ABRAMS COMPANY Products : Wide variety of parts for use in automobiles, trucks, buses and farm equipments.

Ignition parts Transmission parts Engine parts Sold to : Original eqipment manufacturers (OEMs) Aftermarket (AM) Wholesalers --- Retailers --- Consumers PRODUCT AND MARKETING DIVISIONS Abrams has a Product Division for all the three part groups. Each Product division is managed by a Vie President and General Manager. Each divison is expected to earn a target ROI. Each Product Division has a Sales Department. Remaining parts are sold by AM Marketing Division. AM Division is also managed by VP and GM and is expected to earn a target ROI. INSIDE AND OUTSIDE SALES Total Sales (1992) Inside Sales Outside Sales Division wise Sales: Ignition parts Division Transmission parts Division = Engine parts Division AM Division = $500 million = $100 million = $400 million

= $130 million $100 million = $90 million = $180 million

Target for AM Division was to increase the sale to 50% of Abrams' total outside sales. ROI for the Manufacturing Plants All manufactuirng plants had an annual target to achieve. The OEM sales were als o traced. Finished goods inventory were maintained and the parts were directly s hipped to the customers. ROI = Actual Profit/Actual beginning of the year net assets For having a clear picture of the costs, the allocated overhead expenses and tax es were included in profit. The Net Assets in the beginning of the year was use d in ROI measurement. Maximizing profit ROI was equal. For beginning of the year net assets, cash and recievables were allocated to plants on the basis of sales revenue but current liabilities, property, plant and equipment were given to th e plants. Value of asset = Historical cost accumulated depriciation The above formula was used for valuation of assets. Marketing Strategies 1)Developing innovative and cost effective new parts to meet customer requiremen ts. 2)Servicing customer accounts for parts already supplied to the OEMs 3)Annual sales target to be met.

4)Every product division to have its own marketing efforts. Factors contributing to success in the OEM market :1)Ability to design innovative and dependable parts that met customer quality. 2)Performance and weight specifications. 3)Meeting delivery schedule requirements. 4)Controlling Costs. Factors contributing to success in the Aftermarket:1)Availability of parts. 2)Quality 3)Price Incentive Compensation Plan :1)Number of line and staff managers participating in Abrams incentive bonus plan were approximately 50. 2)The dollar amount of the corporatewide bonus pool was established by a fixed f ormula relating to corporate earnings per share share was used 3)Each participant in the bonus plan received a number of standard bonus points. 4)Higher the participant in the organization hierarchy, the more standard points he or she received. 5)The total of these points for all participants was divided into the total bon us poolamount to arrive at a standard dollar award per point. 6)The standard rate was then multiplied by the participants number of standard to calculate the participantss standard bonus dollars. 7)In case of a plant manager, the standard award was adjusted by a formula that related percent of standard award to the plants profit variance(budget profit ver sus actual profit). 8)In making this bonus adjustment, the plants actual profit was adjusted for any favourable or unfavourable gross margin variance caused by sales volume to the A M division being higher or lower than budgeted was approved by top management. Thus, the plant manager would not be penalized if the AM division actually purch ased less from the plant than the amount that was agreed to by AM division when the plants annual profit budget was approved by top management. Management Comments The top management was satisfied in general. But a few areas of concern were :1)Disputes about the transfer prices of the parts sold by product to the AM divi sion. The actual OEM price was adjusted upward for inflatin for sales. 2)They also felt that the product divisions too often tended to treat the AM div ision as a captive customer. The plant always favored the OEM customer. 3)The AM division and the three product divisions carried ecessive inventories f or most of the year.