DECISIONS REGARDING PLANT EXPANSIONS
- Efficient program in expansion. Obtaining UTILITIES and long-term development.
Consider the products to be prepared previously and the investment recovery rate.
decisions-regarding-plant-expansions-1Production and finance staff.
Decisions about production are based between the increase in profit and the capital employed.
Financial decisions are based on the index of financial operations.
First step: determine whether or not the plant expansion will increase the recovery of the capital that has been invested.
After approval from technical manufacturing personnel, financial plans are drawn up.
ANALYSIS OF THE PROFITABILITY OF A PRODUCT
Profitability: It is the result of the production process.
Positive result, the company earns money (profit).
Negative result, the company has losses.
Therefore a review of the strategies has to be made, if no corrective is applied:
DISCONTINUE THE PRODUCT.
General Motors, "We are in the business of making money, not cars"
The company makes money and therefore is profitable, so it must satisfy the needs of its consumers better than the competition.
The experience of quality-oriented companies is that:
A superior quality product with integrity in business, profits, market share and growth will come in addition.
ANALYSIS OF PROFITABILITY IN THE MARKET
How is the profitability of a product calculated or estimated?
Usually, those who buy expensive products compare the performance characteristics of different brands and pay more for better performance, as long as the increase does not exceed the highest perceived value, in short, the customer will always be looking for the price-value ratio..
Strategic planning studies the impact of higher relative product quality, which equates to performance and other factors that increase value, and found a significant and positive relationship between relative product quality and return on investment.
Example: in a sample of 500 medium-sized businesses, those with low-quality products earned 17%; those of medium quality 20% and those of high quality 27%.
Likewise, companies must continuously improve the product, which usually generates a higher recovery and market share.
An example of the aforementioned is the case of PROCTER & GAMBLE, a company that stands out for the practice of improving products, which, together with their high initial performance, helps explain why they are at the forefront of many markets..
Another important aspect of product performance is preserving product quality. Many companies do not change initial quality unless they find highly visible defects or exceptional opportunities, and others deliberately reduce it to increase their profits, albeit the long these usually affect profitability.
The company must use at least one (or all.) Of the following strategies to determine its quality policies that will determine its profitability:
Compliance with specifications. The degree to which the design and characteristics of the operation are close to the desired standard.
Durability. It is the measure of the operational life of the product. For example, the company VOLVO guarantees that the products they manufacture have the highest average lifespan and therefore their high price.
Safety of use. The manufacturer's guarantee that the product will work well and without fail, for a certain time.
PRIMARY FACTORS THAT INFLUENCE PROFITABILITY
INVESTMENT INTENSITY.
PRODUCTIVITY.
MARKET SHARE.
MARKET GROWTH RATE.
PRODUCT / SERVICE QUALITY.
DEVELOPMENT OF NEW PRODUCTS OR DIFFERENTIATION OF COMPETITORS.
OPERATING COSTS.
EFFORT TO ON SUCH FACTORS.
INDUSTRIAL COMPETENCE
STRONG AND NUMEROUS COMPETITORS.
STABLE OR DECADING SEGMENT.
GREAT CAPACITY INCREASE.
HIGH FIXED COSTS.
CONSEQUENCES: PRICE WAR, ADVERTISING BATTLES AND INTRODUCTIONS OF NEW PRODUCTS, INCREASE IN THE VALUE OF THE PRODUCT.
POTENTIAL PARTICIPANTS
ATTRACTION OF COMPETITORS WITH NEW CAPACITY, SUBSTANTIAL RESOURCES AND INCREASED PARTICIPATION.
ATTRACTIVE OF A MARKET IN FUNCTION TO THE DIFFICULTY OF PENETRATION TO THE MARKET.
AN ATTRACTIVE SEGMENT WITHOUT BARRIERS.
DECISIONS REGARDING LINE CLOSURE
A standard direct cost system provides four elements that facilitate decision making:
- Defines the separation between direct and fixed expenses Exact estimation procedures to predetermine direct costs of products. Efficient method to determine specific additional fixed costs that could be needed for the purchase of a given good. Logical bases to calculate the additional capital that would be necessary to that a given good would be the same as if it were bought from an external seller.
Many companies have formed committees that are responsible for making decisions to withdraw a product line or products from the market and are integrated with representatives of the interested departments.
DECISION-MAKING PROCEDURE:
Specify the different processes, operations and current tools that are being used.
Production control that estimates the required quantities.
The product has a captive market that gives us the possibility of generating wealth.
The product is being accepted by our clients, based on quality and price.
The cost analysis section makes a preliminary breakdown of the offers, using appropriate formulas to set prices.
Comprehensive detail of specifications, roadmaps and tool orders are prepared.
The production makes an accurate forecast of uses and evaluates the available capacity.
Industrial Engineering makes a better application of data and material orders. Provides the estimate of the cost of facilities and tools.
Quotes are obtained from external vendors.
The commission that makes the decision to withdraw or replace the product reviews the background and gives its verdict.
The control office reviews the results, and indicates about deviations produced in the commission's estimates.
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