California-Illini Manufacturing - Case Study Example

Their cost reduction strategy though seemed efficient; it was not able to compete well in the short run. The Cl’s standard cost system and the high levels of work-in-progress had impacts on its cost reduction strategy. However, the new Production Control/Inventory Control (PCIC) Manager is seen working on the right track, by implementing new strategies to manage the constraints to restrict the company form producing and building higher inventory levels for products not having sufficient demand.

Thus, implementing a Theory of constraint approach would be most suitable for the Company to manage the human and material resources well. Problem Statement Competitive strategy, in the normal sense refers to the way a company can achieve a competitive advantage in its operating market while choosing a distinctive way of competing. California-Illini Manufacturing Company is able to compete in the global market by making the maximum use of their competitive strategy. They are the largest producers of plain and hard-faced replacement tillage tools in the United States.

They concentrate more on handmade tillage tools. They use expensive metal pieces and metal forged metals in the production process, together with using manual electric arc welders. In the global market, there is greater opportunity for handmade products, especially for machineries and automobiles. For example, handmade vehicles, such as the Lamborghini cars are highly demanded as well as more expensive, because the extensive efforts and labor to produce the vehicle has attributed it to be better built.

However, their line of industry in America as well as in the global market is getting very competitive. Products with cheaper rates are brought into the market, which makes the market more and more competitive. In spite of all these conditions, there is still a considerable market for the handmade, rugged, American machineries and tools. Therefore, the company can stick to their design and competitive strategy and bring products into the market, from their family built, third-generation Company.

They have the advantage of utilizing the quality of tools as their trademark. Causes of the Problem The California-Illini Manufacturing Company’s cost reduction strategy is attributed to the various market conditions and global economic stipulations. During 1980s, when President Reagan was in his first term, an economic downturn struck the global market. The slow down in the market caused many global companies like the California-Illini Manufacturing to struggle. The company was in need of formulating a strategy as its cash flow was poor and the inventory levels were down.

They had to find out ways to cut down the cost, increase prices, and develop technology and productivity. However, the cost reduction strategy formulated by the management faced some unexpected failures in the short run. In 1989, the cost cutting strategy was seen failing, firing the operating costs up 20%. The inventory level was increased by 24% and the net profit continued to slip (California-Illini Manufacturing). The California-Illini Manufacturing Company’s standard Cost system had an impact on the cost reduction strategy.

The Company put a cost system into operation to measure performance and profit potentials. Under the cost system, a standard level was ascertained to each element, including material and labor. In the same way, each production manager was evaluated on their