Problem 4: Brandon Production is a small firm focused on the assembly and sale o

Question

Problem 4: Brandon Production is a small firm focused on the assembly and sale o custom computers. The firm is facing stiff competition from low-priced alternatives, and is looking at various solutions to remain competitive and profitable. Current financials for the firm are shown in the table below. In the first option, marketing will increase sales by 50%. The next option is Vendor (Supplier) changes, which would result in a decrease of 10% in the cost of inputs. Finally, there is an OM option, which would reduce production costs by 25%. Which of the options would you recommend to the firm if it can only pursue one option? In addition, comment on the feasibility of each option. Business Function Cost of Inputs Production Costs Revenue Current Value $50,000 $25,000 $80,000

Explanation / Answer

As per the given scenario, though the parameters given are not sufficient enough to decide the alternative so easily, but a basic calculation is done ignoring all the internal and external aspects of the organization and the environment it is situated in. Marketing would increase sales to $120,000 ($80,000 1.5) but increase cost of inputs and production costs to $112,500 (($50,000 + $25,000) 1.5). This would net an additional $2500 of profit ($120,000 - $112,500 - current profit of $5000). Vendor change would decrease cost of inputs to $45,000 ($50,000 .9), resulting in $5,000 of additional profit ($50,000 - $45,000) by the company. And lastly, the operation management option would save $6250 ($25,000 - $25,000 .75), bringing in an extra $6250 of profit. Thus the OM option is the most profitable. The feasibility of increasing revenue by 50% is not a very easy task and time consuming, while noting the other two options are difficult but not impossible and are less time consuming. Operation management refers to the operations aspect of an organization; we study this to understand how goods or services are produced. This way we can find the best way to conduct operations to achieve both efficiency and effectiveness.

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