Question 1
The recommendation to build a cartridge manufacturing plant is misinformed as there are significant intangible costs associated with the build option. Most of the employees are inexperienced as they have no previous exposure on operating a cartridge manufacturing plant. The lack of experience amongst the employees would reduce their productivity that would be reflected in poor performance and increases in the costs of operations for the firm. It would also led to low capacity utilization of the new plant thereby reducing the contribution of the firm’s assets to performance (Baxendale, 2004). Most of the employees would require to be trained and inducted into the operations of the cartridge manufacturing plant. Such engagements require time and would impact negatively on the bottom lines of the business.
Also, the lack of experience amongst the workforce would limit the firm to any access to specialized knowledge and skills in the operation of such a plant (Kaku & Kamrad, 2011). The limitation would impede the development of any innovative and creative ideas that would further place the firm at a disadvantage due to considerations like competition and rivalry in the market.
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Further, the building of the plant is capital intensive in nature and would consume significant resources of the business. However, the limitations being experienced by the firm implies the choice would be suboptimal as the realities of inexperience and low utilization of capacity places the firm at a disadvantage (Lynch, n.d).).
Question 2
One of the most problematic issues is deciding whether to make the buy or build decision using the Net Present Value (NPV) or the payback period method. For instance, if the acquisition of Genie Tech takes place, the payback period will be 4.8 years assuming that the production of 4.6million cartridges will be constant or 3.04 years in consideration of increasing volumes. The net present value will be positive in the fourth year indicating the acquisition decision is viable from the fourth year.
The other option of purchasing new machine and then diversifying organically seems plausible as the funding is not an issue as the company’s net profit was £6.6 million and the funding required is £3.6 million which is significantly lower and the company can afford. The payback period is around 1.3 years after purchasing 4 machines. However, a purchase of 8 machines like those used by Genitech would increase the payback period to between 2.4 and 2.6 years.
It reveals that the purchase or acquisition of Genitech is suitable under the payback period point of view. The three year payback period is not very far from the payback period of 2.4 years associated with the purchase of new machines. Also, the backward integration option of acquiring is better in comparison to the purchase of new machines. Through the acquisition, the company will not be needed to invest further resources in the development of core competencies for operating the cartridge plant as the competencies will be available through the acquisition (Rebs& Brandenburg, 2018). Also, the acquisition will save the company the need to develop further competencies in managing the supply chain.
On the contrary, the acquisition of new machines does not appear to be a misinformed idea considering the period of five to ten years from a net present value approach. The acquisition of new machines appears better that the acquisition of Genitech as the monetary values involved is £31million versus £17.4million. The only challenge that comes with the acquisition is the lack of core competencies to manage the supply chain activities.
Question 3
Harrington & O'Connor (2009) reveal crucial aspects of risk management that have significant impacts on the decision to build the plant in house. The decision to build would impact negatively on the company’s ability to conduct business continuity programming activities. The effort requires the firm to focus on the members of its supply chain like other manufacturers and suppliers.
However, the build decision would place the company at crossroads as it does not have any relationships with any of the members of the cartridge manufacturing supply chain as it will be a new venture. It would, therefore, be difficult for the company to implement any resiliency standards as it cannot envisage such standards due to its lack of core competencies in the new industry. For instance, the company would face challenges in collecting quality information along the supply chain and conduct monitoring activities.
Secondly, it would also be onerous for the company to conduct any tangible crisis management activities after building the plant in house. Its lack of knowledge on the industry hinders the visualization of the critical touch points and inhibits informed analysis of risks and vulnerabilities along its supply chain (Habib, 2016).
It shows the idea of risk impacts negatively on the build decision due to the lack of knowledge by the company on the key business partners. The mitigation of risks requires the establishment of collaborative relationships with such partnersand if they are unknown or the company is a new entrant into the industry, it will be onerous to enhance resiliency along the supply chain and in the firm’s products (Tarafdar&Qrunfleh, 2017).
The build decision would expose the firm to serious challenges due to the lack of access to the collaborative networks within the industry that are crucial in enhancing team work and consultation in ensuring one firm does not expose the other members of the supply chain to risks.
References
Baxendale, S. (2004). Outsourcing opportunities for small businesses: A quantitative analysis. Business Horizons , 51-58.
Habib, M. (2016). Supply chain management: Applications for manufacturing and service industry . New York. Pearson.
Harrington, K. & O'Connor, J. (2009). How Cisco succeeds at global risk management. Supply ChainManagement Review, 13 (5), 10-17.
Kaku, B. & Kamrad, B. (2011). A Framework for Managing Supply Chain. Supply Chain Management Review, 15 , 24-31.
Lynch, F. (n.d). Why Outsource?
Rebs, T. & Brandenburg, M. (2018). Stakeholder influences and risks in sustainable supply chain management: A comparison of qualitative and quantitative studies. Business Research, 11 (2), 197-237.
Tarafdar, M. &Qrunfleh, S. (2017). Agile supply chain strategy and supply chain performance: Complementary roles of supply chain practices and information systems capability for agility. International Journal of Production Research, 55 (4), 925-938.
