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Sher-Wood Hockey Sticks Case Solution & Answer

Sher-Wood Hockey Sticks  Case Solution

Abstract

Sherwood Company is facing several problems in the hockey stick industry, which are related to decline in sales. To cope up with this challenge, Sherwood should go for mergers and acquisitions with its competitors in order to get in a win-win situation. Along with the mergers and acquisitions with competitors; Sherwood needs to improve the quality of its products along with a marginal decrease in product prices in order to boost the annual sales, because the customers are not willing to pay high prices for those products whose quality is not good enough. Moreover, China is a country which is full of resources and there would be no problem in importing goods to China, because almost everything is available in China so, the exchange rate risk will not be an issue for the company anymore.

Problem Statement

Sherwood has been facing several problems/challenges prevailing in the hockey stick industry, which are as listed below:(Zhang, 2012):

Decrease in market share:

Sherwood’s market share has been declining for its high end, high priced, one-piece composite hockey sticks, with the passage of time. This could be due to the poor quality of composite hockey sticks as compared to the hockey sticks of its competitors involved in the marketplace. Similarly charging a high retail price is not attractive for the customers, because the customers switch between brands, and they tend to prefer those brands which offer a low price. Moreover, Sherwood is not providing a better margin for retailers, as a result of which retailer are reluctant to promote Sherwood products. Thus, sales are also declining because the customers are not satisfied with what Sherwood is offering to them.

Shifting of production facilities to China:

As China is the production hub in the world, just due toits cheap labor, Sherwood is planning to set up its production facilities in China, but it is not easy as the company would have to face numerous issues, which would be must to be dealt with in order to have an expansion to China. Firstly, it would be time consuming and difficult to manage the shifting process because of the tax regulation existing in China, similarly heavy investments are required to be made in the shifting process of production facilities and equipment necessary for production. This would incur several costs, which is not a favorable decision pertaining to the current situation of the business. Hence, the company would have to send experts to China, for setting up machinery and guidance for the manufacturing team, which is again costly and time consuming.

Layoffs:

Sherwood has conducted several layoffs;around 40 employees are fired and no replacement has been made by the company,which indicates that the company is downsizing as a reaction to an increase in its expenses, which the company is unable to bear, resulting in the company making the harsh decision of laying off its employees. Furthermore, the company is confused about how to tell the general public and convince them on such an issue. This would even affect the company’s brand image, and a negative word of mouth could be given by the customers and the employees who are fired by the organization.

Sher Wood Motivation to Outsource its Manufacturing

Sher-Wood has decided to outsource the production of lower hockey sticks and wooden hockey stick models in Estonia and China, as well as to outsource the production of high-quality hockey sticks to a local supplier in Canada, in order to have a  better focus on national production. Outsourcing manufacturing activities allows Sher-Wood to leverage the resources of these suppliers, while reducing the associated costs and risks. After a 50% drop in sales, the company has planned to withdraw its production lines from China in the year 2011, to continue the low-cost, high-quality production. However, it is believed that it will be more advantageous to continue outsourcing. Over the years, Chinese suppliers have acquired manufacturing and R&D capabilities, so the cultural and linguistic differences are no longer a problem. For example, it takes 4 to 5 months for a team of 2 to 3 Sher-Wood engineers to produce whatthe Chinese supplier would make, with the team of 15 engineers. Despite an increasing labor costs, China’s total manufacturing costs are still lower than Canada’s.

Decision Factors Changed Between 2007 and 2011

In the year 2010, Sher-Wood released new wood toothpicks twice a year, with a product family life cycle of 18 to 24 months. At the end of the year, there were 27 types of toothpicks. Sales of wooden toothpicks which were made in Canada, declined rapidly, i.e.  by 50%. Managers now need to find effective ways to achieve the high quality production at lower cost, so that they could increase the demand for it at a competitive price. Decisions need to be made based on new factors of low demand. For example, one proposed approach is to outsource the rest of the production to Canada in order to get the most out of these facilities. However, due to the declining demand; the company does not have the necessary room for maneuver or to sell equipment in Quebec.

Firm Activities Impacted by Offshore Outsourcing and Difference in Influences Between 2007 and 2011

Offshore will have an impact over the company’s supply chain and quality control departments, as well as on the accounting and reporting activities, as it will call into question the company’s ability to coordinate these functions. The decline in family employment will also last an impact over the company’s public opinion and increase the employees’ dissatisfaction. In the year 2007, due to strong demand; offshore outsourcing had a positive impact over the business by reducing the costs and increasing the production. In the year 2011, however, the company faced a lack of demand, which organized production in China. Had  they had decided to drive the rest of the manufacturing industry out of business, they would have faced issues, such as: shipping and export regulation…………………..

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