MADISON CORPORATION

Situation Analysis of Madison Corporation

By Kush Mohnot Application no 60895 FSB-1 Date of Submission- August 16, 2010

Madison Corporation, a manufacturer of electric clocks produces 40 different models in this quarter and has recently added highly styled Model 329 as a new product. Madison Corporation management follows a functional structure hierarchy. Sales department in company orders the quantity of product to be manufactured and according to this estimate production department quotes the quantity to be purchased by Purchase department for raw materials and the fabricated parts. The company has been following the policy of purchasing the inventory with expectation to their demand after experiencing a heavy inventory loss of finished goods and raw materials after the price declines in year 1932. Since electric clock is a highly seasonal business, the company has restricted itself to requisite buying of raw materials. Sales manager is responsible for quantity to be ordered. Model 329 is with mirror face and exposed hands. It is made of strip brass and chrome plate. Sales manager has requisite for 4500 units of Model 329 for coming quarter of April-June. According to present scenario stock of 1530 units and 600 unfinished units of Model 329 will be ready for shipment at end of this month, out of which company has an order of 1350 units and the company will be left with finished goods inventory of 780 units for next quarter. The purchase department suggests the production department buying the raw material in larger quantity, so they can get a discount on price on bulk purchases (Exhibit 2).For the present quarter company with inventory of 780 units of Model 329 expects a demand of 4500 units, so they need to manufacture 3720 units. As Model 329 is highly styled and seasonal product and companys experience of abruptly fall in demand of styled product and also the financial trends of having below average sales for this quarter(Exhibit 3) in comparison to other quarters , Production Manager has been following the policy of buying the inventory as per the expected demand. If in case still the sales drop the company reclaims the product from the dealers and sell off the product at the scrap value. The scrap value of the plates is 14 cents. Company has two options , to buy in bulk and reduce the cost and if sales is not according to production sell it off at scrap value and other option which company has been doing producing as per the demand per quarter so there is no inventory loss.

EXHIBIT 1 The Madison Corporation Percentage Sales of Model 329 compared to Clock industry

Months 1959 September October November December 1960 January February

Sales % Sales 3220 3410 1940 970 665 665 2.35 2.70 2.91 3.20 3.10 2.74

EXHIBIT 2 Madison Corporation Price and Savings of brass bases for Model 329 Quantity Price( cents) Savings ($) 5000 24 0 9000 21 1200 13000 19 6500 15000 18 9000 *Figures calculated keeping base quantity as 5000 EXHIBIT 3 THE MADISON CORPORATION Quarterly Sales Of Electric Clock Units,1956-1958 Quarter January-March April-June July-September October-December 1956 17.6% 22.9% 17.7% 41.8% 100.0% 1957 20.4% 26.9% 21.9% 31.4% 100.0% 1958 23.5% 21.1% 9.6% 45.8% 100.0% 1959 13.3% 16.5% 37.5% 32.7% 100.0%