Quality Metal Service Center is a metal distributor, which sells to smaller user s of metal products than the big

manufacturer/suppliers such as Bethlehem, Cruci ble, etc. To be competitive they must have shorter lead time and all around bett er customer service to cover the extra cost of small lot sales and make their pr oduct worthwhile to customers. Quality has three main strategic objectives. Thei r first objective is to focus sales effortson targeted markets of specialty user s. Quality metals focuses on sales of specialty metals and competes on different iation of product rather than cost. This will help them avoid commoditized good markets where they cannot compete based on price. They aim to produce higher tec h, higher return products and sell these to customers. These markets of high tec h metals have less competition and better profit margins. Their second objective is to identify geographic markets where metals are being consumed. They use dat abase technologies to have accurate, up to date, sales forecasts on handand they service these needs by preparing for orders before they occur, which will short en lead-time and improve the benefit of their services. They also use these to a llocate products on hand by location and service each location in a manner that works best for the region s customers. Their third objective is to develop techniq ues and marketing programs that will increase market share. Their fast lead time allows customers to adopt JIT inventory avoiding high carrying costs and obsole scence. As quality has saved costs on their own JIT system through short lead ti me they can help customers achieve this cost savings as well. This helps custome rs to have the most upto date metal products available on the market as needed. In addition they offered awide range of processing services. These modifications to products reduce need for customers to have and use specialty tools, as well as cut down on time they need tocomplete jobs.

Q1. Is the capital investment proposal described in Exhibit 3 an attractive one for Quality Metal Service Center? Yes, the purpose of a company is to maximum the profit, and as Elizabeth Barret suggested,it can help company to make more profit. So the capital investment pro posal described in Exhibit 3 is an attractive on for QMSC. Investment in machine $540,000 10 years cash inflow $286,000 PV of cash inflow $39,182 Payback period = 4.5 years NPV= 286000 IRR= 2.8% Reasons for selection: * Positive cash flow * IRR> COC * Payback period is less than the standard Q 2: Should Ken Richards send that proposal to home office for approval? Ken need send this proposal to home office for approval, because this proposal i s good for the company and can make a lot of profit for the company. And another reason is, capitalexpenditures in excess of $10,000 and all capital leasing dec isions require corporate approval. Q 3: Comment on the general usefulness of ROA as the basis of evaluating distr ict managers performance. Could this performance measure be made more effective? The Return on Assets (ROA) percentage shows how profitable a company's assets

are ingenerating revenue.An indicator of how profitable a company is relative to its total assets.ROA gives an idea as to how efficient management is at using its assets to generate earnings. ROA can be computed as Net Income/ Total Asset s.To make it more effective QMSC can use: Multiple performance measure, manageme ntservice histories, or strategy paining. Case 7-3 Quality Metal Service Center 1. Is the capital investment proposal described in Exhibit 3 and attractive one for Quality Metal Service Center? The project evaluation seems to be beneficial to the company: A. Payback period: 4.5 years less than the company s criterion of 10 years B. Internal rate of return: 21.8% c. Net present value (at 15% cost of capital): $286,000 The proposal seems to be an attractive one due to the fact that there seems to b e a need in the district for this particular district to have the ability to per form some preproduction processing which is beneficial to local customers. The i nvestment seems to be within company parameters and sounds attractive. 2. Should Ken Richards sent that proposal to home office for approval? Basing Ken s decision on his incentive bonus, I would think that he would toss the proposal in the trash. But if he looks into it further he may see an alternate decision. Exhibit 5 only reflects marginal effects of project implementation-tha t is, an addition of earnings before taxes of $40,000 and an addition to assets of $720,000. Otherwise, the Exhibit assumes that other district operations meet targets exactly in 1992. I would hope that Ken could be a little more visionary and maybe research how much the customers in his district needs them to have thi s capability and this may impact the increase in sales. Also another option, sin ce it is the sales department requesting this option, put some pressure on them to sell inventory that has been altered through preproduction processing and aga in this should increase the ability to make more on the bottom line. It does no good to get a piece of equipment that should increase customers orders if the cu stomer is unaware that you now have this new ability. 3. Comment on the general usefulness of ROA as the basis of evaluating district managers performance. Could this performance measure be made more effective? Strengths: