Magic Timber Case Study
An Analysis of investment plan at Magical Timber and Steel.
An organization must be reliable and of good performance. The performance of wood companies require labor, resources and the market to sell off their products. With the constant rise in technology, companies have adopted new ways of processing. This has been achieved through the introduction of new machinery. A company with better technology will obviously produce quality goods. The cost of using outdated machinery in the company has risen since the outdated machines have proved to be slow, constantly breakdown making them very unreliable. Magical company is an example of such a company that is in the verge of adopting new machinery to their processing line with an aim of increasing production with a reduced cost (Gauri,2004).
Overall investment Strategies.
Acquisition of new items in a company is part of the company’s investment. Typically, this involves making a decision to part with a large sum of money that can possibly cripple other company functions. However, it is worth noting that the volume of production shall have increased. This will be coupled with profit making and stability of a company in a competitive environment. The decisions of an executive member of a company do mean that either the company is steering to the right direction or to the wrong direction (Dimitras, Zanakis&Zopounidis, 1996).
Companies are never willing to be closed down due constant running in losses. At this critical moment, the decisions that a company make will mean its closure or its profit-making culture. Magical Timber, an Australian based company has a mission of reviving back to its feet of profit making in an environment that has became much competitive. This mission is to be accomplished through a series of decisions to upgrade the machinery in use. Magical which is currently owned by Davidson, has an intention of purchasing another finisher that will be faster and saving in running cost.
Magical Company has had a good record of profit making over a couple of years. The purchase of a larger finisher ensured that the production capacity increased. An organization with calculated moves has better performance. The action of purchasing a larger industrial block enabled Magical to expand its services with a set up timber yard. Timber based industries require fast delivery of goods to the processing site and to the customers place of disposal. Magical purchased a Scania truck with an aim of solving the transport problem. Scania trucks are known for their capacity and strong engine making it a preferred solution to transportation of products for most companies (Kussuga, Lunning, Tiisekwa&Jacxsens,2017).
Investments in a range of machinery was crucial for the success of Magical in the early years of its conception. Coupled with a few employees they had. A starting company require few employees. This is beneficial as the salaries for many workers is used to expand the company. Multi-national companies started operating with three or four employees. This was a method adopted by Magical that saw their constant success over the years. Little or rather lack of competition will make the existing company to thrive. However, this is always short termed as more industries do venture into business with the same products (De Massis&Kotlar,2014).
Timber is a requirement for building. The strategic position of Magical along the coastal lands and the population growth during the early years paved way for its triumph. A company success depends on the availability of manufacturing products and the market to dispose of their products. Market is key to success of a company. To maintain and remain in the competitive timber distribution industry, Magical timber and steel company needs to upgrade their machinery and to clear off their debts.
Evaluation of the Case
Infrastructural development is important for growth of industries. Poor infrastructure has hampered industrial developments a great deal. Magical Industry has suffered a blow with poor infrastructures along their area of operation. This can be improved by building more offices, roads among other infrastructures that will ensure smooth operations in the company environs. Nevertheless, it is of great deal when a Scania truck is being used in a poorly maintained road. The maintenance cost is set to increase. Access to the market is also made difficult. Industries like Magical Timber require a well infrastructure for their operations (EL-Khalil,2015).
The coastal regions are always economic productive when the tourism industry is performing well. The construction of hotels and other resting resorts is an attribute of a good tourism business. The decline in the tourism sector will result in the decline of infrastructural developments that the Magical Timber solely depend on to purchase their products. The success of Magical Timber strategies depends on the availability of market to dispose of their products. Magical has launched plans that will see their products increased and the customers will be able to have a range of products to get from the industry.
Debts are harmful to a company’s success. A company operating in debts will automatically be liquidated. Sole strategy of multi-national companies is to cut off constant borrowing. This is harmful since it is always paying back with a large interest. Moreover, profit making of a company is not assured. It therefore means that, a company will be at an obligation to pay off their debts weather they make profits or run losses. Magical timber has suffered a big blow of operating on debts. The accumulation of debts has risen to the level of interfering with their daily operations (Gauri,2004). The owner, Davidson is left at a critical point of clearing off debts and bringing back the companies to its feet.
The production machinery is important to a timber company. Purchasing this machinery require in-depth consideration. Again, the priorities of a company should be fulfilled from the most urgent to the less urgent. A timber company will put finishing machine at a first priority as compared to their managers car or something that is of less importance to the daily operations of the company. Though Magical started off by having its owners as the employees, it was a bad idea buying a new Scania truck that took a lot of money in the expense of machinery. Magical timber has second hand machinery that require constant maintenance. This is an additional operational cost.
Competition among the companies producing the same product in the same locality is a normal scenario. Competition should be embraced by industries. It should not be a source of liquidation of another company. With sound and realistic strategies, a company is set to do better in a competitive environment. Magical Timber is facing competition from Wesfarmers limited. The company has come and taken all their clients. This has made Magical to supply only those products that are urgently needed by their customers. Davidson however, has come up with an idea of restocking the industry with the products that are only required by the consumers.
A rare but very serious mistake a company can make is to allow its members to operate and borrow resources with the company name. This is never a good idea since it is the company that will be paying for these borrowed materials in case the members default in payment. Magical company anticipates to get back to 2009 when the net profit was $350,000. This will require Davidson to invoke the rules governing the company operations. The members should not be allowed to borrow on behalf of the company as they did before driving the company down to a net profit of only $140,000 in 2018 as compared to the 2016 net profit worth.
To every problem, there is a possible solution. The statistics of various companies show that they all have problems and challenges affecting their operations. From the mighty Amazon company to the tiny Magical Timber industry, they all have challenges they face. Problems are man created and can be solved through man’s own intervention. In a competitive market world, an organization will be tasked with coming up with ideas to remain relevant in the market (El-Khalil, 2015).
Magical Timber and Steel should adopt Davidson ideas to be able to compete favorably with Wesfarmers limited. This can be accomplished by restocking of the timber yard with all the required products that a customer can sort for. Consequently, reducing their debts to make the company operations run effectively. Debts can be cleared by selling off some of their shares. This will be a major blow though it is crucial. I would not advice for borrowing from another source to pay the current debts (Aithal,2017 p. 40-54).
The new machinery will ensure high quality and capacity production of timber is realized. The Magical Industry statistics confirm the need to purchase the new Delta A390 machine. As compared to the cost of running the old finisher, the new finisher will be cost effective. The statistics shows that, with the old finisher, Magical Timber is set to spend $4000 yearly for its maintenance and the electricity it runs from. The production capacity will have increased when using the Delta A390 as compared to the Matrix 750. Magical will be forced to work on cost effectiveness to be able to pay of their debts and rise back to its profit-making history (De Massis&Kotlar,2014).
The government support is crucial in the advancement and improvement of infrastructure. However, this might not be accomplished immediately due to the procedures take to realize a fully developed region. My research confirms that, infrastructural development can be a combined task between both companies operating in the same region. Tourism industry should also be at its best to help Magical company get back to its normal operations. Davidson can sensitize investors on the need to develop more restaurant and other features that are attractive to tourists.
Investment is crucial any industry that anticipates success. There is time to make losses and to make profit. Making losses should not be the end of an industry’s operation rather new strategies should be brought in place to cub the challenges. Magical Industry should therefore take on the risk of purchase of the new machine. This will be essential to their production. Investment is the key move of a company that requires success (Aithal,2017).
An industry needs a leader with ability to make decisions that will see the company never fall. This will require certain decisions to be made. These decisions may not be accepted by all the employees in the company. It is advisable to stick to them if they are the only savior of a falling company.
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