Paper, Order, or Assignment Requirements
This case is about a construction company facing a dilemma. The manager needs to take a decision taking in consideration some financial reports.
The idea is to provide a list of financial tools that helps the manager to take the best decision.
You are the newly appointed General Manager of a manufacturer of mining equipment in Western Australia; whilst the company has done good business recently in replacing engines in high head dewatering pumps, you have been brought in with the warning that the company faces tough and uncertain times ahead.
As you sip your first coffee of the day the production manager marches into your office with a worried look on her face wanting to discuss rumours that you are considering an offer from a Chinese firm to provide the pump engines for $15,000 delivered to the factory. The production manager is concerned as she was told some years ago by one of the firm’s graduate accountants that the engines, once all the overheads were applied, the current cost to the company was $20,000 and so now she is concerned the company will give up its own production capacity and she might lose her job!
The production manager hasn’t just come to protect her interests however, she proposes an alternative strategy of investment! She believes the company should invest in larger premises and new equipment, she estimates this will cost $100,000 a month, but will lower variable production costs by $4,000 per unit and increase production capacity, she is also reasonably confident of securing some grant funding for keeping jobs in the domestic market that could cover 40% of this cost.
In fact the rumours were true, you had met with the Chinese firm earlier that week and had also heard the $20,000 price tag which had also been presented in management reports, but you had a feeling it wasn’t that simple… you had to get a presentation and recommendation to the board by the close of business tomorrow, so you reached for your well-thumbed copy of Atrill and began composing a list of questions for the accounts and production departments.
LET US DISCUSS
Using information from different sources such as texts or peer reviewed journals (not Wikipedia) to support your answer, discuss the points below:
- What quantitative information would you require, and from whom to evaluate these courses of action? Which information do you consider to be most critical?
- Aside from quantitative information, what other issues might the board consider in deciding whether or not to effectively send production offshore?
- Which option represents a higher risk to the business?
E.g., be succinct (quality not volume); use bullet points; demonstrate knowledge; evidence of further readings, original insightful critical evaluation & etc. You should support your opinion using the conceptual knowledge you have gained so far in FM550 plus any other documentary sources which you believe are relevant.
[Maximum 250 words –Reference list excluded in word count].
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