Economics

Dear Kendra, The main issue is that Clear Hear can only manufacture 70,000 of the 100,000 cell phones ordered and you must find a way to make up and deliver the remaining of the order. The downside of filling this order is the offered price of $15 per unit, when the asking price is $20. Another important consideration to take is that a very reputable manufacturer can fill this order on time for Clear Hear for a cost of $14 per unit. Clear Hear is a cell phone manufacturer with the capacity to deliver up to 70,000 cell phones over a three months period. One of Clear Hears’ business development specialists, recently received an order for 100,000 cell phones very similar to one of Clear Hears’ model, identified as the Alpha model. Before Lisa makes a decision whether or not proceed with this order request from Big Box, Lisa Norman, the production manager for Clear Hear must keep in mind her company’s statement of values and her unit profitability report with are displayed below: Clear Hears’ statement of values include the following: • Keep our employees working. • Provide our customers with products on time and that reliably meets or exceed their expectations. • Treat our business partners the same, as we want to be treated. The Unit Profitability Report below displays the follow information: Unit Profitability Report Alpha model Beta model Price per unit 20 30 Variable cost per unit 8 12 Fixed overhead 9 10 Profits 3 8 Note. All unit prices are in dollars. Increasing Revenue for the Company Assuming that this order request from Big Box is not the first order to surpass Clear Hears’ ability to fill an order, Clear Hear should consider the following recommendations to increase production as needed, thus resulting in an increase of revenue opportunities. • Create an alternative workforce team on a per diem basis to work, as needed during downtime hours to fill orders that surpass the current manufacture’s ability to produce in a normal day to day to day-to-day operation. • Maximize the use of the physical space currently utilized by Clear House • Explore the possibility of upgrading the current equipment, for newer equipment that can produce more units per minute. • Do a cost benefit analysis to weigh the pros and cons of investing money in newer equipment and the return on investment rate. Achieving Ideal Production Levels • Capability and flexibility are imperative in determining how the equipment can be shifted between products. This measure will provide important information for determining required minimum orders and discounting room for large orders. • Staffing is another very important item to be added to this mix. Since salaries is one of the highest expenses in a firm, studying alternative work shifts can save the firm a substantial amount of dollars and time, thus increasing revenue and production outcomes. With four shifts of 10 or 12 hours and less releasing brakes, can be more cost effective than five days of eight hours shifts. • Information Technology is another hot item that contributes to improvements in production levels and on the overall efficiency of most operations. By establishing appropriate programs to cater to each specific time consuming task such as scheduling, customer orders and raw material logistics will not only accelerate the billing time and cash flow process, reduce all inventory time, but also allow additional time to Improve customer service. This item will free up assets, cash, and people for more important activities. Determining how fixed and variable costs should be adjusted to maximize profit • The company should consider the number of shifts to be operated. This depends on both the relative efficiency of each shift and the size of an ideal production run. If machine changeover is expensive, working four 10- or 12-hour shifts will be more cost-effective than working five 8-hour days. Overtime can be built into the schedule. • Maximization of the space can certainly aid in the maximization of the profit. Every square inch of the physical plant of the firm must be utilized. • In the variable cost, if the firm can extend the payment of its’ raw material vendors from 30 to 45 days or more, it can certainly maximize the profitability of the company. Identify methods to reduce costs • Office supplies are another popular item in cost reduction programs. Office supplies can be down graded to the simplest and most basic of all. By standardizing the office supplies and by streamlining to one or two solely vendors, in addition to accumulating orders and arranging delivery for the same date, many dollars can be saved, thus providing great savings. A pen is a pen, no matter if it’s a “BIC” of a “Sharpie”. • Hopefully with the implementation of technological programs and online systems to aid in the productivity, less raw materials such as paper will be needed, thus providing great savings on printing paper and ink cartridges. Organization assumptions and its values After reading this scenario thoroughly, I concluded that Clear Hear has mainly three options to follow with the deal that was presented to them. The first one is to accept the order from Big Box and commit to the production of the 70,000 units and outsource the remaining 30,000 units utilizing Original Equipment Manufacturer (OEM), the second assumption is that Clear Hear could outsource the entire order with OEM and finally, Clear Hear could commit to the entire order to be produced in-house and modify production goals and schedules to meet this order. Assuming that the top two options are viable, but not beneficial for Clear Hear, I would assume that the option to fill this order, although risky, could be considered as an opportunity for Clear Hear to challenge its people and improve its productivity. I particularly liked to see that Lisa Norman, the production manager, took into consideration the statement of values of Clear Hear very seriously and proven to her costumer that the client satisfaction is embedded in the DNA of her firm.