Strong Ties Ltd Harvard Case Solution & Analysis

Hurdles Faced By the Strong Ties

Strong Tie Ltd. (STL), a corporation of family ownership, has been the leader in its industry segment, with a market share of 70% and over the years has obtained a remarkable reputation for quality, especially in products Custom.

In recent years, STL has lost 10% of its market share and now it is at 60% and is struggling to maintain its leadership in the segment of the industry due to the arrival of new competitors, especially China. These new competitors have gained 30% market share and growing.

The identified problem is the high cost that the company, which has led STL to fight to maintain its leadership; In addition to these costs the beginning of the recession in late 2007, a 28% increase in metal prices in early 20081, and aggressive competitors has had an impact on the performance of the company, therefore, reporting negative growth of 5.76% in sales for 2007-2008.

Case Analysis

Evaluation of the Strategies of Strong Ties

Due to fluctuations in prices of raw materials, STL tried to implement the strategy (JIT) just in time. JIT shows the efficiency when companies can accurately predict demand. This strategy is not the most efficient STL, given that the market share of the company 60% consists of standardized products and design services, custom, therefore, it is difficult to accurately predict the demand for custom design services.

STL has a strategy for all sales are in net terms 60. This strategy is currently inefficient and commit cash, as most of their accounts are stretching their payment due dates.

STL has reinvested in its factories, bought new equipment, computers and software to reduce labor costs and improve competitiveness. It seems that all these investments are not currently using the most, as the company is slowly losing market share to its competitors.

Evaluation of Strong Ties through Financial Ratios 

After analyzing how strong bond has managed its assets. Its turnover of raw materials was near the height of reference numbers to 27 days, which means they have been turning raw materials into finished products in the exceptional moment. Work in Progress was also progressing at a healthy rate from 4.5 days in 2006 to about 1 day in 2008. This mean, they were able to finish the goods at faster speeds. With these two healthy rates, rising profits should have been, however, a variable stop it from happening; Days in finished products. Strong Tie most profitable year was 2006, in which finished products day was 45, which was close to par with the benchmark of 51. But in 2008, Strong Tie finished goods have flown off the shelves for 26 days. If customers are buying the products of this fast, the prices of these goods are too low, which has resulted in a loss of profit. So the first recommendation would be to substantially increase prices.

It is expected that the depreciation in exchange to occur, but the cost almost doubled in 2006 from 396,000 to 720,000 in 2008 most likely a significant degradation of equipment and repair costs. Depreciation costs may also have derived from the strong bond of new automatic feeders and packaging equipment investment. So while the balance shows increased rates of depreciation and selling expenses, they expect to reduce costs again. This reversal also has the potential to accelerate the rate at which the raw materials are converted into finished products. More finished goods that are sold at higher prices, operating performance will be a growing trend.

Strong Ties Ltd Case Solution

Another cause for concern is the strong bond additional dividends being paid along with the salary bonuses. First the bonus of 1 million dollars for the three daughters equivalent to about 350k per child. That kind of pay is not justifiable three employees and is negatively affecting retained earnings to the company. The 500k is paid each year to someone who has no connection with the business at all is also a loss of potential earnings. Two recommendations here would boost retained earnings significantly. Firstly, the salary of the three daughters needs to be reduced significantly. It would be preferable to hire new employees to fill that position and get reasonable wages. Secondly, it would be in the best interest of the company to find a new shareholder for 500k in dividends paid each year. Current shareholder needs to be replaced with someone with the vision of the company attends roundtable meetings and contributes its contribution to the overall objectives of the company.................

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