Peter Arnell Case Summary

Analysis of possible course of action from point of view of Peter Arnell
Issue:
Peter Arnell is in a tough situation and faces difficult challenges to revive Clayton SpA, Italian subsidiary of US based Clayton Industries Inc. Clayton SpA has recorded 3 consecutive years of losses and hence gathered attention from its senior management. As the economy struggles to come out of recession, Peter Arnell faces 3 possible courses of development to swing the Italian subsidiary out of red. Peter’s problems are exacerbated by the environmental concerns, rising variable costs (steel) and tough competition from competitors (advanced and innovative products). Clayton SpA took a direct hit and witnessed a 19.4% drop in the sales in the first half of 2009,
His path to success depends a lot on his ability to generate team support and get their buy-in. On review of the financial statements and situation, I believe that Arnell will be able to weather the storm and poise Clayton SpA for growth using the first option. It would be very risky to convert capacity to absorption chillers as it requires significant investments and long term stages of compression chillers phase out and restructuring. The long term debt analysis and the current ratio analysis do not help the migration to absorption chiller technology. Bear in mind that compression chillers still represent 85% of market share in Italy and there could be a potential backlash from existing customers. Based on this I can safely rule out option 2. Based on past history, I don’t think Arnell (Paolo Lazzaro was terminated as he opted to wait till the situation stabilizes) should pursue option 3. The present situation demands considering all options (pros and cons), Arnell should go with option 1 as it is the most optimal strategy. Arnell needs to take following steps 1) Aim at re-organizing the different departments and improve existing production line and seek opportunities. 2) Asian technology has been successful due to its efficiency in production planning. Clayton SpA can use that as a benchmark to improvise their production technology to gain a competitive advantage. 3) Incorporate environmental requirements in the planning process to make Clayton SpA, a socially responsive company and revamp its organizational image. Apart from this, I recommend Clayton SpA to do the following – 1) Gradually decrease the DSO by announcing discount for customers who pay before due date 2) Change supply chain processes, production scheduling and adjust production volume to the seasonal demand (later addresses inventory concern). 3) Use the opportunity of permanent