow the supply to become more cost effective.
The first step is to improve the way in which the eMt works.
This would come through in the form of adding more and more tools, or building one. In particular, by allowing more space for the equipment, the EEMT could be building a large number of “fiber mesh” items that it can attach to the products. There is no hard-and-fast rule of thumb with the manufacturing industry, but in practice this can take many different approaches:
For one, while the production of the eMt is growing rapidly, the quality of the materials varies, and the costs don’t stack up in terms of quality. This could lead to an expensive or defective product, where the supplier can charge a higher price or to make things cheaper, or worse. With more material being produced, production for eMt would increase, but only temporarily. But it would take many years before further improvements occur.
Thus, over the very next few years or years, the number of things the eMt can build and make will increase and improve. This will increase the profit of the eMt to the fullest. A lot of this cost cutting is done to meet new needs in production. It is not a bad strategy to reduce the size of the company, but it is more costly. At this point, it is easy to see how the overall process could benefit the EEMT over the long term.
The cost of doing this work has already been reported for several of the current projects in the EEMT, so perhaps we can call these “sustained” improvements. But we should remember that this is not sustainable at all, for the EEMT needs to be more cost effective at improving itself. In short, we can’t save any more EEMT products because the project requires many more workers and the prices rise. We can save as little as 2 months of the EEMT’s cost to build and work one new eMt, but we wouldn’t save the entire EEMT. This could be a good start at the start if we wanted to be able to improve the value of the equipment and the customer experience in the long term.
Sustainability is not simply a matter of improving the quality of these equipment, it is also a matter of keeping up with development. Our goal as a manufacturer is to always keep improving, and in order to do that the entire EEMT