Introduction
Operations decision-making is one of the major functions carried out by company’s management. Most of the decisions determine on whether a company should stop producing a certain product, increase production of a certain product, maintain the current level of production or reduce the current level of production (McGuigan, 2008).
The process of productivity involves conversion of raw materials into the outputs that are desired by the consumers based on their specified quality. In this paper, the main aim is analyzing whether our company should continue with its operations or pull out of the operations through calculations and analysis the market trends (Frankel, 2008).
Details of the Company
This is small company less than 5 years old with a total of 100 casual laborers employed in the production units. The company is engaged in the production of paper and paper related products like books, envelopes, box files, cartons among other products.
The company raw materials come from old and used papers with heavy reliance on wood for its production. The company faced by tough competition from the other growing and established manufacturers in the same region.
Environment Scanning
Environment scanning is the possession and application of information concerning proceedings, trends, and interaction in an entity’s external environment, the understanding of which would help management in forecasting the organization’s upcoming course of action.
Entities scan the environment in order to understand the exterior forces of adjustments so that they can develop effectual responses which safe guard or improve their current position in the coming future.
These environmental factors include their competitors, customers, political governance that is political stability and laws governing trade, technology, suppliers, their employees, company image and products quality, and the company’s financial position.
Financial Position
The company’s financial position as at the moment (as stated in the financial summary given in the question) is poor since the total costs of production exceeds the total revenue. When the total costs exceed the total revenue then the company is operating at a loss and cannot finance its operation due to its debts. For a company to be in a sober financial position, its total revenue must overweigh the total cost arising from its operations.
Total Revenue 6,000* $32= $ 192,000
Less: Wage Cost per Month 100* $70* 20 = $ 140,000
Variable Cost per Month $2,000* 20 = $ 40,000
Gross Revenue $ 12,000
Recommendation on Improving Profitability
This company may improve its profitability through reimbursing employees for mileage, provision of insurance allowances for employees, dropping non-performing units, expanding the product line, updating the client’s base and diversifying their products.
Reimbursing employees for mileage instead of providing them with company cars will save the company on acquisition cost, insurance cost, maintenance cost and other cost and hence increase the profit of the company.
The company should reduce time and costs by shipping products directly from the vendors to its customers; this reduces the storage costs, rent cost and insurance cost since these costs consume the company’s end of the period profits (Brown, 1971). Company should provide insurance allowances to its employees other than offering group health cover.
Small companies cannot often afford giving health insurance to its employees but the company can provide benefit to its employees by pulling together some money for the employee’s insurance costs. This will save the company’s money and increase the productivity of the employees, which lead to a higher profitability.
Circumstances that Make a Company Stop Operations
Cash Flow
Cash flow problems involve cash flows in and out of the company; this is one of the major problems that will make the company stop its operations (McGuigan, 2008). Cash flow enables the company to cover its short and long-term liabilities effectively and also used to determine the ability of a company to pay its debts. The management should make sure that the company is having a positive cash inflow from its selling activities.
Fall in Demand of the Company’s Product
There are numeral reasons as to why demand for the company’s product might fall. Some of the reasons might be due to the business not taking keen interest in customers’ needs through producing poor quality goods and overpricing their products.
Falling sales indicate that there is something wrong with either the product or the pricing. Fall in sales might also be due to the increasing competition from other companies offering the same product or supplements (Brown, 1971). The company management needs to note the trends of sales in order to know the type of action to take and the appropriate time for the action.
Conclusion
From the above analysis, this company is undergoing financial distress and can be easily termed as bankrupt, which may result to dissolution in order to pay its liabilities. A company needs to regularly carry out a market research to determine what the company is not offering to its customers, realize its competitive advantage, the threats and opportunities it holds in the market, and its strength and weaknesses.
References
Brown, R. G. (1971). Management decisions for production operations. Madison: Dryden Press.
Frankel, E. G. (2008). Quality decision management. London: Springer Verlag.
McGuigan, J. R. (2008). Managerial economics: Applications, strategy, and tactics (12 ed.). Manson, OH: south-Western Cengage Learning.