Stacey Tile Case Study

Stacey Tile Case Study

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Stacey Tile Company

1. SWOT analysis of Stacey Tile Company

Strengths:
+ competitive advantage: the position of the location - within a radius of 500 km which represents 60% of the U.S. market of floor & wall tile (its biggest assest)
+/- one operational tunnel kiln
+ good production manager with over 10 years in the company (Mr. Henley)
+/- financial capacity of Mr. Gilbert
+ Mr. Gilbert’s experience
+/- Mr. Gilbert’s motivation
+/- equipment for glazing ¼ of the production

Weaknesses:
no fans; wooden floor (dust)
no improvements of the factory building
low number of trained workers
high level of payables (including mortgage)
-/+ no MIS system (inventories); visual control for production planning
+/- equipment for glazing ¼ of the production

Opportunities:
+/- increasing market for wall tile – strong demand
+ higher prices for wall tile
+ production of high quality wall tiles - differentiation / specialization
+ higher entry barrier for wall tile – higher margins

Threats:
high competition
low price for floor tile
low entry barrier for floor tiles
extensive advertising for substitutes (glass, linoleum & cork)

2. Stacey Tile’s Mission

Concentrate production on high quality/colored wall tiles
Concentrate sales efforts on tile setters.

How will its MISSION be achieved?

Take advantage of the housing construction increase impact on the sale of tiles – Summer 1987
Low entry barriers in the floor tiles segment versus the wall tiles segment (Use of more expensive equipment, better trained workforce and a more skillful management of resources)
Contrary to wholesalers, tile setters do not seek quantity discounts and favor a low-pricing strategy

Gilbert’s Intentions:

Hire competent workers and managers to improve quality
Obtain a higher selling price by going directly to tile setters
Adopt a 2% discount/15 days payment policy
Purchase raw materials as cheaply as possible (same as competitors)
Develop a strong management team

3. Analysis of Mr. Gilbert (Fayol):

Planning:
Mr. Gilbert’s plans go for the full modernization of the company, for having it operating efficiently, resulting in selling high-quality products. He changes his plans as he goes along (ex. Letter April requesting for investing in a second tunnel kiln);
From the staff point of view, he plans to have a competent production manager – he kept Mr. Henley – and six good capable foremen;
He plans to sell directly to the tile setters
By the first week of September, the glazing machines are planned to be installed
He plans to buy raw materials on a day-to-day basis

Organizing:

Mr. Gilbert is a good organizer. He intends to eliminate the dust in the air, to reduce
production errors, by better training of the workforce, and to eliminate the debris

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organizing the usage of the existing kilns and buying the used replacing machines
Hiring himself specialized and experienced key people – the nucleus
He buys four carloads of machinery

Leading / influencing:

He spends a lot of time in the factory helping foremen to improve their efficiency
He starts the work early in the morning, being an example for his employees

Controlling:
Strategic Control
Mr. Gilbert personally supervises the company’s operations

Monitoring and evaluating:
Early in the morning, during his first hour and a half walk, he makes
suggestions to the foremen; in the second part of the day he checks if his
suggestions are applied;
His manner of control is exaggerate, he dedicates too much time for
controlling and supervising very close the activity of his employees.

3. Analysis of Mr. Gilbert (Mintzberg)

Figurehead:
Mr. Gilbert is an experienced person in tile field, he is an example for his employees, regarding knowledge.

The leader role
Mr. Gilbert is a leader, he coordinates all his subordinates and makes suggestions in order to increase the efficiency of his people work.
He defined the plant, the technical means and he assured supplying of raw materials;
He oversaw and asked every day about the production activity and about financial situation of the receivables;
He selected good foremen, encouraged by not fearing the competition, promoted high quality tile policy and disciplined the cash flow.
Liaison: Mr. Gilbert makes the connection between productivity, needs for technical means, and he decides to acquire the second tunnel kiln. Mr. Gilbert knows always the current status from the factory, from sales people and from the book-keeper. He links the production with sales and with account receivables.

As 'monitor'
Mr. Gilbert seeks/receives information from his employees nucleus to evaluate the Stacey Tile’s performance.
He monitors the whole process and he sees the opportunity of extending his business due to the shortage of wall tile beginning by 1988. He was informed also about the forecast of substantially increasing of building activity.
As spokesman
Mr. Gilbert’s spokesman capacity can influence, maybe, only the wholesalers from the field. As a manager, he does not have spokesman skills
Mr. Gilbert is responsible for his/her organization’s strategy-making system - generating and linking important decisions. He has authority, he is very well informed, he controls (too much) and he is able to follow the important decisions.

As initiator/changer
He designed and initiated much of the controlled change in the organization. One evening, Mr. Gilbert had a lot of ideas for possible reductions of production costs, which proved to be successful.
He had as intention, by the end of the 1987 summer, to hire three new managers, even a general manager. He even replaced subordinates. He supervised design directly. Mr. Gilbert had one project roll-on for 1 year.
The Disturbance handler Mr. Gilbert’s absence from the work, due to his health problems, created a sales dropping, in December. To re-equilibrate the situation, Mr. Gilbert lends the company with $126,000 in December and $80,000 in January.
As resource allocator
Mr. Gilbert is scheduling his own time, is programming his work not too good. He is the one who is authorizing the actions.
He also sets organizational priorities. Time and access involve opportunity costs. His managerial task was to ensure the basic work system is in place and to program staff overloads - what to do and by whom.
The negotiator
Mr. Gilbert, through his letter to one of the member of the board, negotiates a critical investment.
4. Implementation

Situation when taking over the company:
T/O less than $500,000
Mortgage over fixed assets $607,500 (Reconstruction Finance Corporation – RFC)
Agreement: 80% of the company’s shares (+option for the rest) for title to Mrs. Kilmer’s house
Operational capacity: 2%
Staff: 20 employed people – 15 factory workers, 2 foremen, a production manager, an office clerk and a secretary
Obsolete Equipment

Mr. Gilbert’s initial plans & estimations / What happened:

Market& distribution
60% of the US market within a radius of 500 km of the company’s location / no later info;

Future shortage of wall tile, therefore switch from producing mostly floor tile to wall tile production, due also to the low prices and fierce competition for floor tile / higher value of residential building permits granted in the North-West is not necessarily an indication of the future increase in demand of wall tile; in his letter dated April 21, 1987, Mr. Gilbert declares that there is a boom in the business constructions and that the prices for the quality tiles were going up;

Selling mainly directly to tile-setters and secondly to the wholesalers (wholesalers are always trying to obtain larger discounts) / to ensure cash flow, he signed an agreement with a wholesaler

giving preference over others for 1 year and buying $35,000/week (60% of the average T/O, resulting in a possible margin decrease; keeping 2 sales representatives is not justified any more); average order of 2,000 sqm.

Production
Obsolete equipment & Inefficient layout of the factory; Buying used machined &install by the first week of September; casting and machining of a complete set of dies / April 1987: not being able to use the full production capacity,
There should be little difficulty in finding capable factory workers; labor force of 200 by November (in excess, but to be trained in advance) / difficulties in hiring and retaining workers; other companies already hired the best tile workers so Mr. Gilbert Decided to hire promising applicants and have them trained; 400 employees by the end of January, only 185 decided to stay (-/+)
Production of a large proportion of the highest grade wall tile in a short time / 50% standard grade in April (35% other grades and remaining 15% representing failures)
Only five bisque kilns could be used; no use of periodic glazing kilns during the first year / April 1987: difficulty in accepting new orders due to lack of manufacturing capacity of only $450.000/month while having already booked $2,000,000 value orders
Keep the production manager, Mr. Henley; Have 6 capable foremen in order to have the workers trained properly (by September, 1st week) / Intending to hire three new managers for planning, management control and a plant general manager;
Hiring two ceramic engineers and a junior bookkeeper / he already had one clerk and a secretary, so having a junior book-keeper is on the short-term an unnecessary expenditure;
By October 1 to deliver at least black & white tile / Production of the first standard-grade tile in middle of October; colored tile tests in November, production a few months later
No improvements for the moment (fans, cementing the floor, scraping & painting the building) / in April he declares that in order to further improve the quality there should be something done for the reduction of the dust in the air

Financials
Limited capital, therefore expenses should be kept to a minimum (success depends on it!); Necessary financial resources: $300,000 for the plant repair and $300,000 for the working capital / He loaned the company $600,000 on an unsecured note; Unplanned expenditure of $80,000 for equipment & machinery; a second loan of $126,000 and a third one of $80,000; on April 21, 1987 request for another $400,000 for a second tunnel kiln;
Buy raw materials on a day-to-day basis to avoid accumulating inventories / inventories of approx half of million in December, with a slight decrease in March;
Reduce the receivables by a 2% discount for payment within 15 days (we do not have the information about the payment term in the industry) / Receivables of $427,000 in April 1987, 4 times more than in December, proving that he did not succeed to cash his money on the planned payment term.

Others:
sorting conflict
schedule of the kiln operators
long working day; new ideas
flu + what happened (proves no back-up)

5. Conclusion:

Mr. Gilbert’s qualities as a manager:
+ Perfectionist: He wants the best quality for the company’s products
+/- Risk taker (entrepreneur): he puts his personal savings on the line
+/- Dedication: exhausting daily program
+ Decision-maker: producing wall tiles instead of floor tiles

Mr. Gilbert’s flaws as a manager:
Decision-maker: he wasted money for the periodic kilns, instead of buying a new tunnel kiln
-/+ Not quite the best visionary – He did not see that he needed more money for investments
Over sized Controller – too present
-/+ Not quite the best resource allocator – he did not train enough his staff and he didn’t hire enough experienced people

Overall, I consider Mr. Gilbert an entrepreneur, but not the best manager. He was good in putting on a certain right direction Stacey Tile Factory, saving it from bankruptcy, but he was not able to keep it so productive as he planned to and like a real good manager.
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