Business_Recommendations_for_Clear_Hear

Business Recommendations for Clear Hear According to the Clear Hear Scenario (n.d.), Clear Hear is a manufacturer of cell phones. Clear Hear has to decide to accept an order from a major chain, Big Box. The following are recommendations to Clear Hear for increasing revenue, achieving ideal production levels, determining how fixed and variable costs should be adjusted to maximize profit, and identifying methods to reduce costs. Based on these recommendations as well as Clear Hear’s statement of values, the decision can be made in regard to the order. Increasing Revenue In order in increase revenue, Clear Hear must differentiate the current products from the rest of the market. Clear Hear has two products on the market, the Alpha and the Beta models. The Alpha model is nearly identical to a potential order of 100,000 cell phones that will support a promotion that a major chain, Big Box, is running. An Original Equipment Manufacturer (OEM) showed Clear Hear a prototype of the Alpha cell phone. This indicates that Clear Hear’s cell phones are easily substituted by other manufacturers; therefore, distributors will go to the cheaper model. The scenario indicates that OEM has a unit price of $14, which is less than the fixed and variable costs of Clear Hear totaling $17. Clear Hear should outsource the Alpha cell phone model and focus on the Beta model. Production Levels An opportunity cost for Clear Hear exists in deciding the ideal production levels. Opportunity cost is the value of a resource in its next best use (McConnell, 2009, p. 155). For example, capital assets used in the production of the Alpha model will not allow for simultaneous use in the production of the Beta model. The Alpha model is in a competitive market with competition from OEM and other manufacturers. By utilizing the OEM to manufacturer the Alpha model order, Clear Hear would be in good standing with the customer with a consistent, quality product and receiving the 100,000 units in a timely manner. The Beta model is a monopoly with no other products to match it because of the additional features from the Alpha model. Focusing on the Beta model with the additional features will differentiate from the others products on the market and will increase profit potential. Fixed and Variable Costs By outsourcing the Alpha model to OEM, the variable costs associated with that product is eliminated. The fixed overhead from the Alpha model must be distributed to the Beta models; however, the additional profit will cover those. By switching the Alpha production line over to the Beta production line, this will manufacturer more of the Beta model and will increase profits. The current capacity has an underutilization of 70,000 units over the next three months. The fixed and variable labor costs are taken into consideration as that is one of the key values of the company. Redistribution of employees within the production process will avoid layoffs or terminations because lack of work. Cost Reduction Clear Hear can reduce the variable costs per unit with better technology and innovation. By differentiating from the remainder of the market, Clear Hear will have a higher profit levels and better utilization of production lines. Better technology will reduce the variable costs associated with each unit. Clear Hear manufacturers cell phones. Outdated production equipment will add to the cost of producing that item. Better training of employees to run and maintain the production lines will also reduce variable costs. For long run production, product innovation (McConnell, 2009, p. 11W-2), referring to new or improved products or services, will reduce costs. As Clear Hear continually improves upon the Beta model, which will reduce create a barrier to entry for other companies looking to benefit from Clear Hear’s product. The Beta model currently has additional features that distinguish it from the Alpha model. A marketing survey with the current customers will suggest additional features that the market is demanding. Process innovation (McConnell, 2009, p. 11W-2), referring to new and improved methods of production or distribution, will give Clear Hear a competitive advantage by reducing costs on the production line. OEM presented the Alpha model with less fixed and variable costs associated than Clear Hear. Opportunity for improvement exists within the production process of the Beta model. Diffusion is the spread of innovation to other products or services through imitation or copying (McConnell, 2009, p. 11W-2). Clear Hear can take advantage of the partnership with OEM to improve on its processes to save costs on the Beta model line. Increase profit via product innovation and reduce cost via process innovation (McConnell, 2009, p. 11W-9). Assumptions These business recommendations are assuming that the Beta model has no competition based on the additional features that upgrade the Beta from the Alpha model. There is also the assumption that the version from OEM has good, quality standards. Assumption that the production employees are cross trained to work both production lines to avoid layoffs and terminations from lack of work. Conclusion Clear Hear produces two products. One product is a monopoly, the Beta model. The other product is an oligopoly, the Alpha model. Based on the recommendations for improvements presented, Clear Hear should accept the order for the 100,000 cell phone promotion and outsource the entire order to OEM. The purchase price from OEM is less than the allocated costs internally at Clear Hear. Clear Hear should then update the remaining product, the Beta model, to differentiate itself from the rest of the market by implementing additional features as suggested by marketing surveys from the current customer base. Improvements researched during the partnership with OEM should be implemented to the production process to save on fixed and variable costs. The recommendations were made In keeping with the statement of values for the company, to keep employees working, provide reliable product, and respecting business partners. Reference McConnell, C.R., Brue, S.L., & Flynn, S.M. (2009). Economics: Principles, Problems, and Policies, (18th ed.). New York: McGraw Hill/Irwin (n.d.). Clear Hear Scenario, (ECO/561 Version 3). University of Phoenix. Retrieved from https://ecampus.phoenix.edu/classroom/ic/classroom.aspx