WAC Assignment

CLAYTON INDUSTRIES: PETER ARNELL, COUNTRY MANAGER FOR ITALY

Group 2 Praveen|Omkar|Ramakrishna|Rohit Bajaj|Rohit Bansal|Shweta Wadera|Sreekumar

Symptoms
y Sales declined  5.3% in 2008  19.4% in H1 2009 y Expensive product y $1 mn loss per month y 20 30% over staffing

Problem Definition
y Product  Less efficient design  High costs  Centralized Air Conditioning requiring ducts y Marketing Strategy  Lack of broader marketing capability  Lack of name familiarity y Tense union relationship

Solution Objectives
y 10/10/10  Cutting inventory, receivables by 10 days  Cutting head count by 10% y Top Four in Four

Possible Alternatives
y Revitalizing the Compression Chiller Line  New sales and marketing plan to expand market share outside Italy  $5 mn costs in a year y Conversion from Compression Chiller to Absorption

Chiller


$15 mn cost spread over 5 years

y Study strategic options for at least 6 months

Revitalizing Compression chiller line

y Pros  Less restructuring  Total costs at $5 mn, which is less than the other available options y Cons  $5 mn cost primarily incurred in first 12 months  Sales and marketing campaign might not be successful

Conversion from Compression Chiller to Absorption Chiller

y Pros  Absorption chiller is the possible future of the market  Lower annual cost ($3 mn) compared to Option 1  Already contributes $35mn to top line, 10% to EBITDA y Cons  High cost ($15 mn over 5 years)  Unsure of the success of Absorption technology  Low current market size (15%)

Proposal by Finance Director

y Pros  No immediate investment  More time to decide on the strategy y Cons  Currently incurring $1 mn loss per month  Wont be ready for the market when the recession ends

Best Alternative
y Conversion from compression chiller to absorption

chiller


  

$3 mn cost per year which is lower than $5 mn for the first option Planning for the future Option 1 - Unsure of outcome of sales and marketing campaign Option 3 - A passive approach, not matching Arnells style