Tru Fit Parts Inc Case Solution

1. What would you recommend to top management regarding the three problems they have identified?

Three problems are discussed in the case. Below are some recommendations to appropriately address them in the better interest of Tru-Fit Parts.

i. Recommendation for Resolving Problem 1

The first problem is related to the issue of the transfer price. In case, transfers cannot be made at outside OEM market prices, conflicts arose with the AM marketing. It also depends on the types of parts that are transferred to the AM marketing division, as those price parts that are solely meant for the AM cannot be matched with those of the OEM parts. 

It becomes important for the company to develop a standardized framework for computing the transfer price in this regard. Companies need to develop an organized structure for transferring at a suitable price, as it can be a critical success factor that can affect the overall profitability of the organization. It is recommended that a cost-plus-percent method is used for determining the transfer price. In using this approach, the comparison is made between gross profits and the cost of sales. Markup can be added to the cost of production to arrive at the transfer price (Löffler, 2018). Sales revenue is determined for every division in Tru-Fit parts, and every division can determine the markup, considering the impact on its overall profitability. This can help the company develop a standardized way of making sure that parts are transferred at a suitable market price.

ii. Recommendation for Resolving Problem 2

The second problem related to AM marketing being perceived as a captive customer. It was not allowed for AM to sell a competitors’ product, and so they relied only on the supplies from three different manufacturing divisions of the company. To deal with this, it was important to enhance the capacity of the divisions that were working in the organization. The goal of the top management was to increase the AM portion of the outside sales, and so it was important to meet the demands of the AM. However, this conflicted with the divisions’ priority of expanding the business to include other segments of the potential target market in the OEM sector. This issue could be effectively dealt with by developing close coordination of divisions with the AM marketing so that both the different types of sales do not impact each other. A cross-functional team can be developed that can find a mid-path, and ensure that the broader interest of the organization is given higher priority, rather than individual aims.