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MGMT-6082 Domestic And International Sourcing

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  • Course Code: MGMT-6082
  • University: Fanshawe College
  • Country: United Kingdom

Question:

Robots Everywhere Corporation (REC) is a small industrial equipment company located north of Boston.  It was founded in 1990 by recent engineering graduates who had a dream of making robots a common house hold item.  REC designs and builds robots. It uses technology in navigation, mobility, manipulation and artificial intelligence to build robots.  Their robots have been used for many uses including space exploration and bomb detection.  The company has two segments: Defense and Security Robots and Remote Presence Robots.  Recently it was decided to enter a new segment: Home Robots.  In particular the marketing department decided to focus on domestic, residential cleaning to exploit the booming growth in household machines and an increasing demand for items that allow people to accomplish more in their daily lives.  The company, recognized as a well-established robotics company offering military and research products focusing on the space and defense sector has grown from a single product manufacturer with annual sales of  $180,000 to a multi-product manufacturer $50 million firm in a little over ten years.  Robots Everywhere has a strong reputation for manufacturing high quality products with on-time customer delivery.  The company also emphasizes state-of-the-art technology in its product design, production, information, and delivery systems.

REC’s decision to enter the home residential cleaning market occurred in 2001.  In particular the marketing department decided to focus on domestic, residential cleaning to exploit the booming growth in household smart gadgets and an increasing demand for items that allow people to accomplish more in their daily lives.  Although Robots Everywhere Corporation was not in the residential cleaning business the company decided to pursue an aggressive strategy of selling high quality robotic vacuum cleaners at affordable prices.  The robotic vacuum cleaner is called the Zumba.  The Zumba is a compact, computerized vacuum cleaner that automatically guides itself around your home.  Like a conventional cleaner, it picks up dirt with spinning brushes and a vacuum.  There’s a side-mounted, flailing brush that pushes dirt underneath the machine and, once there, two more counter-rotating brushes pick up the dirt and direct it to the vacuum which sucks it away into the storage bin.    The Zumba moves itself around your room with two large wheels.  Power comes from a NiMH rechargeable battery pack.  When it’s finished it goes back to its docking station and recharges for next time.

REC is not the first company to manufacture a robotic vacuum cleaner.  However, the product is fairly new and it is fairly difficult to forecast the sales of the Zumba. REC is betting that in starting in 2002 the robotic vacuum cleaner industry will grow at a slow but steady state as consumers upgrade their regular vacuums with robotic vacuums with the predicted slow but steady growth in the economy.   This decision poses some risks, given that there is a “mixed bag” of opinions regarding the growth of the electronics sector in 2002.  The decision was made to pursue the residential vacuum user, through a strategy focused on shipping low-cost, high-quality robotic vacuum cleaners through large retailers who focus on electronics and other residential appliances and other residential products.
 
 

Answer:

Immediate issue

Any ethical problem challenge or opportunity facing decision makers at any given time is referred to as immediate issue (Ferrell & Fraedrich, 2015). The immediate issue in the Robots Everywhere Corporation (REC) is the decision to enter a new segment of making home Robots. The decision to enter into the home Robots making has brought about a different dependent issue. It has led to the executive making the decision of Outsourcing some of the assembly parts to other companies such as the Power battery. After the decision to outsource the contract of supplying the NiMH Battery, another issue arose. This is the growth in demand of the NiMH Battery. This is because of the use of the battery by other industries such as remote controlled cars, the video game among others.

Stuational analysis

This is the process of analyzing the internal and external business environment so that to have information on the customers and the business capabilities (Bull et al, 2016). It is also referred to as SWOT analysis

Strengths- These are the features that helps a business function effectively and efficiently over the competitors (Culp et al, 2016). The strength of the Robots Everywhere Corporation (REC) are as stipulated below:

  • Presence of large retailers who offer shipping of electronics at a low cost will help in the shipping of low cost high quality robots
  • The good and strong reputation of the company in making products of high quality and delivering goods on time to customers gives the company an upper hand in the home Robots manufacture business.
  • Use of state- of- art technology in the manufacture of the Robots.

Weaknesses- These refers to the areas where there is room for improvement by the company (Taghavifard et al, 2018). The areas that Robots Everywhere Corporation (REC) has not done very well and can still improve includes the following:

  • Outsourcing of some of the assembly parts. Robots Everywhere Corporation (REC)  should be self-sustained with all the required assemblies being manufactured within the company and utilize the economies of scale factor

Opportunities- These refers to the market trends in which a company can take advantage of to improve on the profit margins (Samuels, 2017). Robots Everywhere Corporation (REC) can take advantages on the following market trends to improve on its sales

  • The need for people to accomplish their lives more has led to increased demand in domestic purposes use machine hence the demand for the home robot is bound to increase.
  • The home Robot is a new product in the market and hence with good advertisement, the company can make good sales.

Threats- These are either internal or external factors that can adversely affect the business of the company (Alvarez et al, 2016). One of threats of Robots Everywhere Corporation (REC) are:

  • Increased demand of the Power battery may surpass the supplier capacity leading to inadequate supply to the company hence being unable to meet the demand for the home robots. This can lead to lass of customer goodwill and the hard earned customer reputation over years.
 

The financial risk analysis

Any threat to the financial status of a company constitutes the financial risk (Bhalla, 2014). These may include the loans and loan defaults, financial transactions among others. The company is outsourcing the Power battery for the home robot. The basis of the order placed for this batteries is on estimation basis. The fact that the demand for the home Robot is volatile could lead to a financial risk. This is because they could place an order of so much batteries as they make the robots. If the demand of the robots does not hit the predicted value, the financial transaction of the outsourcing the batteries contract can be a potential financial risk. From the analysis table below, YNC has the highest probability index hence it is the most preferable as it has the lowest financial risk in terms of the financial transactions. In terms of the exposure to debt, champion has the least long-term debt to equity ratio and therefore most preferable as it has the least financial risk in these terms.

 

Selected Financial Ratios

 

YNC  

 

Power USA

 

CATL

 

Champion

 

Asset Utilization:

Asset Turnover = Sales/Assets

Inventory Turnover = Cost of Sales/Average Inventory

Receivable Days = Accounts Receivable/Sales X 365

Payable Days = Accounts Payable/Sales X 365

 

 

 

0.8385

 

1.29

 

48.85

 

38.63

 

 

1.572

 

3.45

 

61.03

 

40.33

 

 

1.476

 

0.45

 

46.36

 

27.42

 

 

1.571

 

0.81

 

29.86

 

49.77

 

Capitalization:

Leverage = Assets/Equity

Return on Equity = Net Income/Equity = Profit Margin X ATO X Leverage

  Long-term Debt to Equity = Long-term Debt/Equity

Long-term Debt to Assets = Long-term Debt/Assets

Current Ratio = Current Assets/Current Liabilities

Quick Ratio = (Cash + Short-term Inventory + Accounts Receivable)/ Current Liabilities

EBIT Coverage = Earnings Before Interest and Taxes/Interest Expenses

 

 

 

 

2.00

 

0.43

 

0.32

 

0.16

 

1.16

 

1.09

 

 

10

 

 

2.30

 

0.27

 

0.43

 

0.18

 

1.27

 

1.09

 

 

7.25

 

 

2.58

 

0.52

 

0.65

 

0.25

 

1.22

 

1.15

 

 

6.75

 

 

1.92

 

0.25

 

0.25

 

0.13

 

1.34

 

1.26

 

 

5.05

 

Profitability Ratios:

Contribution Margin = (Sales - Variable Cost)/Sales

Profit Margin = Net Income/Sales

 

 

 

0.3

 

0.18

 

 

 

0.125

 

0.076

 

 

0.25

 

0.14

 

 

0.15

 

0.084


Analysis of total cost

This refers to all the functional costs incurred by a company throughout the entire product life (Boardman, Greenberg, Vining, & Weimer, 2017). It is crucial in determining the total cost of a decision.

First year total cost

 

Category

 

YNC

Power USA

 

CATL

 

Champion

 

Quoted Unit Price

 

$48

 

$50

 

$45

 

$51.50

 

Transportation

 

$8

 

$8

 

$8

 

$3.00

 

Tooling

 

$2.6

 

$2

 

$1.8

 

$2

 

Quality non-conformance costs

 

$1

 

$1.875

 

$2.375

 

$2.625

 

Duties/customs, insurance, and tariffs

 

$6.5

 

$0.50

 

$5.75

 

$0.75

 

Ordering, inbound receiving and inspection costs

$1.25

 

$0.50

 

$2.25

 

$2.75

 

Total unit cost

 

$67.35

 

$62.875

 

$65.175

 

$62.625


Table 2

The Supplier evaluation and selection analysis

Choice of the best supplier is very crucial in business continuity and profit maximization. One of the method of doing this is the weighted average method as shown below.

 

Supplier

YNC

Power USA

CATL

Champion

Parameter /Weight out of ten weight

Flexibility

5

6

8

7

 

Responsiveness on demand

5

9

3

7

 

Historical records

9

9.5

7

8

 

Performance in terms of quality

8

6

4

2

 

 Volume capacity

9

7

9.5

6

 

Delivery performance

5

8

5

8

Total score

 

41

45.5

36.5

38


Table 3

According to the weighted analysis method, Power USA Company should be chosen to supply the Power battery

 

References

Alvarez, S., Carballo-Penela, A., Mateo-Mantecón, I., & Rubio, A. (2016). Strengths- Weaknesses-Opportunities-Threats analysis of carbon footprint indicator and derived recommendations. Journal of cleaner Production, 121, 238-247.

Bhalla, V. K. (2014). Financial Management. S. Chand Publishing.

Boardman, A. E., Greenberg, D. H., Vining, A. R., & Weimer, D. L. (2017). Cost-benefit analysis: concepts and practice. Cambridge University Press.

Bull, J. W., Jobstvogt, N., Böhnke-Henrichs, A., Mascarenhas, A., Sitas, N., Baulcomb, C., & Carter-Silk, E. (2016). Strengths, Weaknesses, Opportunities and Threats: A SWOT analysis of the ecosystem services framework. Ecosystem Services, 17, 99-111.

Culp III, K., Eastwood, C., Turner, S., Goodman, M., & Ricketts, K. G. (2016). Using a SWOT Analysis: Taking a Look at Your Organization [2016].

Ferrell, O. C., & Fraedrich, J. (2015). Business ethics: Ethical decision making & cases. Nelson Education.

Samuels, A. (2017). The future of Jungian analysis: strengths, weaknesses, opportunities, threats (‘SWOT’). Journal of Analytical Psychology, 62(5), 636-649.

Taghavifard, M. T., Amoozad Mahdiraji, H., Alibakhshi, A. M., Zavadskas, E. K., & Bausys, R.

(2018). An Extension of Fuzzy SWOT Analysis: An Application to Information Technology. Information, 9(3), 46.

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