Introduction
To address the current issues regarding the purchase of products, the fact that Alrifai Nuts Inc. provides the types of nuts such as cashew, pistachio, almond, hazel, and pecan deserves to be put in the limelight. The large variety of delicious products needs to be emphasized as the pricing strategy of the company can be deemed as rather rough and, thus, has to be justified by the outstanding quality of the end product (Hasen & Mowen, 2012).
Regular, Deluxe, and Super Deluxe Mixes: Cost and Optimal Mix
The promotion of the goods delivered by the firm, therefore, must be carried out with the help of a smart branding strategy, which will address the unique properties of the products, such as the original taste that has not been altered by the changes in temperature, humidity, or any other factor that may possibly trigger a drop in the quality of the product (Varkley, 2010).
In order to carry out the calculation, one will have to bear in mind that the total profit contribution equals the difference between the selling price and the total cost. The former can be defined by multiplying the profit contribution per kilo for each product by the amount of goods required. For instance, let R be the amount of Regular Mix, D the amount of the Deluxe Mix, and SD the total amount of the Super Deluxe Mix.
In this case, the selling price will equal (7*R+9*D+11*SD). The total cost, in its turn, will amount to the sum of all costs taken in the process, i.e., 30,000 + 20,000 + 25,000 + 25,000 + 20,000 = 120,000. Thus, what will be defined as the objective function of the solver is (7*R+9*D+11*SD) – (30,000 + 20,000 + 25,000 + 25,000 + 20,000 = 120,000) = (7*R+9*D+11*SD) – 120,000.
As far as the constraints are concerned, one must bear in mind that the total order of the specified mix types is restricted to the amount of each type of mix produced. In addition, the total amount of each type of nuts (“C” for cashew, “A” for almond, “Pi” for pistachio, “Pe” for pecan, and “H” for hazel) in all mixes is restricted to the amount of specified types of nuts available. Hence, the mathematical expressions of the constraints mentioned above will take the following shape:
- R≥5,000
- D≥1,500
- SD≥2,500
- C≤2,000
- A≤3,000
- Pi≤2,500
- Pe≤3,000
- H≤2,000
According to the outcomes of the analysis, the organization will be able to attain the $51,625 level of profit contribution with the stated amount of products being required to order. There is, thus, no necessity to increase the number of cashew nuts shipped.
Profit Contribution Increase: Recommendations
Defining the tools for profit contribution, one must mention the fact that the storage conditions for the product in question could use a major improvement (Cleland, 2013). Particularly, one must bear in mind the fact that the types of nuts that the company sells to its target customers require different humidity and temperature rates (Nuts: Safe methods for consumers to handle, store, and enjoy, 2014).
Even though the specified products can be kept at an average temperature of 0° C degrees for a comparatively long time period, the provision of unique conditions per each product type is likely to increase the shelf life of each significantly (Estimates of shelf‐life of raw nuts held at different temperatures, 2015, p. 2). As a result, the profit margin of the organization can be increased greatly seeing that the variable cost per unique is likely to drop.
In addition, the tool such as the redesign of the resources use strategy needs to be brought up as a possible method of increasing the profit contribution of the company. Indeed, the reconsideration of the current approach towards the use of the company’s resources can be used to reduce the costs taken in the course of production processes. Specifically, the transportation costs need to be reconsidered; for instance, the firm may use the services of other partners to deliver the raw materials (Fleischmann & Klose, 2012).
Additional Purchase: Recommendations
Based on the current data, it will be unreasonable to suggest that the company should buy additional 300 kg of almond nuts for 3,000 Dhs. Even though the company has an increasingly large number of orders from a range of customers and the current mix requires a rather impressive number of almonds, having a surplus thereof will not be necessary as the firm already has 3,000 kg of the required 2,625 kg. Indeed, a closer look at the current mix standards and the number of almonds that the company has in possession will reveal that refraining from buying extra would be a sensible step to take.
Although having a surplus of the components required for the production of the mix might seem a reasonable step to take in light of the fact that certain losses may occur in the course of transportation or production, buying extra will trigger additional costs inevitably due to the need to redesign the environment in which the product is being stored. Indeed, as it has been stressed above, the current storage issues may be affecting the shelf life of nuts in a negative manner due to uniform storage standards (e.g., temperature, humidity, etc.).
Seeing that the company may take costs due to customer dissatisfaction rates growth, spending its financial resources on the improvement of storage issues is not a priority at present. However, until the specified issues are addressed, acquiring extra raw materials will cause significant costs due to short shelf life thereof. Thus, the purchase of almonds is no required at present.
Possible Failure: Recommendations
In the instance of failing to complete all orders, the firm should view the possibility of delaying orders with the options for clients such as partial refunds or extra products as a means to compensate for the time spent on waiting. One must also admit that not all customers may be happy about the changes in the product mix of the organization. In other words, the redesign of the current mix may fail to satisfy some of the more conservative denizens of the target population; in addition, the changes in the ratios of nuts added to the mix may confuse some of the clients. Finally, the taste of the new product may seem unpleasant to some customers.
Therefore, the firm needs to consider the possibility of losing some of its loyal clients, which may pose a threat to the overall well-being of the firm and, therefore, jeopardize its performance, not to mention its popularity among the target clientele.
In case the new product delivered by Alrifai fails to satisfy the needs of some of the clients the company should consider the creation of a rather aggressive promotion campaign and the design of a new brand product with a very strong brand image. Particularly, the organization should consider putting a very strong emphasis on the aspects of the product such as the unique flavor, its healthy properties (e.g., lower rates of fats in the end product), etc. As a result, the customers are likely to accept the changes to the traditional product and be eager to explore the new opportunities that the specified mix has to offer.
Reference List
Cleland, K. N. (2013). Improving profit: Using Contribution metrics to boost the bottom line. New York City, New York: Apress.
Estimates of shelf‐life of raw nuts held at different temperatures. (2015). Web.
Fleischmann, B., & Klose, A. (2012). Distribution logistics: Advanced solutions to practical problems. Gallen: Springer Science & Business Media.
Hasen, D., & Mowen, M. (2012). Cornerstones of cost management. Stamford, Connecticut: Cengage Learning.
Nuts: Safe methods for consumers to handle, store, and enjoy. (2014). Web.
Varkley, P. (2010). Medical quality management: Theory and practice. Sudbury, Massachusetts: Jones & Bartlett Learning.