The Toms Shoes Firm’s Recovery Process

Possible Alternatives

Toms Shoes, a shoe manufacturing company, is on the verge of bankruptcy and, therefore, has been bought out by creditors to avoid disappearance. It is necessary to find out why this situation occurred and what mistakes are observed in the policy and its motions. The cause of the problem is that the organization has made a bet on a specific shoe model, interpreting it as a business card. Because of this, about half of the company’s production was focused on its manufacturing. This is a significant mistake that needs to be replaced with an alternative. The industry should avoid emphasizing only one model which has turned out to be popular, conversely, critically analyzing the profitability of the production. In other words, an important conclusion is that management mistakes and incorrect allocation of resources in production caused the company’s collapse. As a result, Toms Shoes failed to ensure the financial stability of its enterprise and suffered substantial losses. This paper aims to suggest several alternatives based on managerial models and an action plan to solve the problem Tom Shoes has encountered quickly, efficiently, and as painlessly as possible.

One such model is Six Sigma, which is most strongly suited to current conditions due to its simplicity and effectiveness. The modern understanding of the Six Sigma is expressed as a philosophy, a methodology, and a set of improvement tools. The process quality parameter is a random variable, so the likely proportion of process defects using the mean value and standard deviation must be estimated (Tannenbaum & Salas, 2020). To do this, the upper and lower bounds of the tolerance field of the quality parameter must be set in advance. The larger the tolerance field, the more significant is the proportion of good products in the process. Correspondingly, the higher the sigma value, the lower the proportion of quality or good products.

The Six Sigma philosophy is based on an approach of continuous process improvement and necessary reduction detection that an organization must implement (Tannenbaum & Salas, 2020). Progress can be made through radical changes or minor ongoing enhancing modifications, called the Kaizen approach. The improvement goals at Tom Shoes should be oriented toward improving quality, shortening the production cycle, improving jobs, and reducing costs. By lowering the Sigma’s value through an increased number of products that fit the tolerance field, managers will provide a larger ratio of products more suitable for consumers. From the financial perspective, the Six Sigma will provide a more tight control over the production and marketing, thus, minimizing losses associated with potential market failure of a particular shoe model.

Key elements that management should pay attention to at this point on time to avoid forced unnecessary costs for the company:

1. Consumer satisfaction. The quality of any products or services is primarily attributed to customer perception. Whatever techniques or decisions are applied, a consumer is the one who decides whether the good is worth all efforts. A customer expects the producer to meet their expectations and provide high-quality products at a fair price along with premium service and reliability. Quality requirements are hidden in each element of consumer expectations (Mann & Warren & Westbrook, 2019). The objective of an organization is to identify these requirements and address them timely.
2. Processes definition and management. Work optimizations and quality enhancement strategically require an understanding of the customer’s perspective. All procedures and their elements should maximize the value for the consumer. Therefore, all the unnecessary or low-efficient operations have to be reconsidered and eliminated if possible.
3. Teamwork and employee involvement. Productive cooperation and alignment between employees significantly contribute to the organization’s performance. Thus, managers should pay specific attention to teamwork and employees motivation to ensure high results for the business and quality of a service or a product. (Mann & Warren & Westbrook, 2019). Employee commitment leads to greater customer satisfaction.

Since the organization is financially unstable, it is worth paying attention to work with loans and credits. The analysis revealed that the company was dependent on borrowed funds and could not conduct its activities independently. To reduce accounts payable and increase accounts receivable, the following solutions are proposed:

• Increase the efficiency of working capital,
• refinance of funds,
• introduce a system of discounts and penalties,
• carry out a strict selection of the client base,
• introduce a system of control of accounts payable and receivable.

Improving the efficiency of working capital can be achieved by influencing the manufactured products, planning system, and organization of production, which is achieved by constant monitoring of the standards and the dynamics of the actual unit costs and turnover of working capital. Since Toms Shoes is an insolvent enterprise, the company is recommended to sign a contract with a factoring company, which will lead to the possibility of obtaining a certain percentage of accounts receivable. The factoring operation allows the company to refinance most of the accounts receivable in a short period, thereby reducing the financial and operational cycle (Skelton & Pais, 2019). Constant control over the timing of accounts payable will allow timely payment for debts. It will help to avoid overdue fees and penalties, which, in turn, are an inefficient use of company funds.

It is recommended to establish a discount for regular customers in the form of a slight reduction in the payment volume when paying in the first days of the loan term. Otherwise, it is proposed to introduce a system of penalties for late payments, which will increase with each day of non-payment. The company should generally review its customers and buyers, determine the terms of payment, and put them in contracts or agreements with them. (Skelton & Pais, 2019) When selecting customers, it is worth examining their current solvency level, carrying out a forecast of future financial capabilities, and studying the company’s economic opportunities.

Recommended Plan of Action

The main point of the action plan is to highlight the stages of the Six Sigma implementation in production, along with previously discussed actions to reduce accounts payable. DMADV method is a helpful instrument when integrating the Six Sigma concept. The method consists of the following steps:

• Define. It is essential to start with identifying the purpose of new processes. Considering all discussed above, this should be done following the customers’ expectations and requirements. A six sigma project team is created to design the process (Bruce, 2020).
• Match. Further, the team has to elaborate specifications for the identified processes. These specifications will lay a foundation for the process objectives should be defined.
• Analyze. At this stage, each new process in place is to be thoroughly analyzed. The determined characteristics further form the preliminary versions of those operations and a drafted plan for their subsequent execution. (Bruce, 2020).
• Design. This stage is necessary to formulate the processes’ design and define in detail their characteristics and specifications. (Wheeler et al., 2020).
• Verify. In this step, the Six Sigma process design team verifies that the process meets its objectives based on the defined characteristics.

Process management represents a crucial aspect of The Six Sigma methodology. The complexity of the company’s organization implies the simultaneous optimization of existing processes and the introduction of new ones. Managing ever-changing operations becomes quite a challenge. Of course, tracking and controlling processes based on the Six Sigma method is the responsibility of a dedicated team of process managers who have to identify gaps and improve business operations constantly. Teams should be built according to levels of management and are to contain the three main divisions:

• the highest level of control,
• the process management level,
• the task management level (Antony, 2020).

The teams have to be composed of specialists with varying degrees of “mastery” of the Six Sigma concept (Antony, 2020). Thus, working on accounts payable and implementing the Six Sigma in a corporation does not guarantee enrichment, but it can bring back the financial stability and independence of Toms Shoes.

References

Antony, J. (2020). Lean Six Sigma in higher education. A practical guide for continuous improvement professionals in higher education. Emerald Publishing Limited.

Bruce, K. (2020). Handbook of research on management and organizational history. Edward Elgar Publishing.

Mann, R. J., Warren, E., and Westbrook, J. (2019). Comprehensive commercial law. 2019 statutory supplement. Wolters Kluwer.

Skelton, M., and Pais, M. (2019). Team topologies. Organizing business and technology teams for fast flow. IT Revolution Press.

Tannenbaum, S., and Salas, E. (2020). Teams that work. The seven drivers of team effectiveness. Oxford University Press.

Wheeler, A. R., Baur, J. E., Halbesleben, J. R. B., and Buckley, R. M. (2020). Research in personnel and human resources management. Emerald Publishing Limited.