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Tru Fit Parts Inc Case 3 PDF
Tru Fit Parts Inc Case 3 PDF
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Notre Dame of Marbel University
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Master in Business Administration (MBA) Program
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Case Analysis 23-1 Tru-Fit Parts, Inc.
Tru-Fit Parts Inc., is a manufacturer of variety of parts for use in automobiles, trucks, buses and
farm equipment. Tru-Fit parts were sold both to original-equipment manufacturers (OEM
Market) and to wholesalers (the aftermarket or AM). Tru-Fit had manufacturing divisions of it’s
three product groupings (ignition parts, transmission parts and engine parts. Each plant of the
manufacturing division is treated as an investment center and responsible for not only
manufacturing parts but also for selling its parts to OEM market. Each manufacturing division
sold parts to the fourth division, AM Marketing that is solely responsible for marketing all Tru-
Fit Parts to AM wholesalers. The top management identified three areas of concern as follows:
a. Few disputes over transfer prices from the manufacturing division to AM Marketing.
b. AM Marketing is being treated as a “captive customer”.
c. Both AM Marketing and the three manufacturing division carried excessive inventories
have identified?
A. Disputes on Transfer Price
Transfer price disputes usually occurs if the part is an AM part. The company
virtually does not have disputes on OEM products because they normally set the
transfer price based on previous or current OEM market price. The AM part do not
evident in the part of OEM products which rarely encounters this type of disputes
since they are able to establish their transfer price. It is recommended that if there
are no data in the three divisions to set the price, they might want to compare it with
other companies who have the same products as its benchmark. Another option is to
set the price by computing the costs in manufacturing plus a mark up price.
Depending also on the culture of the organization, such disputes should be resolved
with open communication like the three major divisions did (arbitration by corporate
allowing the AM marketing to sell a competitor’s product. The three divisions would
tend to favor OEM customers or AM Marketing in times of stiff demand because they
Recommendation:
It is mentioned in the case that the sum of four divisions’ sales was about $1 billion
and $360 million is attributed by AM Marketing higher than the other three divisions.
Marketing be more favorable to the three divisions. They can do these by establishing
a competitive transfer price. The transfer price established can be added also with
other benefits to make it more appealing. The management can also give the decision
on how should the products be allocated to both OEM and AM when demand is very
stiff and do not let the division favor more the OEM over AM. Although this might
contradict with the management goal of protecting its image by not allowing other
Marketing to buy outside or develop it’s own products to increase its sales. Another
recommendation is to let the other three divisions to cater not only to OEM customers
but be also opened to AM markets instead of only the AM Market division since all
Recommendation:
I think that the problem is more on the production forecast of the company rather than
their generous Christmas vacations which they claimed brings down the inventory to the
desired level. I would recommend that a more accurate forecasting might be done. They
might want to review previous sales of the company as their basis on production. There
are various ways also to reduce inventory on warehouses like the JIT ordering of
materials. There should also be good communication with OEM customers as to when
2. Are there any matters not mentioned by top management that you feel are
problematical?
I think that maybe the company would be open to the suggestion on opening the three
major divisions of the company to be open not only to OEM market but also to AM
Markets. I believed that this will strengthened more the revenue generating capacity of
the whole company. They can reach out also to more customers with this. Another issue
is the incentive bonus plan. Although others might not agree and deemed that it is unfair
to make it more beneficial to those who are in the higher hierarchy, I do agree on this on
a certain point. Incentive bonus should be given on the basis that the company has
reached its target revenue at the end of the year. The bonus can be based on the salary of
the employee. I definitely believed that those on the higher hierarchy of organizations
have more responsibilities and have gained experience hence should be rewarded
accordingly. I do agree also on the discretionary part of the Supervisors to accord 25%
upward on the bonus but not downward. This discretion should be given to the superiors