Advanced Kitchen Factory produces and supplies small electrical appliances to retail department stores. The CEO, Leah Lee,

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Question:

Advanced Kitchen Factory produces and supplies small electrical appliances to retail department stores. The CEO, Leah Lee, has become increasingly concerned about the recent decreases in profits. She is advised by the senior executives that the operating expenses have already been at their lowest and therefore, cannot be reduced. Leah understands that in order to improve profits, she needs to consider increasing sales revenues and/or reducing costs of sales.

Leah first calls on Lucas Huynh, the general manager of production, to discuss what actions he would recommend reducing production costs. Lucas claims that due to labor shortages, costs of production have increased significantly. He advises Leah that, to cut costs, Advanced Kitchen Factory would need to switch to less expensive suppliers for some of their components, and at the same time, they would need to buy from these new suppliers in large quantities to take full advantage of all trade discounts.

Leah then calls in the sales manager, Bradley Schubert, for his suggestions on how to increase sales revenues. Bradley suggests that this can be done by increasing average selling prices and imposing minimum order requirements for both existing and new customers. Leah calls on you like a consultation to give her advice. She tells you that she has been at a recent seminar where they were talking about something called a “balanced scorecard”.

You are required to explain in details to Ms Leah Lee:

1. Both financial and non-financial risks and rewards associated with each of those changes proposed by the general manager of production and the sales manager.

2. How the balanced scorecard could be used to shape the strategic direction of Advanced Kitchen Factory. (Please focus on the current problems at Advanced Kitchen Factory and how the proposed changes fit into the four perspectives of the balanced scorecard).

3. One potential advantage and one potential problem that Advanced Kitchen Factory might encounter in implementing the balanced scorecard.