1 Magical Mirrors (MM)
MM manufactures a range of mirrors using flow production. MM benefits from economies of scale.
Ben and Mary, the owners of MM, changed the legal structure of the business two years ago from a partnership to a private limited company. They are the only shareholders of MM
and have recently increased their investment in the company.
There are long lead times from MM’s suppliers so MM maintains a high buffer inventory. This ensures that production can continue if there are any problems with deliveries. However, Ben is worried about the impact of high buffer inventories on MM’s finances (see Table 1).
Table 1: Key financial data as at 31 May 2017 ($m)
Inventory
|
10
|
Trade receivables
|
5
|
Trade payables
|
5
|
Overdraft
|
5
|
MM has two major human resource problems: MM’s labour turnover has been increasing
and the number of people applying for jobs at MM is decreasing. MM currently pays high salaries to managers and high hourly rates to other employees. Mary has completed a survey of all MM’s employees. The survey showed the following results.
• 45% of all employees stated that they had low motivation. The percentage was higher amongst employees who work in the production process.