Restructuring and reorganization plan : "Mrrik" company's sock and stocking plant

Abstract

The main objective of this plan is to implement financial and organizational restructuring, which will allow the MRRIK sock and socking producing company to operate effectively and efficiently under the current conditions of transitional period in the economy. The MRRIK’s administrative, financial, and inventory operations and logistics were developed for working as a state company under the tight control of the Ministry of Industry, and in accordance with the conditions of command economy. In the beginning of 1990s, after the liberalization of economy this way of working proved to be absolutely ineffective. The company is going to be completely privatized by the end of 1996 and the management of the company is interested in restructuring of the company in a way that will make the company to operate effectively under current conditions of economy in Armenia. After the careful study of the main problems caused by internal factors at the company, the following steps are suggested. • Change organizational structure of company and introduce rational principles for administrative management • Introduce some methods of financial management and managerial accounting, adapt them to needs of the company • Develop inventory management system which will allow to have efficient control system and effectively meet seasonal demand The main risk of the implementation of this plan is considered to be the resistance of some groups of workers and people from staff due two factors: unavoidable layoffs and tightening of work process control. Calculations show that implementation of the project will result in 2,5% decrease in fixed cost, 9% decrease in average variable cost of a unit, 22% increase in operating profit, 50% decrease in average level of inventory, improvement of collections of receivables and overall cash management. According to estimations, implementation of the project requires about 12.5 million drams. The life of the project is considered to be 5 year. Given the discount rate (cost of capital) 72%, which is a normal rate for companies in Armenia, The IRR of the project equals 137%.