GIRISHRAGAVENDAR S

FX20014
PGPM-Flex Challengers

PGPM Flex – SCPM

Mueller- Lehmkuhl case study

1. Give a write up on the company’s products and the competitive environment it operates in.

Company Profile: Mueller-Lehmkuhl (ML), a German company, produced of apparel

fasteners. the corporate was founded in 1876 as a producer of shoe accessories. Over the
years, the corporate merged with other companies and grew tremendously. They were ready
to produce good quality products which resulted in higher margins and technological
superiority.
ML is understood for its fast service and reliability of its products. However, it's been facing
domestic market saturation and competition from the japanese firm. ML has got
to find how to sustain its domestic market leadership and expansion of its markets.
ML manufactures both Snap Fasteners and Attaching Machineries The products that were
developed by the Mueller-Lehmkuhl were wont to replace the button and buttonholes. the
merchandise line of fasteners consisted of 700 different product lines which consisted of S-
Spring socket snap fasteners, ring socket snap fasteners, two open prong snap fasteners, and
tack buttons. Each of those productshavetheir own unique specifications. On the
opposite hand, Mueller Lehmkuhl also manufactures the attaching machines. About six
machines were manufactured by the Mueller Lehmkuhl among which there are manual and
automatic. These automatic machines were wont to produce high volume of Fasteners.
Mueller Lehmkuhl has the policy to sell the prevailing old machines and acquire the new
automatic machines. However, automatic machines require costly maintenance as compared
to the manual machines, this maintenance cost is estimated to be $2000.

Strength/Weaknesses: A strength of ML’s line was its product differentiation. With 700 sorts
of fasteners, it might are ready to have a various customer base which might have provided
more security counting on changes in competition or economic conditions. this is able
to be almost like someone diversifying their 401K portfolio. a possible weakness of this
strategy would be if the corporate didn't need to proper product mix. it might are extremely
important to realize a desirable product mix so as to attenuate costs while maximizing
revenues. Another strength of this company was its investment in R&D. Innovation was a
crucial a part of achieving market leadership during this industry. Especially, since the
fastener industry was very price sensitive thanks to economies of scale. The investment in
fashion line fasteners is a stimulating strategy. it might be important for the marketing
manager collect customer feedback data that shows that there was a requirement for these
specialized sorts of fasteners.
 2. Prepare and analyse the product wise profit statement – a) fasteners b) sale and rental of attaching
machines.

Estimated Attaching Machines Sales

Comparing Fasteners V/s Attaching Machines Sales

Analysis Summary: Fasters are highly profitable, However the attaching Machines are making
Loss.

3. Give your understanding on the product cost method followed by Mueller. Also analyse how
it can be made more accurate using ABC.
(remove piggy backing, unbundle the costs and allocate to the respective products, by using
ABC)
(state clearly your assumptions on cost drivers and cost allocations between products)
The present studies has identified that the Mueller-Lehmkhul production process as an
example includes machining and tooling departments which can
be mainly set aside for generating attaching machines. The different step includes prototyping
and designing for the attaching machines. Additionally, there is buy of the
required elements such as engines and motors which might be cast to the specifications in
keeping with a local iron casting enterprise. The next step entails wielding accompanied with
the aid of the technique of assembling. Testing is likewise very important as
it sets apart cost added merchandise from the non-price added products before they are sold.
The fastener production procedure is characterized by three core steps that include-
stamping, meeting and finishing. The existing value device can be known as activity primarily
based costing or ABC which makes use of a number of mixes of volume primarily
based activities and other sports which are non-volume primarily based. The activity primarily
based costing takes under consideration the truth that there are changes in era and
production strategies and that there's a high rate of latest products emerging into
the market that has led to a trade in overheads like IT and exceptional control. The
ABC technique is able to allocate those overheads ina extra accurate way by classifying
overheads into businesses which might be influenced via homogenous activities.
The corporations are called fee pools at the same time
as the sports that force the expenses are referred to as value drivers.

4. Given the revised cost data using ABC, how should Mueller react on the pricing and
marketing strategy to the new entry of the Japanese manufacturer?

Hiroto Industries, the Japanese competitors, had a 20% lower selling price than that of ML.
Therefore, when HI entered European market, it was able to gain MLs customers through its
various strategy and lower prices. As mentioned in the case, for ML to reduce price by 20%
would be very expensive. However, ML’s fasteners quality was better.

I would suggest ML to reduce prices but not as much as 20%. ML should reduce price as much
as it can while staying profitable. Exhibit 3 shows that if ML reduces its selling by 20% it will
still be profitable at a profit of $3,190,000. However, ML should capitalize on its better quality
and charge higher then HI. Therefore, a price cutting is required but not as much as 20%.
Furthermore, ML should advertise the quality factor of its product to increase awareness among
the customers about the durability of the product. This would help ML retain its customer base.
ML should also desert the plan of penetrating African markets because they prefer cheap
products to quality products.

ML has been bundling the price of the attaching machines with their fasteners price. They need
to unbundle this price. Furthermore, as attaching machines are resulting in a loss I suggest that
the production of this product should be stopped. If not the entire product then at least those
attaching machines that are not profitable should be abandoned.

The case suggests that ML had a strong R&D department. This gives ML the opportunity
to produce more innovative products which are more appealing to the customers. Additionally,
the attaching machines can also be made compatible with the production process of various
fasteners manufacturers.