Global Electronics
Global Electronics Inc. Case Analysis
Background
Global Electronics, Inc. (GEI), has its main office in Sarasota, Florida and the company employs about 2,300 people at its three U.S. fabrication facilities (located in Huntsville, Alabama; Evansville, Indiana; and Reading, Pennsylvania), and has 4,000 employees at its assembly and test facility in Kuala Lumpur, Malaysia. Discrete power semiconductors and analog, digital, mixed-signal, and radiation-hardened integrated circuits for signal processing and power-control applications are at the heart of what GEI designs, manufactures, and markets.
This case will examine the warning signs that existed within GEI to implement ABC as a possible solution and why ABC is a better solution when these warning signs exist. The implementation of the ABC system at GEI will also be highlighted as to degree of success, what GEI did well and what GEI could have improved upon. The key behavioral and technical factors that help or hinder a successful ABC implementation will also be examined. Recommendations for the improvement of the ABM system will be highlighted followed by an overall conclusion on GEI’s ABC system and continued implementation into Activity Based Mangement (ABM).
Analysis (Question 1) What preexisting conditions (or warning signs) existed within Global Electronics to warrant considering ABC as a possible solution? When these preexisting conditions exist, why does ABC offer a better solution than traditional cost systems?
The warning signs that existed within GEI to warrant ABC costing began “In 1999, GEI's profitability spiraled downward with operating losses reaching $100 million on sales of approximately $650 million, causing management concern about the accuracy of the company's standard cost system. There was a feeling that the standard cost system could not truly identify which of the company's products were profitable and which were not. The lack of an understanding of product profitability, a flawed
Background
Global Electronics, Inc. (GEI), has its main office in Sarasota, Florida and the company employs about 2,300 people at its three U.S. fabrication facilities (located in Huntsville, Alabama; Evansville, Indiana; and Reading, Pennsylvania), and has 4,000 employees at its assembly and test facility in Kuala Lumpur, Malaysia. Discrete power semiconductors and analog, digital, mixed-signal, and radiation-hardened integrated circuits for signal processing and power-control applications are at the heart of what GEI designs, manufactures, and markets.
This case will examine the warning signs that existed within GEI to implement ABC as a possible solution and why ABC is a better solution when these warning signs exist. The implementation of the ABC system at GEI will also be highlighted as to degree of success, what GEI did well and what GEI could have improved upon. The key behavioral and technical factors that help or hinder a successful ABC implementation will also be examined. Recommendations for the improvement of the ABM system will be highlighted followed by an overall conclusion on GEI’s ABC system and continued implementation into Activity Based Mangement (ABM).
Analysis (Question 1) What preexisting conditions (or warning signs) existed within Global Electronics to warrant considering ABC as a possible solution? When these preexisting conditions exist, why does ABC offer a better solution than traditional cost systems?
The warning signs that existed within GEI to warrant ABC costing began “In 1999, GEI's profitability spiraled downward with operating losses reaching $100 million on sales of approximately $650 million, causing management concern about the accuracy of the company's standard cost system. There was a feeling that the standard cost system could not truly identify which of the company's products were profitable and which were not. The lack of an understanding of product profitability, a flawed