Using the data in Table 1, explain how you would use appropriate methods of analysis such as regression analysis or correlation analysis to analyze the effect of order size and product variety on the productivity and cost structure of the Lexington plant

Chapter Of - Cost Extimation 8-3 Hospitality Products, Inc. Hospitality Products, Inc. (HPI) is a manufacturer of cosmetic soop products with plants located throughout North America and customers worldwide. "There is no doubt that the need to continue in yoow soles is an important corporate chjadine and one which we need to always have in mind," remarked Anton Lagarde, managing director. "Not only is this important in terms of continuing to marcase ales revenue overall but it is an casertial part of our commitment for nod year's budget Residing yooup pressure and allowing ourselves this time to beat the market for other new segments has brought come onkr into this phase of our development. The segment penetration achieved so far and the opportunity to build on this mat successful initiative mugers well for the future. Thank you, George, for a comprehensive summary of the market result to date concluded Anton. "I seems as though this initiative is one which will help us meet out short and longer term objectives." Arion Larayde's summary concerned a strategy overview provided by George Martin, markding director of the company. MARKETING STRATEGY During the put in years HPI has successfully developed a line of soap products in small packages that it has marketed in large hotel chains. The hotels place the small hand soap terra and shampoos and conditioners in hall nokara for the convenience of their guesix. HPI has introduced a product that is attractive to these botch because of HIP's careful choice of fragrances and attractive packaging. These products, with the hotel's name embossed on them, are a strong positive statement about the quality of the hotel's service. HIP has achieved a strong market position in the industry by taking a high-and approach in its product, an approach which has served it well in reccul years. The company concentrated its efforts in selling to the top twenty hotel chain in North America. By limiting its marketing efforts to a relatively fewr, very large multi-outlet chains (which have centralized purchasing groups), the company achieved low marketing and selling casts but high market portration. Last year the company reached a market share of 68% in the large hotel chain market and, in turn, relatively large customer order rises. Two market segments are evident in the large hotel chain market In the first Icalled the value-added segments customers buy the company's product primarily because of its advantage in fragrance and attractiveness of the product. Frequently, the boll operations personnel in this segment are active in making the buying decision. The second segment is referred to an being price sensitive as the customers purchase these products primarily on the basis of price. For these customers, purchasing managers are the key decision-makers in the buying decision RECENT COMPETITION HPI's recess in the hotel chain market has attracted an increasing number of competitors into the market While the company had been wry successful in bringing out a wries of new product types with innovative packaging, new fragrances and other features ( moisturizing lotion content...) for the brick, the competitors have eventually been able to develop quite similar products. The result has been increased competition with a substantial reduction in HPI's prices (dropping 14 bot year, and a major decline in the firms' profit margin The size of the price renaitive segment is growing rapidly while the value-added market segment is shrinking in sure. The company faces an increasingly competitive market situation characterized by significant zuccas producer capacity. WHOLESALE MARKET INITIATIVE Asa reout of the increased competition in the hotel chain market, George has proposed to begin to a focus on the scull inckpoorkent hotels, models, and BAR's (Bled and Breakfast Iras) that purchase the soap products from large wholewak distributors. The potential sales for this wholesaler segment is about the same siac as the boil chain marked (20 billion room-acts per year versus 25 billion room-acts per yearp. A mom-act is a packet of soap, shampoo, and conditioner. While customers usually orkr the same quantity of scop, shampoo, and conditioner, some bay only one or two of these products. Therefore, HFIadls the map, shampoo, and conditioner separately, in 14-unit cars. The Whalesde weyment includes a much barger number of independent customers. At this time less than 15 of the scop coca-acts sold in the wholesale market are of the quality of HPI's poochact. The independent hotel's differ from the large hotel chains in that they purchase their boil soap naim-acts from wholemakes and distributors. Compared in the hotel chains, there are muny more independent hotels widely dispersed ower a large yougraphical area. The piled marketing studies run last year by HPI indicate that the customer order sizes for the wholewake segment tend to be relatively small, and that the cumber of different product variations in terms for example of fragrance, packaging, and sire ) tend to be relatively large in comparison with the large hotel chain market. These studies aloo indicate that prices (and corresponding profit margins are much higher than in the price-sensitive segment currently served by the company. Ikocher, Stout, Juras, 5mick Con Mannagrawer Kin