Premier Cement Corporation - Case Study

GROUP 2

PREMIER CEMENT CORPORATION

1. Point of View:        Mr. Jose Ylagan, Vice-President for Finance of Premier Cement Corporation as well as one of the members of Board of Directors.
2. Statement of the Problem:        Premier Cement Corporation’s cost of sales were signicantly higher because of the choices of supplier companies due to agency problem which resulted to ending in a negative gross profits for two consecutive years.
3. Objectives

• To provide effective and efficient courses of action to medicate unsustainable cost of sales.
• To resolve the conflict of interest between the Board of Directors and the business managers of Premier Cement Corporation.

1. SWOT Analysis

Strenght:                The company is still able to generate acceptable amoount of sales effectively. The company’s VP for finance is an experience businessman as well as other members of the BOD.

Weaknesses:         Unsustainable cost of goods sold. Inefficient and poor choice of raw material suppliers. There is only one distributor of PCC’s product.

Opportunities:        PCC is currently focused and centered on cement production, production of raw materials for their daily operations is beyond their scope of operations. This provides oppurtunity for PCC to be able to reselect and reassess their choice of suppliers with lesser costs. PCC has one distributor company, with this, adding another distributor companies will be an area for sales improvement for the company.

Threats:                On the year 1971, the cement industry has faced decrease in income due to lower capacity of production which may possibly reoccur in the future. There are few business players in the cement industry which is a threat for Premier Cement Company.

1. Areas of Consideration

•        The machinery, equipment and other plant assets of the company were acquired through a long-term loan from the development bank.

•        PCC is proven to be currently ineffective and ineffecient in acquiring its raw materials to be used for goods and services

•        Mr. Ylagan and Mr. Mapa still sees and oppurtunity for PCC to acquire materials at less cost.

1. Alternative Courses of Action

1. Alternative A: Mr. Ylagan should find other suppliers where they can obtain raw material at minimum cost but still with good quality aside from the fix suppliers that they currently have.

Advantages: The company will have higher profit margin because there will be lesser cost of sales, therefore, ending the problem of negative gross profit for two consecutive years. The company will be able to cope up from losses and stay away from the possibilities of closing the business. Moreover, this will solve the conflict of interest in the company.

Disadvantages: The Board of Directors may not approve since the current suppliers of PCC are companies which members of the BOD are also major stakeholders. Additionally, it will take time for PCC to establish close business relationship with new suppliers.