Business Development Chapter 1 Homework The Game Was Always Make Money Budget

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Oshawa Industries

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Although Mark Talbot knew that he was developing a reputation as a quick technical

and managerial understudy, he never thought he’d be promoted to Plant Manager at

Oshawa Industries (OI) after just six months as Assistant Plant Manager at

electroplating plant. He wondered how a relative “greenhorn” like himself could

effectively manage the complicated situation at the plant. In the six months since he

joined the plant, Talbot had found a product pricing system that didn’t readily appear

Oshawa Industries and Oshawa Holdings Limited

Oshawa Industries was a subsidiary of Oshawa Holdings, a company of over 25

automobile parts manufacturing, metal finishing and plating plants. For many years,

Oshawa Holdings grew under the leadership of Dean Carter (CEO), his brother Jack

(Executive VP Manufacturing Operations) and Chet Wainwright, the Executive VP who

provided technical leadership. Roger Sutherland was in his forties and had joined the

firm approximately a year ago as Vice-President, Administration. As an MBA and a

seasoned manufacturing executive, he provided managerial skills and was responsible

for administrative systems, human resource systems, industrial relations, and senior

management development, as Dean and Jack Carter and Chet Wainwright began to

consider retiring.

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fair degree of autonomy in how they operated their plants but were held accountable for

key performance indicators (measures related to cost, profitability, customer satisfaction

and employee satisfaction).

The commitment of OHL’s plant management commitment to the above principles was

evident in the high esteem they were held by both customers and employees.

Consistent superior profitability and growing volumes flowed directly from plant actions.

Dean Carter commented that the role of head office was to act as the bank and auditor

Plant equipment in the electroplating division was a mixture of equipment installed in the

1980’s and updated electronic quality testing equipment. The plant housed vats of

caustic chemicals, automated racks (which suspend metal parts for coating and heat

treatment ovens), and equipment capable of chrome plating up to 10 tons of material at

a time. During the past decade, processing lines were added or existing ones expanded

within the original facilities, which themselves were not expanded (see Exhibit 2 for the

plant floor layout).

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advanced technology. Such process specifications were not documented for the

nonstandard jobs that made up approximately 25% of the production, and process

problems were often solved by Wainwright or one of the two senior plating technicians,

through trial-and-error. However, Talbot discovered that special written instructions from

Wainwright were increasingly being overridden by workers who were experiencing

confusion as to how to put them into practice and still meet production targets. Talbot

also noted that trends which started in 2002 were continuing: late deliveries were

increasing, productivity decreasing, and margins were becoming thinner.

Cost, finish quality, and delivery have traditionally been key success factors in the

electroplating industry and OI has had a solid reputation in these areas. Meeting or

exceeding customer plating specifications for corrosion resistance, appearance,

uniformity of deposit, hardness, wear resistance and finish have been critical to

acquiring and maintaining customer contracts. Increasingly however, product quality

differences between plating firms have disappeared and OI has found that it is

increasingly necessary to focus on cost, order fulfillment (just-in-time delivery was

particularly important to firms supplying the automotive sector) and

service/responsiveness as differentiators.

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Management of OHL and OI

For the first eighteen years of his employment with OI and OHL, Chet Wainwright was

the GM and then the Executive VP, reporting directly to Dean Carter. The two men

formed the nucleus of OI/ OHL. Wainwright’s “technical genius” in electroplating and

automotive manufacturing processes led to his central role in OI’ s operations and his

subsequent position as a consultant to OHL’s joint ventures and EVP of OHL. OI was

their first operation but now represented less than 2% of their total billings.

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consumed with bringing on new plants for OHL and this meant that Wainwright was

away from headquarters for extended time periods and did not maintain close contact

with OI. When he went to OI meetings with major customers (which was now occurred

infrequently, involving relationship management and damage control), he often had to

rely on his background knowledge, internal reports and long-term relationships.

In the mid 1990’s Wainwright became EVP, moved to the role of a consultant to OI and

spent even less time at the plant. The first post Wainwright plant manager (James

Horkey, the former assistant OI plant manager) was replaced two years later (for health

Employees and Management/Union Relations

All plant employees at OI were members of the IAW. There were also two unionized

plants within the OHL group of companies. The unionized workers at OI were

hourly-paid employees while all management positions were salaried. Gainsharing and

profit sharing were not part of the compensation scheme at OI. Carter knew most of the

employees by name, either from involvement in their hiring or from his physical

presence over the years. Most employees had been with OI for 15 to 20 years and

everyone earned similar wages.

Union/management relations were brittle at best. Union members felt that the recent

plant managers were relatively powerless and that their decision-making was dictated

by Dean Carter. Following Wainwright’s promotion to EVP, the plant manager role had

changed hands a couple of times and Talbot had heard rumors of a shop floor pool

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Finance

OI’s financial affairs were controlled through OHL by Dean Carter and OHL’s staff

accountant Al Simpson. Financial statements were developed on a consolidated basis

for OHL. After six months at OI, Talbot had little feel for OI’s financial position or cash

flow. For example, net 30/2% were common terms for customers but Talbot did not yet

know their compliance rate.

It was not clear to Talbot how prices were developed. It seemed that Carter and

Wainwright or the plant manager of the day would basically quote whatever price was

necessary to get the customer. Product pricing seemed to be based on the following

criteria used either individually or in some combination:

1. How many dollars per hour can the machine generate?

2. What price can the market bear?

This approach led to pressure on quality and service. Increases in the costs of labor and

raw materials were passed on to established customers when it was felt they would

accept such an increase. Otherwise OI would be forced to swallow the increase and

senior managers would try to figure out how costs could be pared further.

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Sales

Historically, OI had boasted a 65% market share in the Oshawa region but this had

slumped to 45% and recent sales growth had been flat. Carter was aware that recent

sales were primarily to customers with long-standing loyalties both to OI and to himself

or to Chet Wainwright personally and realized that OI was starting to lose “old”

Environmental Issues

With public concern for environmental issues on the rise, government pressure on

electroplating firms was increasing. Under the Ontario Environmental Protection Act,

almost everything to do with the electroplating industry was classified as hazardous

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Decision to Hire Mark Talbot

In the mid 1990’s, it became apparent to Carter that Wainwright needed a plant

manager to oversee the OI plant’s daily operations, since much of Wainwright’s time

was spent on the road, managing new plants and visiting customers. He also noticed

that emerging metal finishing technologies were beyond the scope of Wainwright’s

interest. Wainwright also recognized the need for a plant manager as well as a

successor and was more than willing to assist any new recruit in learning the processes

involved in the electroplating industry.

Pawlawsky was the second plant manager promoted by Carter and Wainwright.

Pawlawsky found that although he was “responsible” for management of the plant, he

still had to get approval from either Wainwright or Carter for any operational changes or

expenditures. During his first few two years Pawlawsky identified several problems

Shortly thereafter the Quality Manager quit over a salary dispute and one month later

Roger Sutherland joined as Vice-President. One of Sutherland’s first jobs was to fill the

vacant Plant Manager and Quality Manager positions. When no acceptable

replacements were found from among staff at OI and OHL, it was decided that an

‘outsider’ would be hired and trained. Over a period of four months, Wainwright and

Sutherland interviewed eight candidates for the plant manager job and seven

Talbot was equally impressed with what he heard during the interviews with Sutherland,

Wainwright and Carter and admired Sutherland for his apparent management abilities.

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Carter stressed the company’s focus on quality, his desire for OHL to be an industry

leader in the coming decade and his concern for the employees. Carter stressed that

OHL was just an advisory board and would not interfere with OI’s operations, and that

he believed in autonomy for competent General Managers. Carter also alluded to the

Talbot’s First Six Months as Assistant Plant Manager

Sutherland wanted to expose Talbot to both new and existing customers, the full range

of OI’s products and services and the opportunity to prove himself in a position where

any mistakes made would be small. Sutherland felt Talbot was bright but his lack of

management and operating experience was a shortcoming. He felt it particularly

important that Talbot learn as much as possible from Wainwright.

Talbot’s first task after joining OI was to identify new sales opportunities for the

company since sales growth had fallen during the previous year. His initial goal was to

attract new sales equivalent to 300 percent of his annual salary. In addition to his sales

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Exhibit 1

Guiding Principles of Oshawa Holdings Limited*

Joint Venture

Oshawa Holdings policy is to form joint ventures with its major customer. Such a policy allows

each party to contribute, in an organized way, to improve die operations of the company, such as

sharing technology and production methods. Oshawa Holdings tried to reduce or at least

maintain the cost of the product to die customer by cost improvement programs or increases in

volume. In this way long-term stability and market penetration can be obtained.

Employee Relations

To create a quality culture, the most important thing is to have a happy family relationship

amongst all employees and to have the employees enjoy their jobs. To do this it is critical to have

employee involvement in the management of the company. All employees must be involved in

the objectives of the company such as quality, production levels, methods of production and

capital spending. This emphasizes that all employees are of equal importance and contribute

Statistical Process Control

To have a quality culture, it is also necessary that each plant must be under complete statistical

process control. Machine and process capability studies must be constantly performed and

statistical inspection and charting of the production must be done. Many of Carter’s companies

have reduced acceptable production tolerances to 5 0% of print specifications. At Oshawa

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Small Entrepreneurial Focus Factories

Oshawa Holdings believes that small, entrepreneurial focus factories are the best type of

organization for North America to produce quality products efficiently. Its policy is to create

small companies with a limited number of technologies, which are managed by technically

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Exhibit 2

Plant Floor Layout

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Exhibit 3

Employee Distribution

Classification

#

of Employees

Plant Seniority

# / years

Wage Rate

$ / hour

Steel Shop

Welding & Layout 3 1 @ 28; 2 @ 13 22.98

Welding & Fitup 2 1 @ 7; 1 @ 6 22.84

Plating Department

Maintenance Department

Maintenance (ticketed) 2 1 @ 19; 1 @ 1 25.00

Maintenance (nonticketed)

2 1 @ 35; 1 @ 20 22.60

Chemistry Department

Chemist 1 1 @20 23.12

Shipping Department

Shipper 1 1 @20 23.12

Tractor Trailer Driver 2 1 @ 17; 1 @ 16 23.12

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Exhibit 4

Oshawa Industries

Balance Sheet, 31 December

Account

1998

1999

2000

2001

Current Assets

Cash $52,908 ($77,190) $452,132 $243,340

Accounts Receivable 1,001,014 1,105,324 992,116 1,487,726

Inventory 406,162 351,684 325,466 398,928

Prepaid Expenses 48,700 72,590 38,634 29,554

Sales Tax 794 0

Income Tax 124,372 (162,546) 434,496 323,742

Operating Loan 890,000 11,056

Other Liabilities 95,946 113,238 605,206 349,538

Total Current Liabilities

$1,005,108 $1,692,042 $1,935,658 $1,653,458

Long Term Liabilities

Bank Loans Payable $40,000 $430,000 $24,000 $18,000

Sales Contract 130,558 320,220 251,744 179,844

Customer Deposits 51,752 30,538 22,656 9,624

Shareholder Loans 850,156 850,156 2,437,036

Deferred Income Taxes 296,842 248,200 248,200 244,200

Total Long Term Liabilities

$519,152 $1,879,114 $1,396,756 $2,888,704

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Exhibit 5

Oshawa Industries

Statement of Income and Expenses

for Periods Ending 31 December

Description

1999

2000

2001

REVENUES

Steel Division $950,500 $907,784 $1,259,586

Plating Division $8,406,524 $8,746,344 $8,693,478

TOTAL SALES $9,357,024 $9,654,128 $9,953,064

LESS

Sales Discounts $31,884 $33,268 $39,018

OTHER SALARY EXPENSE

DEFERRED EXCHANGE

OTHER INCOME 4,246 54,038 23,950

INTEREST INCOME (CHARGES) (99,842) (28,920)

TOTAL PROFIT (LOSS) $793,296 $1,113,238 $841,410

TOTAL INCOME TAXES $349,200 $490,200 $369,200

AFTER TAX PROFIT (LOSS) $444,096 $623,038 $472,210

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Exhibit 6

Oshawa Industries

Financial Analysis

Ratio

1999

2000

2001

Current Ratio 0.86 0.99 1.43

Quick Ratio 0.65 0.82 1.19

Return on Total Assets 10.74% 14.57% 9.54

Return on Stockholder Equity 79.45% 66.53% 117.1

Industry Standards

Ratio

1999

2000

2001

Current Ratio Upper Quad. 2.3 2.5 1.3

Median 2.0 1.7 1.3

Lower Quad. 1.2 1.1 1.2

Quick Ratio Upper Quad. N/A 2.6 0.9

Median N/A 1.3 0.9

Lower Quad. N/A 1.0 0.5

Return on Total Assets Upper Quad. 28.6% 23.9% 13.1%

NOTE: Industry Standards were obtained from Dun and Bradstreet Canadian Norms and Key Business Ratios, SIC

3471. Costs to sales ratio averages about 77% for comparable industries.

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Dean Carter

President (56)

Karen Decker

CFO (52)

Chet Wainwright

EVP Plant Development

& New Initiatives

(57)

Roger Sutherland

VP Administration (44)

Jack Carter

EVP Manufacturing(54)

Jerry Kaplan

VP Marketing

& Sales (48)

Oshawa Holdings Limited

21 Plants

Exhibit 7

Organizational Structure of OHL and OI