[TYPE THE COMPANY NAME]

ABRAMS COMPANY
CASE STUDY
iilm [Pick the date]

SUBMIITED TO : MS UMA SIDD

SUBMITTED BY : TANIMA KAPUR (PG20102396)

[Type the abstract of the document here. The abstract is typically a short summary of the contents of the document. Type the abstract of the document here. The abstract is typically a short summary of the contents of the document.]

Abrams Company manufactured variety of the parts used in automobiles. Trucks, buses and the farm equipment. The three major groups of parts were: Ignition parts Transmission parts Engine parts

Abrams parts were sold both to original equipment manufacturers (OEMs) and to wholesalers. The wholesalers then sold parts to retailers who sold them as replacement parts to the consumers. The latter market was called aftermarket (AM). Abrams had a product division for each of its three parts. The general manager of that particular division was expected to earn a target return on investments (ROI). Each product had its separate OEM sales department and major portion of the parts were sold to OEMs and the remaining were sold to AM marketing division. A plants ROI target was based on budgeted profit divided by actual beginning of the year net assets. Each of the OEM sales department was expected to meet an annual sales revenue target. According to Abrams executives , the factors critical to success in the OEM market were the ability to design innovative and dependable parts, performance and weight specifications etc. cost control was important because the market was price competitive. In the aftermath market, availability of parts was most important factor. Question 1: Evaluate each of the concerns expressed by top management, and if necessary, make recommendations appropriate to the circumstances described in the case? Ans. Top management was satisfied with the present management system and performance measurements schemes but still three points were raised: There was always a dispute over the transfer prices of parts sold by product divisions to the AM division. Internal sales of parts were made at outside OEM market prices. So this was not a problem as the market price was adjusted accordingly. However, problem occurred when the part was being transferred to the AM division. So there was no market price which was to be adjusted to calculate the transfer price. Product division too often tended to treat the AM division as a captive customer. As when AM division and an outside OEM customer were placing same demand, the plant

always favored OEM customer because OEM customer could take its business elsewhere but AM division could not. Both AM division and three product divisions carried excess inventories throughout the year. All the divisions maintain excess inventory than what is required. The following recommendations can be given to solve the above issues: The transfer price should be maintained for the plant at full cost because then it will earn a certain profit margin also. There should be proper control over the inventory level. The standards must be fixed and every worker should produce till that standard only. Proper EOQ level must be maintained.

AM division should not be taken as captive customer because ultimately when their demand will not be fulfilled, this would be resulting in low performance of the company itself.

Question 2: What is your overall evaluation of Abrams management control system? Describe any strengths and weaknesses that you identified but did not include in answering the previous question. What changes, if any would you recommend to top management? Answer: Abrams control system was very good. It was properly organized. Each division was managed by the vice president and the general manager who was expected to earn a target return on investments. They were also responsible for entire line pf parts to the AM wholesalers. It had an incentive compensation plan. The higher the participants in the organizational hierarchy the more the standard points he, she received. The market conditions were good which helped them to face the competition.

The strengths were proper strategies were made, coordination was there. Advance system was followed. The main factors responsible for the success were innovative designs, parts that meet the customer quality, performance and the weight specifications etc. The weaknesses were that incentives should be given on the basis of the performance not on the basis of the hierarchy.