Eco 550 Week 2 Operation Decision Paper

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Operation Decision for Company A Dr. E. T. Faux ECO 550 Strayer University Quinton Fuller Brief Business Description Company A is based in Ohio and it manufactures headphones. Since the plant is based in the U.S., it encounters higher cost than its peers. The headphone is sold for $32 each and the firm only makes $2 per headphone or 6.25% gross margin. Company A is employing 100 workers, including both administration personnel and production line workers. Currently, the firm’s total costs exceed its total revenue and needs to make a decision as to whether it should shut down completely or continue its operations. Current Environmental Scan Factors and Impacts In order to make the decision to continue or discontinue operations,…show more content…
There are many ways to do so. Susan Schreter (2008) recommends three simple steps to improve profitability. The first one is to cut out unprofitable products and services. Company A’s current product is generating $2 per piece, which is not enough to cover the variable cost, so the firm is losing money making this current product. Therefore, company A needs to stop making this product. Although we can argue that if company A could reduce the cost dramatically, it can become profitable. However, as the demand of its headphones is shrinking and there are so many suppliers (due to low barrier of entry), there will be great price pressure on the product, as explained by William F. Samuelson and Stephen G. Marks (2010). The price reduction may over shallow the possible cost reduction the firm could achieve. Susan Schreter’s second step is to target new customers from within groups. This tip can be useful for company A. It mentioned earlier that people now use iPod/iPhone headphones most of the time. Company A could join its peers to make these headphones. However, that market is high competitive and almost commodity-like. Company A would need to consider reducing its labor force or even moving its operation to low cost-region in order to be competitive in the iPod/iPhone headphone market. Another new customer group is the people who use noise-cancellation headphones. There are limited players in this market. Also, the quality of noise cancellation headphones vary a lot and the customers are willing to pay higher price for good product. In other words, this is not a commodity market as regular headphones. If company A can switch to produce noise-cancellation headphones with good quality at a reasonable cost, it can compete in the market and make a decent
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