Berkshire Threaded FastenersBerkshire Threaded Fasteners Company has recently lost their president, John Magers. The resulting appointment of his inexperienced son Joe Magers has lead to the company's loss of confidence. Brandon Cook is the recently appointed general manger who was hired to turn the company around after a loss of $70,000 in a good business year. As a member of an outside consulting firm I have been called in to give advice on the problems the company is facing. The time period has been updated to the present times.
Manufacturing ProcessSee Appendix A for the detailed manufacturing process. In short, fasteners begin as wires, rods and bars which are then cut to length, headed and finally threaded. What should be noted is that this particular manufacturing process called cold forming is high-speed, high-volume, economical and has low wastage. Such economies of scale will allow Berkshire to offset the very high costs of cold-forming equipment.
Business StrategyA careful analysis is needed in order to determine Berkshire's business strategy. At first one would think it was product differentiation because of the inelastic demand in the short run. But one thing that should also be noted is the fact that for most goods, demand is much more price elastic in the long run than in the short run. This combined with the fact that Berkshire is convinced that it could not individually raise prices without suffering substantial volume declines, and that all the products of the different manufacturers in the industry are very similar, prove that their business strategy is in fact cost leadership. Another piece of evidence that also supports this strategy is the fact that the major focus of their accounting system seems to be on cost reduction.
Place in the EconomyThe industrial fastener industry has been experiencing modest...