Fence Company Ltd.
Robin L. M. Cheung
For Professor D. Armishaw
A621 Managerial Accounting
Fence Company Ltd.
EXECUTIVE SUM A
Established in 19x5, Fence Company Ltd. is the brain-child of two brothers, Robert and Morris
Wood. Catering to the residential housing market, FC is a low-cost provider of wooden fences.
After a financially distressing year, FC requires an overhaul to its cost and pricing structure, its
marketing, human resources, and its operations—indeed, it has yet to establish an overall
strategy congruent with its competencies and resources.
The current financial and
strategic position of FC was
evaluated using various formal
systematic models, such as
Nadler and Tushman’s (1997)
Congruency model, Porter’s
(1985) Five Forces, and company
analysis (SWOT). These models
point to a best-cost provider
strategy supported with
expanded marketing and seasonal
work teams. Fence Company
Ltd. must no longer compete
solely on price but also on quality
and brand, which can allow
pricing at a premium. Fence Company must first reduce
its fixed costs. The secretary and
warehouse expenses should be eliminated and replaced with cellular telephone and deli e
costs. Better controls are required for the tools and machinery to avoid additional expenses in
Sales commissions should be changed to encourage more sales, but of smaller one-house
projects rather than large groups. The volume discount to group sales should be eliminated, as
it resulted in negative earnings.
As a benchmark, FC should aim to return 8% on investment—a reasonable target given the
current economic climate.
Fence Company Ltd.
Equally owned by two brothers, Robert and Morris Wodd,
Fence Company Ltd. (FC) Was incorporated in March, 19x5.
Catering to the residential fence market, it offers volume
discounts for group purchases, guarantees to repair defective
fences at no cost, and has a capacity of 36,000 metres per
The Canadian fencing industry, along with all residential
construction industries, has been hit hard since the beginning of the 19x0 recession. In fact,
Industry Canada cites this period as being the “most prolonged period of stagnation…since the
Great Depression.” This stagnation has been mainly attributable to cyclical, demographic, and
structural factors. Owing to excess capacity generated during the previous decade and the
concurrent slow growth in the overall Canadian economy, Fence Company faces a particularly
difficult challenge in the next few years.
See Appendix 1 for a comprehensive industry analysis.
Fiscal year 19x5 was a difficult one for Fence Company.
It is now late March, 19x6, and the Woods must make
some modifications to their current business model in
order to remain viable. The 50,000 metres projected
for 19x6 is unreasonable, since this projected volume
exceeds capacity by 39%.
See Appendix 2 for complete Congruency and SWOT analyses. The use of formal models facilitates systematic development of feasible alternatives. In order
to propose alternative courses of action that fit FC’s specific context, its current internal and
external situation, its competitive environment, its strategic objectives, and its competencies
and resources must be considered. General recommendations made at the generic level
without regard for specific company context are therefore avoided since all recommendations
take FC’s specific context into account.
Variable Costs are Linear
100-metre Average Fence Length
Constant Selling Price
Non-adjacent Multiple Orders
Minimum Salaries Fixed
Snow-Ploughing is Incremental
5% Premium for Just-in-Time Deliveries
All Teams Share One Truck
Cellular Telephone Costs $100 per month
Base Scenario Not Viable
The Solution: Cut Costs
Differentiate the Product
Develop new Products
Realign Business as Best-Cost Provider
Cash out or Sell the Business
Increase Teams to meet Demand
Merge with Another Company
Best-Cost Provider Strategy
Supplement Workforce to Meet Demand
Increase Marketing Efforts
Evaluate Snow Ploughing Plan As Incremental
Eliminate Volume Discounts and Reduce Commissions
Appendix 1: Industry Analysis
Porter’s Five Forces
Appendix 2: Congruency and SWOT Analyses