A Case Study Of Rubatex Corporation S Financial Crisis Business Essay

Abstract

A case study of Rubatex Corporation’s financial crisis in terms of competitiveness and profitability are discussed in 3 different perspectives such as observations on strategic marketing plan, evaluation on manufacturing processes and the company financial profitability. A complete analysis of these three perspectives and suggestion on how to stay competitive is explained further in this report. The marketing perspective will focus on the evaluation of its current marketing methods and proposal on effective marketing strategy. The manufacturing perspectives study the operation and provide recommendation on improvements. The financial perspectives will review the cost, profitability and loss in investment to improve the facilities and stay to stay competitive.

Introduction

What does it takes to compete? Many industries still seeking answers and some have found the answers. Since 1935, Rubatex Corporation manufactures rubber and foam products for many applications. But, Rubatex faced problems in improving and expanding its production and business at Bedford plant.

As a guideline to Rubatex, the focus is directed to three main perspective which are marketing perspective, manufacturing perspective and financial perspective by introducing effective methods and solutions to improve efficiency in operation, production and business.

In marketing perspective, the research is done on strategic marketing approaches to meet customer’s satisfaction. In manufacturing perspective, the research is concentrates on improving manufacturing process and operations while considering labor’s enrolments in production. This research also stresses that safe, healthful and, better working conditions and environment improves labor’s commitments. In financial perspective, the research is about financial management while maintaining quality.

This report summarizes the difficulties faced by Rubatex Corporation and the solutions to the problems encountered.

1. Marketing Perspective

Rubatex Corporation manufacture a variety of rubber and foam products including artificial turf, hosing and insulation, hockey helmet liners, scuba diving suits, sports sandals, and mouse pads. The company is bought over by an investment firm called American Industrial Partners (AIP). In the first 3 months after acquisition, the company lost $2 million on $68 million sales. Despite the company’s high volume in sales, the company was not gaining profits in fact running at loss.

There are combination of factors contributes to company’s less profitable sales. The obvious factor includes the lack of viable marketing methods and processes, which reflected in high operating costs, high percentage of goods returns due to defects and unsatisfactory level of service to customers where more than 30% of customer’s orders were not delivered on time. The marketing approach practiced by AIP is another factor which affects the sales profitability of the company. In an attempt to recover, the management is optimistic that by increasing the volume of sales will substantially project an improvement in profitability. With that in mind, the company set an aggressive goal to push for an increase in sales by 30%.

1.1 Marketing Methods, Processes, and Approaches by AIP

Upon acquisition of the Rubatex plant by AIP, there is no marketing method introduced by AIP to sustain the company’s profitability. AIP took over the company and merely continue its traditional market by supporting its existing customers. The company set an aggressive goal to increase its sales by 30% by assuming that by increases its output quantity may increase the number of sales at the same rate. AIP did not formulate any marketing strategy and have no clear direction as how this goal can be achieved. Rubber products such as what produced by Rubatex has high demand in the market, generating a sales of $68 million for AIP. However, AIP did not provide good marketing leverage to stay competitive in the markets and maintain its network of customers. There are vital aspect of marketing leverage that AIP fail to provides, which includes the quality of its products and its delivery service.

AIP marketing process can be described in terms of cost, speed, quality and its flexibility. In terms of costs, the company did not adapt to high budget marketing process, instead the company evaluate its entire cost structure and look at area for potential reduction such as reduction in labor headcounts and their healthcare benefits, disapproval of any additional investment and lowest cost of operations to balance up the profit margin. In terms of speed, adaptation to fast delivery and always competing on speed is a conditioned to customers’ expectation of immediate responses. AIP delivery process was often delayed, less than 70% of order is delivered on time. In addition, the quality of the products is poor and does not meet with customers’ requirements, 2% of goods shipped is returned due to product defects. In terms of flexibility, the company has the ability of adjusting to product mix and variety of designs ranging from artificial turf, hosing and insulation, scuba diving suits to mouse pad.

In an attempt to stay competitive, AIP approaches to stay competitive and maintain its network of customers is to assume that more input would cause output to increase at the same rate. The management emphasize on the output produced and not the output sold. It has considerably increases the amount of inventories to support the goals to increase sales by 30%, however the percentage of unusable products is relatively high due to the changes in its manufacturing process. In an attempt to maintain profitability, the management opted to control its input cost by reducing the number of labor by one third, and disapproved to make investment of about $6 million in upgrading the plant equipment and machinery. In an effort to increases productivity with the existing production capacity with less labor support, the management resort to shorten the batch production time by half of its standard time.

1.2 Strategic Marketing Plan

AIP need to adapt a comprehensive and effective marketing plan, which will help generate profitable sales of their products and to stay competitive in the market. There are several practical marketing mechanism that AIP can apply to develop an effective marketing plan. These mechanisms can help AIP to take into consideration all the contributing factors that may have positive elements in decision making. The marketing mechanisms may includes components such as Situation Analysis, SWOT (Strengths, Weaknesses, Opportunities, Treats) Analysis, Goals and Objectives Setting, Marketing Strategies, Implementation of the mechanisms and Evaluation [1]. A complete summary should be provided once all the mechanisms are completed. The summary will give an overview of the entire marketing plan and it is useful in approaching investors. Internally, this summary helps to remind the management of the company’s desired marketing goals and how to achieve them.

1.2.1 Situation Analysis

AIP need to analyze the current situation to understand the company’s direction and determine where the company stands at present. Situation analysis can be segregated into three groups; External Analysis, Internal Analysis and Customer Analysis. External Analysis will observe the changes taking place in the surrounding city, country and globally that could potentially impact the business. Elements to analyze may include changes in political positions and legislation at the local areas, changes in product technology, trends in the community values and habits, competitors’ characteristics and the current economic situation [2]. As an example, in Rubatex case, the product technologies are far behind the current technology development as most of their equipments are old and outdated.

Internal Analysis is more to analyzing the organization and its resources which help identify the company strength and weaknesses. The analysis will observe the current and forecast state of financial and human resources, and market share in comparison to competitors’. In Rubatex case, the current financial status projected a loss in earnings despite its high revenue and the human resource management are inefficient. Customer Analysis is important to identify customers’ needs and requirements, and to study how purchasing decision are made. Marketing research will be required to study the current and potential customers, and the trend in consumers buying habits. In reference to Rubatex, customers’ expectation in terms of quality of the product and satisfactory service level are not met, due to high reject of products and products are not delivered on time.

1.2.2 SWOT Analysis

Analysis tools such as SWOT to analyze the strengths, weaknesses, opportunities and threats is essential in assessing Rubatex’s position and serves as a guide in developing a strategic marketing plans. This analysis will provide a fairly simple, low-cost way of assessing the company’s position. It presents information that is important in developing business and marketing plans, as well as setting organizational goals and objectives. It will provide details on where the company currently sits, and where it needs to go in the future. When conducting the SWOT analysis, it will assess the company’s strengths, weaknesses, opportunities, and threats from a customers’ perspective. Conducting surveys will help gather customer’s opinions.

AIP should identify and segregate the internal and external issues. The company’s strengths and weaknesses are internal, where by opportunities and threats are external. The key tests to differentiate the two elements are by identifying the issues resulted from the company existence. The company strengths and weaknesses can be determined by looking at the size and financial resources, sales and cost economies, and customer’s perception. Certain research need to be conducted on competitors in the market, the company’s status and environment, in order to complete the opportunity and threats section in the SWOT analysis. Topics of research can include trends in the competitive, technological, and socio-cultural environments.

Upon completing the SWOT analysis, the results can be utilized in the business and marketing plan by transforming the elements of strengths into capabilities by matching them with the related opportunities accordingly. Strategic investment in key areas is essential to convert the weaknesses elements into strengths. Weaknesses which cannot be converted into strengths can become hindrance and any hindrance that is obvious and important to customers must be minimized [1].

1.2.3 Marketing Goals and Objectives

A better perspective of marketing goals and objectives setting can be determined, after completing the strengths, weaknesses, opportunities, and threats analysis. Goals are the overall accomplishments that need to be achieved and objectives are the benchmarks to meeting those goals. Goals must be realistic and consistent with the firm’s mission, where by objectives must be measurable and time-specific. It would be a better idea to identify the person responsible and the budget required for each objective.

1.2.4 Marketing Strategies

A good marketing strategic should define the primary, secondary, and tertiary target markets and their purchasing characteristics. The marketing mix elements such as product, price, distribution, and promotion which relate to your product or service need to be evaluated as well. Identify the features and benefits of the product, the obvious competitive advantages, positioning and differentiating the products or availability of any complementary products. In term of price, identify costs associated with the product or service and pricing strategy such as discounts. Identifying suppliers and intermediaries to make the product conveniently available to consumers and an option for partnerships with prominent company will help developed the product distribution. Promotion of the product will need to determine the media of advertisement, public relations activities involved such as sales strategy, sponsorship or other opportunities available [2].

AIP should look into an efficient marketing strategy to improve its sales profitability. Applying data-based and process-based benchmarking will help improve the business performances. The benchmarking process will help to uncover how well other companies are performing, identifying processes that help other company achieving its superior performance and evaluate if the same processes or practices can be applied into the Rubatex operating system.. This will help the company to understand what can be achieved and how to achieve optimum results by best practices and work processes design. Benchmarks methodology and implementation will need AIP to run the following steps. First, determine the objective and define the scope of efforts. Secondly, selecting the suitable approach and identify benchmarking partners. Third, gather information by research and service and utilize the findings, followed by brainstorming ideas and implementation.

In order to gain customers confidence in the product, it is important that AIP invest in improving the quality of the products. The products ranging from artificial turf, hosing and insulation, hockey helmet liners, scuba diving suits, sports sandals and mouse pads are of marketable commodity. Branding concept can be developed in the entire range of product that will attract different level of customers. It is essential to identify the target market and develop the brand strategy by focusing on the brand’s audience and the objectives that the brand needs to achieve. This will help reinforce the brand’s effectiveness. The brand will reflect the company’s image and a reliable brand will market the company’s products.

1.2.5 Implementation and Evaluation

Implementation of marketing strategy will require internal actions in order to meet the goals and objectives that have been determined. Internal actions requires may include hiring of additional staff members, training and workshop programs for employees if necessary, and empowering employees who have close contact with customers. In effect, month-by-month marketing calendar need to be established as a guideline for implementation. Tactics listed in the marketing calendar will be the same as the objectives.

Upon implementation, evaluation and control on the company marketing plan is important to provide consistent guidelines as what to do or not to do in the next marketing planning period. It is also to ensures that the plan is properly implemented. Evaluation may include in assessing employees performance and determine the compensation for their work, improve communication between employees and the management commitment towards implementing the marketing plan. Beside that, evaluate the products needs for improvement to meet performance standards and find out the corrective actions needed on the marketing strategies if the marketing goals and objectives is not accomplished [2].

1.3 Marketing interrelation to Manufacturing and Finance

Department sections of marketing, manufacturing and finance in an organization are integrated functions. In order to understand the interrelation and dependency of these three sections, it is important to distinguish the roles of each section.

The relation of marketing and manufacturing is depends on the product. Marketing plan will work well if the quality of the product to market is good. The relation of marketing and finance depends on the cost incurred in implementation of the marketing strategies. In short, the marketing plan is proportionate to manufacturing and financing capabilities of the company. The ineffective marketing strategy in Rubatex had resulted in the less marketable products and loss in the company profitability.

Most of the capital budgeting requests in the company are from manufacturing and any initiative for cost savings can be applied in the manufacturing processes. The manufacturing department will determine the production process, labor support and technology selections in terms of cost effectiveness. At same time, the quality requirements and customer expectation must be fulfilled. In reference to Rubatex manufacturing process, the production equipments which are old and outdated in term of technology are costly to maintain. In addition to this, the production process has been adjusted in an attempt to increase the output where the baking duration was reduced from its standard time frame. This has caused high rejects in the product output and the cost impacts on the rework are directly affecting the profitability of the company. The high wages of labors in Rubatex contributes to the high operational cost and directly affecting the cost effectiveness of the company.

The organization size which has considerable large resources has a greater possibility of dominating customers or suppliers. Large companies has the resources to facilitate their operation infrastructure includes the adaptation of latest technology machineries and advanced marketing strategies. The investment in the latest technology will help improve the quality of the product and substantially increase the output within a short period of time. In Rubatex case, the management was reluctant to invest in upgrading their equipments and machineries. Instead, the company manipulates their labor resources in an attempt to increase the output which resulted in producing poor quality products and high overtime cost. Sufficient resources can finance dynamic marketing strategies such as media advertising, promotions and sponsorships. This will create good image on the products and builds customers’ reliability on the products which will help to increase the marketability of the products.

Marketing Perspective Conclusion

Manufacturing companies such as Rubatex, the marketing department of the company must play an expanded role to successfully operate and stay competitive in today’s environment. The company needs to adopt efficient marketing tools which emphasize on understanding the customers’ needs and requirements, evaluate the profitability of marketing operations and the marketing strategy. Rubatex in specific, need to adopt suitable marketing tools than can help identify areas and processes for improvement. At the same time, evaluate the company limitation internally and externally. The company’s ability to streamline the functions of the different departments in the company – operation, finance and marketing is relevant to reinforce the company position to stay competitive in terms of costs, delivery, quality and flexibility. The marketing strategy has huge impact on the operation distribution that can help sustaining the existing market share. The lack of marketing strategy in Rubatex and the management constrains in streamlining the departmental functions has resulted in the lost of market large share.

2. Manufacturing Perspective

Manufacturing perspective focuses in manufacturing process and operation involved in Bedford plant while discussing the working condition, health and safety and also labor management at the plant. This section also concentrates in effective methods to improve operation management of Rubatex in order to remain competitive.

2.1 Manufacturing processes and operations of Rubatex

The manufacturing process involved in Bedford plant is assumed as batch production. Rubatex might implement batch production because they manufactures similar product with variants such as ingredients and size, and also manufactures rubber and foam for variety of products.[14] Therefore, Rubatex required to produce customized and number of different product to meet each customer’s requirement.[14] Process selection of Rubatex has its limitation which has led to improper operation management. In batch production, it is difficult to change from one batch to another until the first batch has completed and deemed satisfactory. Plant and machinery set up and time are required in order to change into another batch.[3] Frequent change in set up will increase the set up cost and the time needed.[3]

Operations management consist of acquisition of raw material, their conversion into finished product and the supply of that finished product to customer.[15] By referring to the above expression, Rubatex has failed in term of material handling, production management, quality control, inventory management, maintenance management and service design. Production planning and control is complex in batch production because it involves three main aspects such as batch sizing, batch sequencing and batch scheduling.[7] Batch sizing is to determine the quantity of item to be processed.[7] Batch sequencing is to determine the sequence of different item to be processed and batch scheduling is to manage production cycle of batch to be processed.[7] Batch production results in high work-in-process inventory. This is because the completed batches will be stored in between process steps.[12] Batch production is also related to keeping of unnecessary raw material, which leads to complex material handling due to irregular materials flow.[3] High inventory level will result in most effort in tracking and a need for expensive computer systems such as enterprise planning software. As in quality control, Rubatex failed to fulfill customer’s satisfaction, which has led to 2% of sales returned as defective. This condition might results from unskilled employees, unclean workplace and damages caused to stocks in inventory. Rubatex’s effort to increase productivity by reducing the batch bake time has affected product quality. Defects will lead to rework, scrap and, increases costs such as return shipping cost and the company will lose potential production volume. Equipment and machinery should be maintained properly to avoid breakdown and such breakdown will cause downtime and becomes very expensive. But, the equipment in Rubatex is old and outdated. Delivery plays an important role in service. But, fewer than 7 of 10 orders are delivered on time. This may affect reputation and creditability of Rubatex Corporation. Instead, Rubatex should increase customer base by concentrating on fast delivery time.[9]

2.2 Work conditions, health and safety, and labor management

2.2.1 Work conditions

Employees at Bedford plant were working 8 hour shift with 20-minute lunch break and two 10-minutes breaks. It is important to organize working hours to provide adequate rest such as long lunch break, short break and daily or weekly rest to employees for employee’s health and safety. In an effort to increase sales by 30%, Bedford employees were given mandatory overtime. Extensive overtime could result in fatigue and stress, which consequently affect worker’s health and increase accident risks. An average wage of $11.50 an hour, also called as “danger money”, where Rubatex used to encourage his employee to ignore the hazards to which the employee were exposed.[10] The employees were working in hot and dirty environment and involved in heavy physical work. Bad working environment, complex work organization and poorly scheduled working hours are often pose harm to worker at aspect of physical and mental, which eventually reduce productivity and product quality. Rubatex can increase productivity by considering the conventions and recommendations regarding working condition and environment improvement provided by International Labor Organization (ILO). For example, Weekly Rest (Industry) convention 1921(No.14) regulated consecutive 24 hours rest in any seven day period.[10]

2.2.2 Health and safety at Bedford plant

Management of Rubatex did not seriously look into health and safety aspect because the plant is hot, dirty and crumbling. The equipments and machinery are old and outdated and the employees are exposed to the chemical. OHSA has established the Hazard Communication Standard (29 CFR 1926.59 and 29 CFR 1910.1200) regulation, which require manufacturer to inform employees of the identities, properties, characteristic and hazards of chemical used and its precautions.[6] Instead, the company did not provide employees with sufficient information of chemical used. ILO stresses that under Guarding of Machinery Convention, 1963(No.119) and Recommendation (No.118), manufacturer required to supply machines in which transmission mechanism and controls are adequately guarded.[10] This convention stresses that the equipments should not endanger workers. OHSMS has developed OHSAS 18001 to identify and control health and safety risks and ISO 14001 for effective Environmental Management System. Rubatex should have implement OHSMS in Bedford plant, which eventually lead to conduction of risk assessment. This provides better and healthy working environment and safety protection.

2.2.3 Labor management

There is no direct interaction between management and employee, which led to bad labor-management relation in Bedford plant. Both parties in Bedford plant; labor union and management have no cooperation to meet mutual goals. In contrast, the management concentrated in managing its business. While, union focused in balancing management action.[13] Rubatex might implemented a strategic called Management’s Substantive Agenda, which concentrated on three agenda; reduced payroll cost, increased flexibility and sustained contribution of individual workers.[13] Reduced health care benefits for retirees, changes in employee’s work pattern and unresolved new labor contract has caused workers on strike at Bedford plant. Instead, Rubatex should improve Employee Reward System as an appreciation and motivation to employees.

2.3 Advices to remain competitive

2.3.1 Total Quality Management (TQM)

In order to remain competitive, Rubatex should focus on quality and productivity improvement. Therefore, Rubatex should introduce Total Quality Management (TQM) into their organization. TQM is a system for creating competitive advantage by focusing the organization on what is important to the customer.[9] Principles of TQM are Do it right the first time and an approach for zero defects.[8] According to TQM, good quality reduces time of rework and able to spent more time in manufacturing. TQM recommends management to find new ways to meet or exceeds customer’s needs. TQM also stresses top management to provide support and direction to implement quality improvement concepts into their management and process planning. Awareness and skill training of top-level manager to non-manager, full employee empowerment and effective communication both vertically and horizontally of all levels must be in practice to improve the quality goals.[9]

2.3.2 Continuous Improvement (CI)

Rubatex should move toward continuous improvement (CI) or ‘Kaizen’ to remain competitive. CI focused in infinite improvement of material, machine, labor use and production method and waste elimination.[9] Rubatex should apply some of CI approaches such as Statistical process control (SPC), PDCA cycle, Pareto analysis, Fishbone diagram, Benchmarking and Just-in-Time (JIT) method. SPC is a tool to identify problems in production process in order to prevent poor quality by using Statistical Control Chart.[9] PDCA or Plan-Do-Check-Act cycle provides guidance on problem solving process. The cycle starts by identifying solutions for a certain problem. Secondly, implement a solution and then evaluate the solution and finally take action if the solution succeeded. The cycle should continue with new improvement or solution for continual improvement. Pareto principle describes that 80% of the problem come from 20% of the cause.[9] Pareto analysis concentrated only on the 20% of cause and the solution to 20% will solve 80% of the problem. Fishbone diagram was developed Kaoru Ishikawa, which is to identify potential causes to a problem.[9] As the study done in Bedford plant, the diagram 1 shows the potential causes that led to its bankruptcy.

Diagram 1: Potential causes that lead to Rubatex’s bankruptcy.

Benchmarking is an approach for setting goals and productivity measures based on best-industry practices.[8] Benchmarking involves identification of a process that needs improvement and identification of world-lead organization that performing this process. And, analyzing data obtained by contacting the organization.[9] By implementing JIT method in Bedford plant, Rubatex will deal with fewer raw materials, less WIP inventory and low finished goods inventory. Fewer inventories save more space, which can be rented for subcontract to other company. JIT is about delivery of required parts in the right quantity at the right time and place with minimum facilities usage.[3]

2.3.3 Total Productive Maintenance (TPM)

Rubatex should implement Total Productive Maintenance (TPM) because the equipments in Bedford plant are old and outdated. TPM concentrates on preventive maintenance, where inspection and maintenance should be conducted periodically to prevent downtime. TPM also requires employee to be trained and retrained, so they are updated on machine operations. TPM recommends purchase of new equipments to maximize productivity and designation of preventive maintenance plan.

2.3.4 Health, Safety and Environmental Audit

Health, Safety and Environmental Audits is conducted for confirmation on whether the designation and installation of the plant meets its objective and purpose. Auditing is an effective tool to measure safety performance of an organization and effectiveness of their OH&S management system.[4] Therefore, Rubatex should regulate audit at Bedford plant to improve the working environment, which leads to more safer and efficient operations.

2.3.5 Cost reduction

Rubatex should focus in producing low-cost products in order to remain competitive. Cost can be reduced by alternative raw material and process improvement. The current raw material should be replaced with alternative raw material, which has the same quality but lower in cost. For process improvement, Rubatex should practice Business Process Reengineering (BPR), where BPR brings gradual improvements in the processes. BPR principle works by analyzing the firm’s plan and, eliminating non-value added steps and, making the remaining ones simple and flexible to accomplish desired outcome.[9] The process should be linked together to add value to the product produced.

Manufacturing Perspective Conclusion

In conclusion, Rubatex should focus in providing better working condition and environment to employees. Because, the product quality dependent on employee’s comfortability. And, product quality should always meet customer’s specifications.

3. Financial Perspective

Quality can be defined as a measure of excellence or state of being free from defects and significant variations. Consistent adherence to measurable and verifiable standards would be important to achieve uniformity of output that satisfies specific customers. Organizations must place great emphasis on managing quality controls. It is vital to ensure that the products and services offered to customers are reliable and truly meet the customers’ needs.

3.1 Quality deficiency’s influence on AIP’s Financial Growth

Poor quality products would contribute to direct impact on the financials of Rubatex / AIP. It would steadfastly influence both the company’s revenues and its profits. Quality products is essential to accomplish competitive edge over the challenges of rising competition, emerging markets, more complex guideline, innovative products and ever more demanding customer expectations. Quality products will enhance the effective growth strategies that would be vital to cut across al