Question
Mr. Emad has just returned from USA with new vision for taking decision regarding production process or any other operations. In his opinion, the learning
Mr. Emad has just returned from USA with new vision for taking decision regarding production process or any other operations. In his opinion, the learning curve and learning rate of workers are critical factors in deciding the profitability of any production plan. Moreover, he believes that it's very important to enhance the learning and skills of the workers and to have a yearly estimation for the learning curves of the company. Having such information may help any production manager in estimating the profitability of any given contract or offers or in planning any production lines. Mr. Emad has recently accepted a position as production manager for the Blue Ski Company BSC.
Shortly after starting his new job, the president of the company approaches Emad with critical problem currently facing the company. The president gave the full authority to Emad to take the decision without referring to him. The problem is summarized in the following: the company has to satisfy a high demand of 60 units (very complicated unit) within two weeks. As they are in a shortage of time and labors, they have decided to subcontract most of their units. High-Mountain Company, XZ-Company and Al-Anash Company have offered to subcontract for the BSC. The following tables provide some information about the three subcontract offers:
Table (1.1) | |
High-Mountain Company | |
Cumulative production | Unit cost ($) |
10 | 11000 |
20 | 9120 |
30 | 8340 |
40 | 5600 |
50 | 4300 |
60 | 3120 |
70 | 2900 |
Table (1.2) | |
XZ-Company | |
Cumulative production | Unit cost ($) |
10 | 13000 |
20 | 11000 |
30 | 9400 |
40 | 8100 |
50 | 7300 |
60 | 5000 |
70 | 4600 |
Table (1.3) | |
AlNash Company | |
Cumulative production | Unit cost ($) |
10 | 15000 |
20 | 13000 |
30 | 11000 |
40 | 9700 |
50 | 8400 |
60 | 7100 |
70 | 6400 |
Table (1.4) Information on the learning curve for the three companies
Company's Name | Learning rate | Time of the first unit (in hours) |
High-Mountain | 95% | 15 |
XZ-Company | 91% | 13 |
AlNash | 89% | 11.5 |
The company can select two or more offers. At the end the units should be ready for BSC-Company within two weeks and with a minimum cost to maximize the company profit. Any delay in any unit, BSC-Company will be charged by $50 per unit. The price per unit is $410 and the fixed costs of the company include the following:
Table (1.5): Workers at Unit-X1
Rents | Electricity and other bills | Salaries and other expenses |
$400 | $100 | $1000 |
Based on the above information, what do you think Emad's decision will be?
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