February 7, 2011
Business Proposal for Clear Hear Inc.
As Vice President at Clear Hear, I would like to address some issues that have come to light with our manufacturing of cell phones here at Clear Hear. I have taken economic conditions into consideration and will offer my recommendation that will increase revenues for our company while hopefully adding a new client to our distribution list.
Clear Hear is a manufacturer of cell phones and is currently negotiating a 100,000 cell phone unit contract. Kendra Sherman, Business Development Specialist, was instrumental in securing the cell phones contract with Big Box. Big Box needed the phones to support a promotion the company was running with a telephone service provider. All approvals of this order must be approved by Lisa Norman, Production Manager of Clear Hear, and decisions to implement this order will have to be reviewed by Lisa who will be briefed by Kendra Sherman the originator of this order from Big Box. Big Box requested to have a contract drawn up requiring the phones to be delivered within 90 days. Lisa’s keen sense of business and ability to run her production lines helped in her discovery of 70,000 cell phone units that we will have in excess over the next 90 days. Lisa also earns the largest part of the bonus on factory total profitability and utilizing these 70,000 units would put her on top in terms of sales production. A vital concern for Kendra was that Big Box was not willing to pay any more than $15 per cell phone which is based on the $20 per unit Alpha model. Essentially, cutting costs is a key factor as to how we are going to solve this issue.
Clear Hear Scenario Summary
Clear Hear manufactures two cell phones. The Alpha model which is based on the $20 per unit and the Beta model which has more feature and sells for $30 because it also cost more to manufacture. As a long time cell phone manufacturer, Lisa knew Clear Hear would not have had any issue in switching from building the 30,000 Bata model cell phones to expanding the Alpha model line. Having a competitor (Original Equipment Manufacturer (OEM)) willing to show us and produce 100,000 units of a prototype of the Alpha model that had identical performance features as our Alpha model and willing to manufacture them on such a short notice at $14 per unit became a fundamental concern in determining our company’s position and devising the best strategy to fulfill the order while still continuing business at our current manufacturing plant.
Following the meeting with Kendra and before agreeing to accept the contract Lisa revisited the company’s profitability report and statement of values. Clear Hear profitability report is as follows:
Alpha Model price per unit was $20; variable cost per unit $8; fixed overhead $9; and profits of $3 per unit.
The Beta Model price per unit was $30; variable cost per unit $12; fixed overhead $10; and a profit of $8 per unit.
Big Box was not willing to pay our price per unit causing Clear Hear to rethink its strategy and discuss other necessary options to control costs. In order for Clear Hear to complete this order, Lisa and department heads will have to address profitability issues and will have to decide how to proceed to fill this order that will benefit our company needs, while still achieving profits for our company. If we agree to accept the contract from the 100,000 Alpha model units Clear Hear would be manufacturing each phone at a loss of $6 per units which I feel would be a bad business decision. A key contributor to our decision lies among our Clear Hear statement of values which consist...