CASE 2
CASE 2.1.Senco Electronics Company
1. - If you were Skip Grenole, which alternative would you advise Jim Bierlein to implement? What criteria would you use to arrive at your decision?
I will advise to Jim Bierlein the alternative use of both Ocean Freight and Air Freight based in the fact of the 5% increase in demand per year is the result of a serious forecasting analysis. The Company would use the Air mode up to the point (estimated 3 years) in which Ocean Freight become a cheaper alternative in the end (see graph in # 3). The use of Airfreight in the beginning will allow the Company to establish a JIT system that may change its financial results and lead to new decisions.
2. - At what level of demand (in pounds) per year would these two alternatives be equal?
OCEAN = Tc – Fc = Vc = $ 223, 0
Vc/units = $ 223,0/2.5 million pounds = $ 0.0892/pound
600, 0 + .0892x (X= demand in pounds)
AIR + Tc – Fc = $ 350, 0
Vc/Units = $ 350, 0/2.5 million pounds = $ 0.41/pound
450, 0 + .14X (X= demand in pounds)
600, 0 + .0892X = 450, 0 + .14X (solve for X)
X= 2,952,756 pounds (Ocean and Air cost are the same when demand = 2,952,756 pounds
Tc: Total cost; VC: Variable cost; Fc: Fixed cost.
3. - Graphically represent these two alternatives and their tradeoff point.
Figure 1 Graph shows both alternatives and their tradeoff point at 2,952,756 pounds
4. - Which alternative would you recommend be in place to accommodate future demand growth? Additional factors should to be considered.
Ocean is the best option in the end considering future demand growth since it becomes less expensive (third year). Other factors to be considered to modify this alternative would be the availability of those modes and its speed to fulfilled a future JIT system funcionability; analysis of costs is very important in this issue but others factors like customer service , lead time orders, amid others must be part of the analysis.
1. - If you were Skip Grenole, which alternative would you advise Jim Bierlein to implement? What criteria would you use to arrive at your decision?
I will advise to Jim Bierlein the alternative use of both Ocean Freight and Air Freight based in the fact of the 5% increase in demand per year is the result of a serious forecasting analysis. The Company would use the Air mode up to the point (estimated 3 years) in which Ocean Freight become a cheaper alternative in the end (see graph in # 3). The use of Airfreight in the beginning will allow the Company to establish a JIT system that may change its financial results and lead to new decisions.
2. - At what level of demand (in pounds) per year would these two alternatives be equal?
OCEAN = Tc – Fc = Vc = $ 223, 0
Vc/units = $ 223,0/2.5 million pounds = $ 0.0892/pound
600, 0 + .0892x (X= demand in pounds)
AIR + Tc – Fc = $ 350, 0
Vc/Units = $ 350, 0/2.5 million pounds = $ 0.41/pound
450, 0 + .14X (X= demand in pounds)
600, 0 + .0892X = 450, 0 + .14X (solve for X)
X= 2,952,756 pounds (Ocean and Air cost are the same when demand = 2,952,756 pounds
Tc: Total cost; VC: Variable cost; Fc: Fixed cost.
3. - Graphically represent these two alternatives and their tradeoff point.
Figure 1 Graph shows both alternatives and their tradeoff point at 2,952,756 pounds
4. - Which alternative would you recommend be in place to accommodate future demand growth? Additional factors should to be considered.
Ocean is the best option in the end considering future demand growth since it becomes less expensive (third year). Other factors to be considered to modify this alternative would be the availability of those modes and its speed to fulfilled a future JIT system funcionability; analysis of costs is very important in this issue but others factors like customer service , lead time orders, amid others must be part of the analysis.