Eco 550 Assignment 2

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Assignment 2: Operations Decisions
Eco 550 Managerial Economics

The purpose of this paper is to discuss the reasons why I, as a hired management consultant, would suggest a fictitious company either shut down operations or continue them based on its operational health. In order to do this I must first describe, in brief, the basic details of the company I have created to provide some tangibility to this assignment. Then I will assess the current environmental scan factors relevant to the decision making process, focusing on those which have the greatest impact on both the overall plant operations and the managerial decision of whether or not to discontinue operations. After which I will evaluate the company’s financial performance using data provided for the assignment related to the fictitious scenario. In doing this I will need to consider the key drivers of said performance including the company’s profit or loss in both the short term and long term, discussing how each of these factors influence the managerial decisions. Next I will recommend how the company might improve its profits in order to deliver more stakeholder value and provide a basic plan of how to best implement the recommendation. Finally I will assess those circumstances under which the company should discontinue operations as well as how management should react when confronted with those circumstances. For this assignment I have created Greatneck Incorporated, a manufacturer based in northeast Ohio. Greatneck Inc. key competency is its manufacturing of space heaters which is mainly distributes through the big box retail stores such as Wal-Mart, Target, Home Depot, and Lowe’s. Greatneck’s 100 workers produce 6,000 space heaters each month at a price of $32. The plant’s work schedule is for 20 days each month and each worker earns $70 per day while the variable cost for Greatneck is $2000 per day. Concerning the current environmental scan factors we must understand that they fall into six (6) categories: political (or governmental), economic, cultural (or social), technological, environmental, and finally legal (Bayode, et al. 2012). A break down of these into the specific points of each that has the deepest impact on a managerial decision follows. Other than taxes and issues such as anti-discrimination laws there are few governmental factors Greatneck must concern itself with. Although some of the pieces and parts that go into their product come from foreign countries such as China and Taiwan, its final products are shipped and sold right here in the United States. This limits the trade regulations it must contend with and puts the majority of the burden for those it does face on its supplier. Additionally. While a few of its 100 workers are Puerto Rican nationals, it has made great efforts to ensure they are legal. Still Greatneck does need to remain vigilant and cooperative with Immigration and Customs Enforcement (ICE) so that it does not run into any unforeseen problems. The faltering economy did put a damper on Greatneck’s business the last few years, but it has weathered it well. It did this through lean manufacturing, using a just in time inventory management system. It went into the recession with a limited debt which it was able to pay off with its available cash. The overall inflation issues miring the United States has not effected it much as it managed to lock in reasonable prices for those items it buys from overseas each year. It is a small enough business with few employees of retirement age and a well-managed 401k for those that are. It was during the economic boom of the 1990’s that Greatneck expanded its business to its present level. But its management knew there were limitations and avoided over extending itself and growing too fast so that when the recession hit it was able to maintain its present workforce. However it has only offered minimal raises to its workers recently and has reduced the available overtime. In general, the...
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