ABC Co. Marketing Strategy Case

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Case 1: ABC Manufacturing Company
(Risk Management and Insurance)

Description of Operations

ABC Manufacturing Company is a manufacturer of fine furniture designed to resemble the furniture used in various historical periods. The company's furniture is sold by approximately fifty dealers throughout the United States and in several foreign countries. Dealers are carefully selected by ABC to be sure they maintain the high quality imagine that ABC has established in its 100-year history of making fine furniture. Most dealers sell only ABC's furniture, but a few also sell noncompeting lines of similar quality. Dealers who sell only ABC's furniture are franchised to do business under ABC's trade name and would appear to the public to be branch stores rather than independent business.

ABC's factory is a three-story building of heavy timber (mill) construction located in a New England town of 2,500 population. The first floor is used for warehousing and office space, and the two upper floors house the production facilities. The building is 75 years old and has been occupied by ABC since its construction. The local fire department is above average for towns of this size, but its water supply system does not have adequate reserve capacity to maintain pressure for fighting a major fire over a period of several hours.

Adjacent to the factory building is a large frame structure used by ABC to store seasoned lumber for its furniture. Lumber is first air dried in the yard adjoining the shed, with the exact drying period depending on the kind of wood involved. The air-dried wood is then kiln dried in ABC's own kiln, after which it is stored in the frame storage building until needed. ABC's power plant is located in a brick building about 50 feet from the main plant. It furnishes heat and steam for all operations. Water for the stream boilers is drawn from a large river adjacent to the power plant. Electricity is purchased from a public utility.

Due to the length of the seasoning period, ABC usually has on the premises a supply of lumber adequate for four months of operations. Much of the lumber is purchased within a 200-mile radius of the factory, but substantial amounts are purchased from more distant sections of the United States or from foreign countries. For example, mahogany lumber, which is used in almost half of ABC's products, is imported by ABC from Latin American and Africa. Most of the lumber arrives at ABC's yard by railroad and is shipped FOB point of origin. The imported lumber is shipped by water to the nearest port, approximately 100 miles from ABC's factory, and then by train to the factory. Some locally produced lumber is delivered to ABC by truck, FOB ABC's yard.

Workers in ABC's factory use some small power tools, such as saws, planers, lathes, and similar equipment. However, the production process is primarily manual. Highly skilled craftsmen build the company's products, using many of the same techniques that were used two centuries ago. Furniture finishing is done by hand, and most of the stains, varnishes and other finishing materials are compounded by ABC's employees according to the company's proprietary formulas. ABC's labour force is very stable because each craftsman undergoes a lengthy apprenticeship in the plant and because ABC pays wages that are relatively high by the standards of the community. Management considers the high wages to be necessary because of the time and expense required to hire and train a replacement for a craftsman who leaves the firm.

Some finished furniture is shipped by railroad, but most of it is shipped by contract carrier trucks. The contract with the trucker does not include any provision relative to liability for damage to goods in transit. Export shipments are transported by truck to the nearest port and by water to the country of destination. All shipments are made FOB purchaser's warehouse.

All sales, including...
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