Clear

Clear Hear Scenario Clear Hear, a cell phone manufacturing company that operates tow production line. Big Box a telephone service provider would like Clear Hear to manufacture 100,000 cell phones that will be delivered in 90 days. Lisa Norman, the production manager for Clear Hear has excess capacity of 70,000 cell phone units over the next three months, therefore, this will be a bonus for Lisa, because she needs to run the factory at capacity, total factory profitability is her goal. Kendra Sherman, the development specialist has secured the 100,000 cell phone order; however, Big Box will not pay more than $15 for each cell phone which makes the deal less interesting to Kendra Sherman, because the cell phones are based on $20 per unit Alpha model. Clear Hear operates two production lines; the Alpha and Beta. The Beta cell phone has additional features, and sells for $30, and the cost to produce the Beta cell phone is more. The Original Equipment Manufacturer (OEM) has experience manufacturing cell phones; therefore they are convinced that they could produce up to 100,000 units in a short notice, but the cell phone performance would be identical to Clear Hear’s product at $14 per unit which is nonnegotiable. Clear Hear goal is to secure the deal with Big Box, and make a profit, because Big Box will not pay more than $15 for each cell phone, and the cell phone are based on $20 per unit, which is a ($20-$15) a $5.00 less or the nonnegotiable price ($20-$14) a $6.00 less per unit. Clear Hear values are to keep our employees working, provide our customers with products on time and that reliably meet or exceed their expectations, and treat our business partners the same as we want to be treated. Lisa is concerned with profitability, but the values are important to her as well. Clear Hear Opportunities There are several opportunities that Clear Hear can review. Clear Hear could refuse to fill the order for Big Box and not earn any profits. The Original Equipment Manufacturer (OEM) that has experience in manufacturing cell phone is another alternative for Clear Hear. The Original Equipment Manufacturer (OEM) has showed Lisa a prototype of the Alpha cell phone unit that they would produce at nonnegotiable price of $14 per unit. OEM has confidence that they will be able to produce 100,000 units on short notice; however, Big Box will not pay more than $15 per unit. Lastly, Lisa can use the 70,000 excess units of the Alpha Model and 30,000 of the Beta model to produce the 100,000 cell phones for Big Box. Looking at Clear Hear variable and fixed cost to put the Beta model cell phone into production would result in a loss. It cost more to produce the Beta model cell phone, and Big Box will not pay more than $15 for each cell phone; therefore, 30,000 *$15= $450,000. Clear Hear would lose close to $300,000 ($450,000-$150,000); therefore, producing the Beta model would not be a good choice for Clear Hear. Clear Hear does not want to suffer a loss this great; therefore, they can decline the offer. The other option is to give Original Equipment Manufacturer (OEM) the opportunity to produce 100,000, but the cost will be $14 per unit which is nonnegotiable. Big Box will pay only $15 per unit, but which is only $1. Clear Hear values are to keep our employees working, but also to provide the customer with products on time and the reliably meet or exceed expectations. In order for Original Equipment Manufacturer (OEM) to produce the 100,000 Clear Hear must be aware of the fixed cost for Original Equipment Manufacturer ($14*100,000) $1,400,000 to produce 100,000 cell phones for Clear Hear. If Clear Hear can produce the order for Big Box, it would give them the opportunity to develop a relationship with a major chain. Recommendations Clear Hear should not put the Beta model production line in service to produce 30,000 cell phones. Clear Hear has 90 days to produce the cell phones, and would like to stand by their values by providing customers products on time and that reliably meet or exceed their expectations; however it is important to keep their employees working. Clear Hear should allow Original Equipment Manufacturer produce the 100,000 cell phones, because they would meet the deadline and profit. Treating our business partners the same as we want to be treated is another value of Clear Hear. Another recommendation for Clear Hear is that the Alpha model cell phone is less expensive to produce. Clear Hear’s unit price is $20.00 per unit for the Alpha model; however if they were to lower the cost they would profit more money with the Alpha model cell phone. Clear Hear should lower the price of the cell phone and the demand will increase and they could be rewarded a higher profit. There are a lot of companies that outsource business and it is a good way to keep cost down. Marginal revenue equals marginal cost the profit will be equal zero. Profits increase when the marginal profit is positive, and will decrease if it is negative. Clear Hear should realize that the increase in output will increase profit as long as marginal revenue is greater than marginal cost. Clear Hear research and develop strategies to increase output when marginal revenue is greater than marginal cost and vice versa. Clear Hear Value’s are to keep their employees working; therefore, this mean that Clear Hear wants to make sure the employees have jobs, and Clear Hear want to provide a customers with quality products on time, and by doing this builds good clients relationships. Finally, by treating business partners the same as they want to be treated means that if that businesses want to be treated fairly.