Steelwork - Example

Part B Steelwork’s present capacity to produce trolleys is of 36,000 units with 32,000 standard trolleys and 4000 child trolleys. An order of 10,000 additional units would mean that Steelwork’s will have to either cut down their present production or look at alternate means because the plant is running under full capacity. The customer is willing to pay $90 per trolley and could either take two alternatives to supply the same. Firstly, Steelwork’s can purchase some material or equipment that will cost them $30,000 and will be handful to the company in the future operations. Secondly, they can outsource the work to third parties and get the brakes done for $6 per trolley which would mean a total cost of $60,000 for 10,000 trolleys. In addition to it the business will also have to incur additional cost for the purchase of materials which will have an effect on the selling price and finally the profit of the business. This raises the issue of relevant cost for the business. The business already will have to purchase raw materials which will cost additionally for the business. This will have an impact on the profits of the business and will make the business to consider the decision of whether to continue with the operations or not. This gives rise to the fact that whether the cost can be avoided or has to be incurred. The business while looking to consider the alternative of outsourcing and producing the same with the purchase of new equipments sees that a gap of $30,000 arises. This is the relevant cost which the business can avoid if they look towards purchasing the equipment as it will help them to save on the cost by $30,000. In addition to it the company will be able to ensure that the business is conducted smoothly and the present process doesn’t have to be sacrificed (Brown & Sim, 2009). Further, it will also give the company an opportunity to use the services of the same equipment again and again as they will be able to produce brakes again and save on the cost of outsourcing further in the future. This is thereby helping the business in two forms as it is helping them to cut down cost in the present situations and will also help to reduce the cost for the future expenses. Also looking at the same from another angle it is seen that the business has to focus on other financial issues and cost that the business will have to deal with. Further, using this strategy of purchasing the equipment will also have an effect on the business as they will have to incur additional cost associated with servicing the machinery to keep it in working condition. In addition to it the business will also have to incur the cost associated with the establishment of the machinery and will have to look towards maintaining it. Steelwork’s will also have to look at developing the facilities for ensuring that the services are provided in the most effective manner and needs to look at hiring the relevant workforce that is able to use the machineries and ensure effective opportunities of growth. This will result in additional cost for the business. Along with it other financial issues will also arise as the manner in which the purchase of the equipment will have an effect on the capital expenditure. This would mean that the business will have to make strategies to ensure that they plan their capital expenditure on line with the spending pattern. In addition to it the business will also have to deal with the financial issues that the business has to look at developing an alternative for improving the business strategies. This will also give rise to non financial issues which will help to be dealt in the most effective manner. Steelwork’s if the look towards outsourcing the business will have the risk associated with the brand name of the business. Outsourcing would give rise to quality issues as if the business is not able to replicate high quality it will have an effect on the overall brand equity and will thereby hurt the brand image of the business (Kerzner, 2009). Also, looking towards a strategy where the business is unable to deal with the quality aspect will affect the sale of other products and create a concern regarding quality. In addition to it the other non financial issue arises with the manner in which the business will be able to maintain the relations with the customer as producing the required units would mean that the customer would have to forego some production which could have an effect on the customers who re already purchasing the trolleys from the company (Herroelen & Leus. 2005). Along with it the issue concerning the manner in which the business will look towards abiding with the environment is another concern for the business. Steelwork’s will have to look towards managing a strategy where they are able to look after the environment and also ensure that the production of brakes to be used in the trolleys doesn’t have an effect on the brand value and provides similar value to the stakeholders. Further, producing it through the method of outsourcing would also mean that the business will have to face an additional risk as providing the work to the people would mean that some risk has to be taken to give some outside party to work on (Greaver, 2009). This would mean that the business will have to deal with issue of dealing with the situation where the business looks at developing a framework where the work is accomplished and at the same time the product is delivered. Thus, on the overall basis producing the product in house would be the better option so that the business is able to supply the product to the customer as well as ensure that the business is able to do justification to the work taken. This would also mean that the risk associated with outsourcing the business is reduced and will help to preserve the brand image of the company as the risk of having products which are not up to the mark will be ensured. Thus, the overall strategy will be to ensure that the products are delivered and the business will also have to ensure that while producing the goods the brand image of the company is not at stake. This will help to ensure profits for the business and will be thereby able to ensure proper strategy to tackle it. References Brown, D.B., M. Sim. 2009. Satisfcing measures for analysis of risky positions. Management Science, 55, pp. 71-84 Greaver, M. 2009. Strategic Outsourcing: A Structured Approach to Outsourcing Decisions and Initiatives, 1st edition. AMACOM, New York City, NY. Herroelen, W., & Leus. R. 2005. Project scheduling under uncertainty: Survey and research potentials. European Journal of Operational Research. 165, pp. 289-306. Kerzner, H. 2009. Project Management: A Systems Approach to Planning, Scheduling, and Controlling, 10th edition. Wiley, Hoboken, NJ. Read More