Provencher Windows Case Solution And Analysis, HBR Case Study Solution & Analysis of Harvard Case Studies

Provencher Windows Case Solution

Introduction:

The top management of the Provencher has been thinking about the latest fiscal year financial results for his plant in Texas. Despite an increase in annual window sales, his plant had reported an accounting loss of $1.2 million. On top of this, a capital charge of $5.1 million assessed to his plant had left him with a whopping loss of nearly $6.34 million. The management of the company believed the loss would have been larger had he not successfully lobbied the national sales office to send more of the high margin architectural window business his way. Provencher Company’s management believed that getting more architectural window demand into his plant would be critical to improving financial performance.

This year the management was hoping to keep its production volume of the standard windows at the same level as last year (270,000 windows), but wanted to increase its share of architectural windows from 25,000 windows to 50,000. The CEO of the company had asked his plant controller to give him a projected income statement for that scenario. According to those projections, that demand mix would allow him to show an accounting profit of $3.94 million, hence allowing him to argue that he had improved his controllable profit since the capital charge was beyond his control as it was levied on the asset base that he had inherited from his predecessor

Company Background:

Provencher Windows was founded by Gunnar Provencher, the grandfather of the current CEO, Ingrid Provencher, in 1922. An immigrant carpenter from Sweden, Gunnar Provencher started his business in Minnesota near the Canadian border. This location provided him with a steady supply of high quality wood, which was the primary source of differentiation at the time. Glass was considered an undifferentiated commodity in the early 1900s. Similar to other industries at the time, window manufacturing was largely a craft industry. Carpenters handcrafted windows with simple tools in modest workshops or on-location at construction sites. However, like many industries, window manufacturing had begun the transition from craft to mass production.
Gunnar Provencher was a leader in streamlining the window manufacturing process by standardizing frame sizes and components. This standardization allowed Provencher Windows to manufacture and assemble windows in larger volumes at a remote location, rather than producing windows at the construction site. In the 1930s, Provencher built its first large scale manufacturing plant that produced windows which were completely assembled off site. The 1950s saw the introduction of insulated glass to provide protection against condensation and frost. This innovation transformed the glass component of the window from commodity to differentiator. The company also experienced phenomenal growth during this period, driven largely by the construction boom that followed the end of World War II. In 1966, Gunnar Provencher retired and handed over the company to his only son, Johann Provencher.
Problem Statement:
The problem faced by the management of the company is that the despite the increase in the annual sales of windows, Texas plant has reported annual loss of $1.2 million. The loss of the Texas plant would have been greaterif the management of the company had not lobbied the national sales office to send more high margins in the sales of architectural windows.
Big Issues:
The company is facing losses in its one plant located in the Texas State, manufacturing 270,000 standard windows and 50,000 architectural windows. On the other hand, the company has second manufacturing plant in Oregon state where there is manufacturing of 130,000 standard windows and 180,000 architectural windows. The management of the company is trying to increase the profitability of Texas plant.
Secondly, the distribution of the production of the windows has also created problems in profitability; for example the Oregon plant is manufacturing more architectural windows than Texas manufacturing plant; however the standard windows are manufactured more in the Texas plant than Oregon plant. Point to be noted is that price of the architectural window is around $500 more than the standard windows and variable cost percentage to the selling price is also lower in architectural windows than the standard windows, therefore this has increased the profitability of the Oregon plant from Texas plant.....................

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