Wong Instruments manufactures specialized surgical equipment for hospitals and clinics throughout the world. One of Wong's most popular products, comprising 40% of its revenues and 35% of its profits, is a blood pressure measuring device. Average production and sales are 400 units per month. Wong has achieved its success in the market through excellent customer service and product reliability. The manufacturing process consists primarily of assembly of components purchased from various electronic firms, plus a small amount of metalworking and finishing. The manufacturing operations cost $600 per unit. The purchased parts cost Wong $800, of which $300 is for parts which Wong could manufacture in its existing facility for $100 in materials for each unit, plus an investment in labor and equipment which would cost $175,000 per month. Also, Wong is considering outsourcing to another firm, Wena Tech, Inc., the marketing, distribution, and servicing for its units. This would save Wong $75,000 in monthly materials and labor costs. The cost of the contract would be $125 per product. Required: (1) Prepare a value chain analysis for Wong to assist in the decision whether to manufacture or buy the parts, and whether to contract out the marketing, distribution, and servicing of the units. (7 marks) (2) Should Wong continue to: (a) Purchase the parts or manufacture them? (b) Provide the marketing, distribution and service, or outsource this activity to Wena Tech? Explain your answers. (3 marks) Example: Value-Chain Analysis in Computer Manufacturing Value Activity Option One - Current Option Two - Potential Acquiring raw CIC is not involved at CIC is not involved at materials this step this step Manufacturing CIC is not involved at CIC is not involved at computer chips and this step; cost is $200 this step; cost is $200 other parts Manufacturing CIC purchases $300 of CIC manufactures these components, some of parts for each unit units for $190 per unit which CIC can make plus $55,000 monthly Assembling CIC's costs are $250 CIC's costs are $250 Marketing, distributing, CIC's costs are CIC contracts out these and servicing $175,000 per month services for $130 per month Wong Instruments manufactures specialized surgical equipment for hospitals and clinics throughout the world. One of Wong's most popular products, comprising 40% of its revenues and 35% of its profits, is a blood pressure measuring device. Average production and sales are 400 units per month. Wong has achieved its success in the market through excellent customer service and product reliability. The manufacturing process consists primarily of assembly of components purchased from various electronic firms, plus a small amount of metalworking and finishing. The manufacturing operations cost $600 per unit. The purchased parts cost Wong $800, of which $300 is for parts which Wong could manufacture in its existing facility for $100 in materials for each unit, plus an investment in labor and equipment which would cost $175,000 per month. Also, Wong is considering outsourcing to another firm, Wena Tech, Inc., the marketing, distribution, and servicing for its units. This would save Wong $75,000 in monthly materials and labor costs. The cost of the contract would be $125 per product. Required: (1) Prepare a value chain analysis for Wong to assist in the decision whether to manufacture or buy the parts, and whether to contract out the marketing, distribution, and servicing of the units. (7 marks) (2) Should Wong continue to: (a) Purchase the parts or manufacture them? (b) Provide the marketing, distribution and service, or outsource this activity to Wena Tech? Explain your answers. (3 marks) Example: Value-Chain Analysis in Computer Manufacturing Value Activity Option One - Current Option Two - Potential Acquiring raw CIC is not involved at CIC is not involved at materials this step this step Manufacturing CIC is not involved at CIC is not involved at computer chips and this step; cost is $200 this step; cost is $200 other parts Manufacturing CIC purchases $300 of CIC manufactures these components, some of parts for each unit units for $190 per unit which CIC can make plus $55,000 monthly Assembling CIC's costs are $250 CIC's costs are $250 Marketing, distributing, CIC's costs are CIC contracts out these and servicing $175,000 per month services for $130 per month
