gbc 2014 scenario

8/12/2019 GBC 2014 Scenario

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www.cimaglobal.com/globalbusinesschallenge

SCENARIO


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Todays date is the 1November 2013.

You are a management consultant to Merbatty, an independent boat builder.

Prepare a report that prioritises, analyses and evaluates the issues facing theboard of Merbatty. You should make recommendations where appropriate.

Read all the information provided before you begin


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You work as a management consultant for Merbatty. A variety of issues have

arisen upon which you are required to comment. The Board want your analysis

of the issues with advice and suggestions as appropriate, you are asked to makedetailed recommendations regarding what you think the board should do.

New design supplier for Surania (fictional Middle East country)

The new boat building facility in the Middle East is nearing completion and is

due to be opened a little later then originally planned in February 2014.

However, the issue of the interior design supplier remains unresolved.

Stefan Gil has indicated that expectations are high for the Suranian sales levels

with 50% of the customers expected to come from within the wealthy Middle

Eastern region by 2017. The remaining capacity of the facility will be used up bygradually increasing sales to other customers. Stefans long-term view is that the

Middle Eastern share of the Suranian facilities capacity can only increase after

2017 as the region is driven by huge wealth reserves and a commercial drive to

be admired.

Lukas Dian has gathered some background information on two potential design

companies that are willing to carry out the design work the boats produced in

the Suranian facility.

Cooper Designsis a multinational boat interior design business based inWestern Europe. It has design centres around the world including a new

office based in Dubaria, a city about 200 miles from the Suranian boat

building facility.

Cooper has a long history of delivering traditional designs of high quality but

have also modernised their designs with some success, winning best modern

design at the recent Dubaria international boat show in 2013. Cooper makes

full use of computer assisted design techniques (CAD) and provides an

extranet service allowing customers to remotely view the current design for

their boat at any time. Although customers cannot make changes themselves

on the system, this does allow interaction between designer and customer totake place regularly leading to a more reliable end result.

Cooper is proud of its reputation and charges accordingly, the bespoke

design fees for a typical mid-sized boat in the Merbatty range would be in

the region of 100K.

Cooper has also indicated that, should Merbatty be happy with the work it

does for the Suranian built boats, that it has the spare capacity to design for

all of the Merbatty boats wherever they might be built.


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Arabian Interiorsis a Suranian based design business formed a little over

four years ago close to the boat building facility. Although relatively new it

has had rave reviews for its Arabian flavoured design and also wonrecognition at the 2013 Dubaria international boat show for the best Arabian

designed boat interior.

Arabian Interiors is financed by a wealthy and well-connected Sheik and so

almost limitless funds for expansion are available if needed. It employs only

local people but all are well educated and fully trained in the use of the latest

CAD systems.

The Sheik owner is ambitious and entrepreneurial and has recognised the

potential growth within the Suranian market for luxury boats. He believes

that the growth in the local market will be far greater than Merbattys figuresindicate and has suggested that the whole of Merbattys Suranian production

capacity could be used up by local sales by 2017 with an aggressive growth

strategy. He feels that with his help and local contacts the future could be

bright for both businesses if working together.

Initial indications are that Arabian Interiors would charge around 90K for

bespoke design work per boat for design work.

Lukas would like you to discuss the major factors to consider in choosing

between the two options.


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Accident at work

Merbattys health and safety record has always been good, but more by luck

than good management. Recently however, it has blotted its copybook alittle. One of its employees, a Scotsman called Paulo (Italian parentage),

arrived for work high on drugs. Paulo managed to avoid his colleagues on

arrival at the boatyard and made his way on to a hull promptly falling off and

breaking his leg.

Paulo is a good friend of Jesper. Jesper was aware of Paulos occasional

recreational drug taking habit but decided to ignore it, as Paulo has not

allowed his habit to interfere with work.


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Racing boat

A family feud is developing at Merbatty. Jesper has been increasingly keen to

assert himself on the business and in his new marketing role he thinks he hashit on a winning idea.

Merbatty already sponsor a global speedboat race series at a cost of 5m perannum. Jesper wants to build and race a speedboat in the competition. He

feels that this would really make the boating world sit up and take notice of

Merbatty. Initially Merbatty would race for a period of two years but if

successful this could continue and develop into Merbatty selling its ownrange of speedboats.

Jesper is adamant that this step would lead to more sales of Merbattys

performance motorboats; the P-3000 specifically. Jesper has done somecalculations on the P-3000 costing and produced the following analysis.

Description Note m(per boat)

Selling price 4.4

Hull and other materials 1.2

Direct labour 1.4

Supervision and management time 1 0.4

Allocated general overheads 2 0.6

Profit before tax 0.8

Alberto is dismayed by this development. He feels that the design,

development and build costs of the first boat could easily be 12m with noguarantee of success in the races nor any definite extra sales of the P-3000. He

also has spoken to an old friend of his who has been involved in Formula 1

motor racing for many years who has told him the travel, accommodation,

direct engineer costs could easily be 8m per year. Racing is scary on and off

the track he was told!

Alberto wants to know how many extra P-3000s Merbatty would have to sell

to breakeven over the two years and your assessment of the risks and benefits

of the idea. Ignore taxation in this calculation.

Note

1. These would all be existing members of staff working in normal time.2. These are head office overheads allocated on a per unit basis.


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Sales staff

Stefan Gil and Marie Lopp have been discussing the proposal to employ sales

staff as oppose to agents. There is not a uniform position and have asked youto discuss the various factors that Merbatty should consider.

They have both been asked to provide you with at least part of their own case

with an example or two to back up their argument.

Stefan Gil

Look it is really not that complicated, with agents they work hard orthey dontget paid. There is no slacking, no hiding behind desks, they are motivated to sell

and thats what they do.The boat selling business has been like that for yearsand in my view if it is not broke dont fix it applies here.Look at the growth we

have achieved over the past few years despite the recession going on in Europe.A lot of these agents are now loyal friends with great contacts in the industry,

we would be ill advised to turn these people into enemies.

Marie Lopp

Things change and Merbatty must change too.If you look at the distribution ofour sales the majority of boats we sell are the smaller and cheaper ones in our

range. With the growth in property prices over the last 30 years many more

people can now afford (on retirement maybe) a Merbatty boat. This new market

is under the radar of our existing, somewhat over-educated agents who seem to

want to push the multi million boats to the jet set. More employed sales staffworking 100% of the time selling to our core market is what we need not some

champagne drinking guy in shades earning ludicrous sums for selling a boat to a

pal at reduced prices.

Albertofeels that both the arguments have grains of truth inside them but

both are in places vested in self-interest or just false. He would like you to

provide an objective view, dealing with all the specific points raised by Stefan

and Marie, along with any other points you feel are relevant. He wants a

recommendation along with a few specific actions that would be required if

your advice was followed.


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JKL

On the whole JKL have been happy with the performance of their investment

in Merbatty. However, while at head office recently Simone was having acoffee and a chat with Jesper where he was talking about his plans for the

racing boat. Dad is not sure about the idea at the moment but I will getaround him I am sure, after all family is familyhe said.

Simone was supposed to be visiting the financial director, Andreas, but due

to a diary mix up found he was not on the premises when she arrived.

Andreas was out on one of his many charitable visits explaining finance to

the children of local schools. Andreas really liked helping out kids need to

know about money. Money changes everything and its only funny in a richmans world.If they understand money earlier maybe they will grow up

wiser and financially independent he said at a recent Board meeting.

This all confirmed Simones growing belief that Alberto viewed Merbatty as

his personal property to do with as he wished. She has calculated that

charitable work has cost the business fiveman-years of time in 2012 alone.

Late delivery of a hull from Topcrest

Paul Lavie has received a phone call and email confirmation about a problem

with the delivery of a hull from the hull supplier Topcrest. Topcrest has been

so successful lately that it is struggling to cope with demand for its hulls. Ithas recently won a new major client but in doing so had to agree to some

work jumping the normal queue thus causing one hull due for delivery to

Merbatty on 1 December 2013 now being expected to be two months late on

1 February 2014. This would mean the finished boat, assuming normal

operating procedures, not being delivered to its Mediterranean mooring

until 31 May 2014 (also two months late).

Topcrest are mortified in having to do this as they have always treated

Merbatty well but the new contract was just too lucrative to turn down. They

have given assurances that this will not happen again and have offered to

compensate Merbatty as follows:

1. A payment of 30 per hour for any idle time created by the delay.Merbatty employees are skilled individuals and Merbatty would

rather pay them to be idle than lay off workers they do not need

temporarily. It is estimated that 5% of the boat-building technicians

including supervisors will be idle for 10% of their time over the two-

month period in question as a result of the late delivery. Boat builders

work 152 hours per month on average. The normal wage rate

(inclusive of all employment costs) for these staff is 18 per hour.

The idle time calculation should be based on the number of boat

builders employed as at 31 December 2012.


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(note: idle time is hours that are paid for but that are not actually

worked)

2. It is accepted that the boats customer will expect a 25K discount forlate delivery. Topcrest will refund this to Merbatty.

3. Topcrest will also pay Merbatty an ex-gratia payment of 30K by wayof an apology. This will come with a legally binding contract that

waives any further rights to sue Topcrest for any breach of contract.

Paul is furious about this development and has found another hull supplier

willing to supply the hull at short notice. This will cost an extra 50K and

cannot be delivered until 15 January 2014 assuming all goes to ideal

operating conditions. Its the principle of the issue, Topcrest think they can

move us down the pecking order as they wish! We have been a customer oftheirs for 20 years and so we should just not stand for itsaid Paul. Opinions

are divided on Topcrests potential reaction if Merbatty cancel the contract

and source the hull elsewhere, but the general view is that the above offer

would be withdrawn at least in the first instance.

You are asked to assess the various options open to the board including the

two mentioned above.

gbc 2014 scenario

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