Report Convenience Cookware, Inc.

Report
Convenience Cookware, Inc.
Introduction

This report is being written to outline what exactly happened with the Ever Last product line and create awareness from a first hand source. It is also written in order to investigate as to which option should have been selected. I have been assigned this job to inform you about the events because of my involvement with the research and development, testing, decision making and production related to the Ever Last product line. It is being written for the upper level of management of Convenience Cookware, Inc.
Outline
This report will cover everything that happened in 2006-2007. The basic outline of the report will be as following:
·         It will start by giving a brief background of the industry and the product line before the product was launched.
·         Next it will describe how it was developed and how it led to disaster. It will include all the decision making that was involved and the choices that the producers and developers of Ever Last product line had.
·         The fact that the correct choice was stopping the production as soon as they found out about the defect will be proven.
·         Towards the end, I would suggest how the event could and probably should have been handled. This will be useful in the future if and when our organization is faced with similar situations.
The basic point that the report outlines is the need for organizations to realize that when they are in a situation when they have to make a choice, they consider the situation strategically and must analyze both sides in detail. Everything should be considered. If this is not done, the organization will end up choosing the wrong choice and suffer like Convenience Cookware, Inc.
Background
The economic downturn that United States of America and the whole world for that matter is facing is not hidden from anyone. Also, the damage and how it has affected businesses all around the world is also no surprise. The aggregate demand has fallen which has resulted in fall in sales of companies all over the world.
The same happened with Convenience Cookware, Inc. Meeting goals and benchmarks related to sales and returns on sales started to seem impossible to accomplish. Kindly refer to the income statements of previous years to understand the situation better. If you notice that the number of sales and sales revenue was falling since 2004. At the same time, the total cost was not changing because the fixed cost had been increasing and the variable and attributable costs were not decreasing by the amount that they should have been. As a result, the product line profit after G&A allocation started to decrease. The ultimate effect of this whole scenario was on the return on sales. It kept on falling sharply. Since 2004, it fell by 12.59. So why exactly was this happening? The answer to this is simple. The sales revenue was falling at a higher rate than the costs and hence the proportion (return on sales) was falling.
The product manager realized that there was a strong need to take action in 2006 otherwise the situation would keep getting worse. The most appropriate solution that could have been implemented was changing the design and modifying it slightly so that the target market would buy their products because of cut in prices and out of curiosity. This would have worked out if only the new modified product was tested carefully and in detail before launching it and booking orders. However, the product team failed to test it completely and launched the product in the market before that. The target audience did actually become curious and the number of orders that were booked in the 1st quarter was the proof of that.
The Product
The modifications that were made in the product resulted in the fall in the cost per unit by a great extent. The variable cost fell by 35 percent per product. If properly implemented, this would put Convenience Cookware, Inc. in a very strong position. It would be able to provide products to their customers at prices lower than the competitors and in this uncertain environment, this was what Convenience Cookware, Inc. needed; a little certainty. The product was launched in the market as the same product, same incentives, warranties, functionality and safety features. The only thing that was different about this new product was the fact that it was 10 percent cheaper than the old one and had an expected lifetime of 10 percent more than the previous one. This was enough to get as much as 1,500,000 orders just in the first quarter.
The Crisis
Now we move on the actual crisis that Convenience Cookware, Inc. faced in the year 2007. The production of 1,500,000 was started without completely testing the modified product. The production to complete the orders for the first product was almost finished when in one of the routine check ups, the developers of the product discovered something about the product that they did not notice before.
When the microwave was used to heat something at an extremely high temperature, more specifically 450 to 500 degrees, and after wards if it was put in the refrigerator, there was a chance that the ovenware would explode. This was a very serious problem especially because at the stage of production Convenience Cookware, Inc. was operating in at that point of time. The chance of explosion was 0.25 percent which means that out of every 1000 products 2.5 were estimated to explode.
Options Available
This issue was discussed in detail immediately. At this stage, the team associated with the product line had two options. They were as following
·         Option 1: Either they could stop production, delay shipment to the customers, recycle whatever that was produced until now and use the materials to produce ovenware the way they used to.
·         Option 2: The second option was to ignore that the chance of explosion was ever discovered, ship the products to customers and if something happened, they would pay for the damages that were caused.
Both the options came with very serious risks associated with them. The first option would result in a large amount of losses for the company. While the second one would result in poor publicity of the brand if something happened.
The second option was chosen by the organization and this did not prove to be the best option. There were a series of accidents (as expected and predicted by the organization). Investigation was carried out and it was found out that the organization had complete knowledge about the chance of accidents that were associated with the products and they still decided to put their customers at risk. This ruined the public image of Convenience Cookware, Inc. in the market. They had to call back their products and completely stop production.
Comments
Now that we have a clear idea of what exactly happened, we are in a better position to discuss how the situation should have been handled. I have developed an Expect Income Statement for the year 2007 if everything had gone according to plan. This clearly shows that the product manager’s goal of achieving a 25 percent returns on sale would have been achieved. However, because of the unfortunate incident and the carelessness on behalf of the testing department, this modification proved to be unsuccessful and hence the result was the Ever Last Ovenware’s team was left with two risky options.
Selection of any one option would have been very crucial for the organization. Therefore this stage was very critical for the organization. It needed to critically analyze the situation and the possibilities. In short, it needed to consider a lot of aspects before coming up with a final conclusion. First of all, in my opinion, when they found out about the defect in the design of the ovenware, they should have followed a formal ethical decision making step. This step involves carrying out a cost benefit analysis, consider their rights and finally decide if the decision is ethical or not. The cost benefit analysis was carried out. However, the next two steps were not followed. Only the direct costs associated with the costs were considered. This is where organizations usually mess up.  They do not understand the seriousness of ethical issues. They should have realized that the direct costs would be a lot but they would eventually be covered in the coming future. However, something like a bad public image leaves no future for the organization because it becomes very difficult or even impossible to win back its share.
In order to prove my point that the costs that were involved in the second option were high but not higher than the costs that were associated with the first option, I have developed an expected income statement if the first option was selected. If you refer to Exhibit 2, you will see that despite the unfortunate incident, the organization would have been able to enjoy a 5.17 percent return on sales in 2007. It did not even have to suffer losses. The consequences of selecting the second option were that production was stopped for future and the products were called back. If we compare the damage and the costs that were incurred as a result of both the options, it becomes clear that it was a bad decision to ignore the chances of explosion even if they were small.
Conclusion
There comes a time when organizations have to choose between two options. At this stage, the responsible authorities must be able to think strategically and see the organization as a whole. They must be able to see the whole picture and have a clear understanding of which direction they are going in. It should have its priorities set regarding what is important, current reality of the future. By thinking creatively and critically, the authorities would strategically select the best option.
The purpose of this report as mentioned in the beginning was to outline the events that led to the disaster and investigate as to which option was better. This has been done in detail and I have declared the option that should have been selected after careful analysis of expected income statements of both scenarios.
If only Convenience Cookware, Inc. had realized this selected the better option, it would not have suffered such harsh consequences. They would have lost their customers if they delayed shipment but what they did not realize what that at least they would not lose their future. They would at least have had a chance to gain their trust again by launching a newer product later on the in the organization life cycle. An incident that involves carelessness on part of the organization cannot be fixed especially if it is done on purpose and it becomes popular. It will be something that remains with the organization forever.

APPENDIX A
Expected Income Statement for 2007 if everything went according to plan
Sales
81,000,000
Sales in units
6,000,000
Cost of Goods Sold
Variable
21,645,000
Fixed
24,033,769
Gross profit
35,321,231
Attributable Costs
Marketing
5,670,000
Others
2,580,475
Product Line Profit before G&A Allocation
27,070,756
Return on Sales
33.42%
Exhibit 1

Expected Income Statement 2007 if the first option was selected
Sales
54,000,000
Sales in units
4,000,000
Cost of Goods Sold
Variable
18,315,000
Fixed
265,533,769
Gross profit
9,151,231
Attributable Costs
Marketing
3,780,000
Others
2,580,475
Product Line Profit before G&A Allocation
2,790,756
Return on Sales
5.17%
Exhibit 2
 

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