Case Study #1: Breezy Air Filters – Redefining the Business

Coming up for air

Breezy Auto Parts has been supplying the North American
automobile industry with carburetors and air filters for more than half a
century. With revenues of about $100 million a year, it is a significant player
in the parts industry. Initially, it supplied carburetors and filters to each
of the Big Three domestic manufacturers. When foreign car manufacturers entered
North America to set up manufacturing
operations, Breezy also developed relationships with the newcomers. It
redesigned some of its products to fit the foreign models. It also introduced
electronic data interchange (EDI) to support just-in-time deliveries to all of
its customers. As a result, it successfully realized its
original corporate vision of becoming North
Americas leading supplier of carburetors and air filters, a
position it has occupied ever since.

For the past 30 years, Breezy has counted on steady
customers and steady revenues. The past two years, however, have raised
significant concerns about the companys future. The price of crude oil has
been soaring as have gas prices at the pump. There have been temporary dips in
price, but the overall trend is unmistakable: it will be far more
expensive to drive in the future. As a result, car sales
have flattened and in some cases declined. This is especially true of the big
gas guzzling SUVs upon which the North American industry had staked its future.
But the slump is affecting pretty much all makes and models except for hybrids
and the newly introduced Brainy Car. The contraction
is even affecting the Asian and European car manufacturers
that have located in North America.

In the past, Breezy could always count on respectable profit
margins, but this is no longer the case. Sales are anemic and because of the
companys fixed costs, tied to its manufacturing plant, profits are getting
razor thin. To avert further deterioration, the companys CEO announced a
visioning workshop for senior managers. The objective is to conduct a PESTE
(political, economic, social, technological and environmental) review of
current trends, factors and conditions in the marketplace while subjecting
Breezy to a rigorous SWOT (strengths, weaknesses, opportunities, threats)
analysis. This is the first step in a process of revitalizing the company and
its prospects by developing a new vision and strategy.

Analysis:

At the workshop, senior managers made the following
observations:

As a supplier to the auto market, it is dependent on its
fortunes, but it has little influence over broad trends such as gas prices, or
even the pace at which car manufacturers decide to redesign their vehicles for
fuel efficiency. That redesign process may take years but Breezy has
obligations now.

Breezy already dominates the North American market for
carburetors and air filters so that there is only limited scope for expanding
sales in a market that is already saturated.

So far, Breezy had focused on carburetors and air filters,
something that it does better than others and a product in which it has
decisive competitive advantages. Moving into new products would require R&D
and retooling and it would have to be carefully coordinated with the redesign
of automobiles for fuel efficiency that is under way in the industry.

Key to Breezys existing competitive advantage is the tight
integration that has established with its customers by using industry best
practices, such as just-in-time manufacturing and just-in-time inventory. Any
future development should build on that foundation.

So far, Breezy had focused exclusively on the North American
market. Because of its previous success and the overwhelming size of that
market, it has never felt the need to look for markets in other parts of the
world.

Filtering the options:

After reviewing the companys financial performance over the
past few years, senior managers concluded that Breezy had to expand its markets
if it was to sustain its profits. There were two options on the table.

Option 1: Breezy could stick with the tried and true. It
could continue focusing on the North American market, working with its existing
partners to develop products for the fuel efficient cars of the future.
Alternatively, it could try to expand its product offering beyond carburetors
and air filters into other auto parts. The market for standard auto
parts was already saturated, however. One manager suggested
that Breezy could try to move into the customized market, making specialized
accessories for car enthusiasts.

Option 2: Breezy could try to develop new customers and new
markets outside of North America. It was
pointed out during the PESTE analysis that car manufacturing was growing in
countries such as Brazil
and India.
Recently, Indias
Tata Company had announced its intention to develop a popular car for the
Indian market. Its target price for
the vehicle was to be about $2500 a unit. It was suggested
that Breezy start developing the same close relationships with overseas car
manufacturers that it already had established with their North American
counterparts.

The CEO assigned two teams to investigate each of these
possibilities. The teams are to prepare a detailed course of action for their
assigned option, together with an analysis of costs and benefits.

Case Study Discussion Questions
You are on the team investigating the possibility of
developing offshore business for Breezy.

1. In exploring the possibility of developing a relationship
with offshore car manufacturers, what questions should Breezy be asking?

2. How should it approach the issue of negotiating with
them?

3. How should any offshore operation be organized? What are
the key locational considerations?

4. What costs are likely to be incurred in this venture?

5. How could this initiative be financed?

6. What business should Breezy be in? How should it revise
its corporate vision?

7. What risks does the offshore venture face that the
domestic company does not?Case Study #1: Breezy Air Filters – Redefining the BusinessComing up for airBreezy Auto Parts has been supplying the North American
automobile industry with carburetors and air filters for more than half a
century. With revenues of about $100 million a year, it is a significant player
in the parts industry. Initially, it supplied carburetors and filters to each
of the Big Three domestic manufacturers. When foreign car manufacturers entered
North America to set up manufacturing
operations, Breezy also developed relationships with the newcomers. It
redesigned some of its products to fit the foreign models. It also introduced
electronic data interchange (EDI) to support just-in-time deliveries to all of
its customers. As a result, it successfully realized itsoriginal corporate vision of becoming North
Americas leading supplier of carburetors and air filters, a
position it has occupied ever since.For the past 30 years, Breezy has counted on steady
customers and steady revenues. The past two years, however, have raised
significant concerns about the companys future. The price of crude oil has
been soaring as have gas prices at the pump. There have been temporary dips in
price, but the overall trend is unmistakable: it will be far moreexpensive to drive in the future. As a result, car sales
have flattened and in some cases declined. This is especially true of the big
gas guzzling SUVs upon which the North American industry had staked its future.
But the slump is affecting pretty much all makes and models except for hybrids
and the newly introduced Brainy Car. The contractionis even affecting the Asian and European car manufacturers
that have located in North America.In the past, Breezy could always count on respectable profit
margins, but this is no longer the case. Sales are anemic and because of the
companys fixed costs, tied to its manufacturing plant, profits are getting
razor thin. To avert further deterioration, the companys CEO announced a
visioning workshop for senior managers. The objective is to conduct a PESTE
(political, economic, social, technological and environmental) review of
current trends, factors and conditions in the marketplace while subjecting
Breezy to a rigorous SWOT (strengths, weaknesses, opportunities, threats)
analysis. This is the first step in a process of revitalizing the company and
its prospects by developing a new vision and strategy.Analysis:At the workshop, senior managers made the following
observations:As a supplier to the auto market, it is dependent on its
fortunes, but it has little influence over broad trends such as gas prices, or
even the pace at which car manufacturers decide to redesign their vehicles for
fuel efficiency. That redesign process may take years but Breezy has
obligations now.Breezy already dominates the North American market for
carburetors and air filters so that there is only limited scope for expanding
sales in a market that is already saturated.So far, Breezy had focused on carburetors and air filters,
something that it does better than others and a product in which it has
decisive competitive advantages. Moving into new products would require R&D
and retooling and it would have to be carefully coordinated with the redesign
of automobiles for fuel efficiency that is under way in the industry.Key to Breezys existing competitive advantage is the tight
integration that has established with its customers by using industry best
practices, such as just-in-time manufacturing and just-in-time inventory. Any
future development should build on that foundation.So far, Breezy had focused exclusively on the North American
market. Because of its previous success and the overwhelming size of that
market, it has never felt the need to look for markets in other parts of the
world.Filtering the options:After reviewing the companys financial performance over the
past few years, senior managers concluded that Breezy had to expand its markets
if it was to sustain its profits. There were two options on the table.Option 1: Breezy could stick with the tried and true. It
could continue focusing on the North American market, working with its existing
partners to develop products for the fuel efficient cars of the future.
Alternatively, it could try to expand its product offering beyond carburetors
and air filters into other auto parts. The market for standard autoparts was already saturated, however. One manager suggested
that Breezy could try to move into the customized market, making specialized
accessories for car enthusiasts.Option 2: Breezy could try to develop new customers and new
markets outside of North America. It was
pointed out during the PESTE analysis that car manufacturing was growing in
countries such as Brazil
and India.
Recently, Indias
Tata Company had announced its intention to develop a popular car for the
Indian market. Its target price forthe vehicle was to be about $2500 a unit. It was suggested
that Breezy start developing the same close relationships with overseas car
manufacturers that it already had established with their North American
counterparts.The CEO assigned two teams to investigate each of these
possibilities. The teams are to prepare a detailed course of action for their
assigned option, together with an analysis of costs and benefits.Case Study Discussion QuestionsYou are on the team investigating the possibility of
developing offshore business for Breezy.1. In exploring the possibility of developing a relationship
with offshore car manufacturers, what questions should Breezy be asking?2. How should it approach the issue of negotiating with
them?3. How should any offshore operation be organized? What are
the key locational considerations?4. What costs are likely to be incurred in this venture?5. How could this initiative be financed?6. What business should Breezy be in? How should it revise
its corporate vision?7. What risks does the offshore venture face that the
domestic company does not?