Costs May Be Sunk, but They Aren’t Forgotten
You are the manager of the tire manufacturing subdivision of Uniyear Diversified Products.
Last year, you were successful in convincing corporate executives that your division needed
to purchase a new warehouse facility costing $40 million to house raw materials. You argued
at the time that you could be much more productive if delays in getting materials from
suppliers could be eliminated.
During the past 18 months, your company has worked hard to implement a number of
innovative programs to improve its production operations. One of the improvements includes
placing online terminals at key supplier locations. As a result, the lag time in getting the raw
materials the company needs has dropped from an average of four weeks to six hours.
Your problem now is that you no longer need the $40 million warehouse. It is a sunk
cost. However, you are afraid that if you reveal that fact to the corporate executives, they
will penalize or even fire you for being so shortsighted.
Draft a one-page memo to the president of Uniyear Diversified Products that explains
why the $40 million warehouse is no longer needed. Remember that the memo has two
purposes: to inform the president that the warehouse is no longer needed and to do so in a
way that doesn’t cost you your job.