How might the strategy, mission, competitive priorities, and customer benefit package of this business affect their technology decisions?
The Technology decisions by the Robojet Car Wash business venture may be affected by the above factors in several ways. First, the venture aims at offering premium quality service to its customers, which will give it a competitive advantage over its rivals in the car wash business. In this respect, it might want to adopt an automated car wash business that will provide a superior customer service experience through automation. Secondly, its strategy to tap into a high traffic location with a high car volume might compel the venture to adapt automation not only to increase operational efficiency but also to achieve higher levels of customer satisfaction and convenience. Its strategies, mission, and competing priorities are geared towards gaining high profitability levels as well as the provision of superior quality car wash services, factors that might influence the venture to adopt an automated car wash service so as to achieve all these objectives.
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What issues and problems should you anticipate with managing this business, particularly with respect to technology? What role do operations play in successfully handling these issues and problems? Note: Question 2 - Must have at least five unique issues/problems.
There are several problems and issues that should be anticipated with managing an automated car wash service business venture. First, the business poses challenges of accurately determining a fixed cost estimate, which can lead to poor business projections. Secondly, there is also the issue of operational efficiency, which is affected by factors such as machine damages, breakages, and repairs. Thirdly, there is the issue of acquiring parts occasioned by frequent shortages, which can negatively impact business operations. Fourthly, failure to correctly estimate the cost of running an automated car wash venture can lead to losses due to inaccurate projections. Finally, the automated car wash venture requires a huge capital outlay, which might be difficult to break even due to business uncertainties and customer perceptions.
Operations play an important role in handling these problems since it sets out a plan or program on how the business is to be run and how to deal with different aspects of the business to ensure a smooth and seamless business flow.
What does a break-even analysis tell you about this business venture? What if they could reduce variable cost and/or increase the average price per wash? Note: Question 3 - Justify the assumptions you made for your break-even analysis. You must include your break-even analysis work (copy and paste it into the Word document)
| Profitability Analysis | Outsourcing Decision | Technology Decision | |||||
|
Quantity |
10,000 |
Quantity |
12,000 |
Quantity |
11,000 |
||
| Cost | Produce-In-House | Option A | |||||
|
Fixed cost |
$100,000.00 |
Fixed cost |
$250,000.00 |
Fixed cost |
$200,000.00 |
||
|
Unit cost |
$12.00 |
Unit cost |
$20.00 |
Unit cost |
$18.60 |
||
| Outsource | Option B | ||||||
| Revenue | |||||||
|
Fixed Cost |
Fixed Cost |
$100,000.00 |
|||||
|
Unit revenue |
$20.00 |
Unit Cost |
$35.00 |
Unit Cost |
$21.00 |
||
|
Total Cost |
$220,000.00 |
Total In-House Production Cost |
$490,000.00 |
Total Cost Option A |
$404,600.00 |
||
|
Total Revenue |
$200,000.00 |
Total Outsourced Cost |
$420,000.00 |
Total Cost Option B |
$331,000.00 |
||
|
Net Profit |
`-$20,000.00 |
Cost Difference (In-House Outsourced) |
$70,000.00 |
Cost Difference (Option A-Option B) |
$73,600.00 |
||
|
Profit or Loss |
Loss |
Economical Decision |
Outsource |
Economical Decision |
Option B |
The break-even analysis of this business venture indicates that it is not a viable business concern. The business requires a huge capital outlay of about $220, 000 which cannot be offset by revenue of $200 000. This means that the business will make a net loss of $20,000 in its first year of operation. This is not viable since it will require an additional capital injection to make it stay afloat.
If the business decides to reduce variable cost and/or increase the average price per wash, it will still not achieve a sustainable revenue base to will help it operate. By reducing its variable cost or increase its price per car wash, the venture will adversely affect its operations and efficiency, which will go a long way in decreasing its efficiency and profitability. If it decides to increase the price per car wash, the venture will become uncompetitive, a factor that will affect its profitability and general business operations.
Should Drew and Caroline go into this business?
Drew and Caroline should not go into the business due to the following reasons. First, the business venture is not viable since prospects of breaking even in the first year of business are highly improbable. According to the break-even analysis, the business is expected to make a net loss of $20,000. The application of cost-cutting measures will not help much because they will only help in creating more problems for the business venture in terms of competitiveness and operational efficiency. The automated car wash service business is also unpredictable due to the inability to make accurate estimates and projections due to the complexity posed by automation. It is due to the above reasons that Drew, and Caroline should not go into the business since it has no capacity of becoming sustainable in the long-run.
