Executive summary
Planning for the growth of a company is important and managers should carefully look at available options before deciding on which growth strategies to introduce. In the case study being discussed, the company (Jellio) seeks to expand its operations because of the increase in the number of customers. It has to make various considerations for growth to meet the increased demand while lowering production costs. Some of the options available for Jellio to consider include improving innovation, building production facilities, and employing more personnel
The Case Study
Jellico Company was founded in 2005 by Chris Lenox and Mario Marsicano in New York. The company deals with making different home furnishings and has enjoyed success since it was introduced. The company consists of three managers who are Marsicano (advertisement), Lenox (creative director), and Kevin Champeny (production manager). By the year 2011, the company was about to double the revenue it had collected in 2011 which was approximately $450,000. However, most of the production of items from the company was done manually and this resulted in a low output of items at high costs. Marsicano would look for manufacturers using Lenox’s drawings and this took much time. Most of Jellio’s customers were big companies such as Toyota, Nike, Sony, and Google among others. These companies constituted approximately 75% of Jellio’s clients. The others were customers who bought Jellio’s products from its website or local boutiques.
The main challenge the company faces is how to lower the production costs in order to expand quickly. By lowering the production costs, Marsicano believes that the company can grow quickly since the products will be cheaper and many bought by the customers. Currently, Jellico considers outsourcing its production activities to China. However, there are various challenges in outsourcing the production of the items abroad.
Analysis
Outsourcing Production
One of the risks of a small business is the inability to satisfy customers (Kearns 2013). A company that meets an increase in the demand for its products is forced to consider increasing its output in order to satisfy the customers and not lose them. This results in the need to consider various strategies to help in the growth of the company. Outsourcing of production has various advantages which include giving the business opportunity to concentrate on other activities such as marketing and innovation (Braagg 2006). Outsourcing also helps in lowering the prices of the finished products if the production is done in countries where raw materials and labor are cheap. This is because outsourcing lowers production costs. As a result, outsourcing improves profits obtained from selling the products.
Problems of Outsourcing Production
Outsourcing has several disadvantages. For instance, outsourcing requires more capital in order to be successful. This is because outsourcing introduces new distribution channels, increases transportation costs, and the companies outsourced may have a minimum amount of units they demand to produce. Outsourcing also introduces security risks to the confidentiality of the company’s ideas (Parashar 2013). For instance, the foreign company allowed to produce Jellio’s items may use the ideas to produce their own products which eventually reduce the prices of Jellio’s products. Outsourcing is also bad for the publicity of Jellio since it shows that the company is not interested in creating job opportunities locally.
Alternate Solutions
In order to increase its production output, Jellio should consider building its own production facilities. Innovation also lowers production costs and through investing in innovation, a company can develop production processes that reduce its dependence on natural resources (Waters 2012). Employees are an important resource for any organization. As the company grows, it is forced to employ more employees in various capacities to assist in production. This will range from managerial positions to low ranking workers. However, Baker (2012) notes that for the success of the company, it is important not to interfere with the employees unnecessarily as this will adversely affect the growth of the company.
Application
Building Production Facilities
Pros
Building production facilities increases the volume of items that can be produced by Jellico. Jellico also has the freedom to regulate the number of items produced from its production facility depending on the available demand. Another advantage is that local production facilities increase employment opportunities. This helps in lowering the rates of unemployment and improving the publicity of the company.
Cons
The main disadvantage of building production facilities is that it requires a lot of capital since land or existing buildings have to be bought and developed.
Investing in Innovation
Pros
Investment in innovation helps in reducing production costs through the identification of cheaper and faster production methods. This helps in increasing the volume of items produced at lower costs which eventually reduces the prices of Jellio’s items. Currently, Jellio’s relies on manual production methods which are extremely slow and difficult. Another advantage of innovation is that it helps in the production of new products. This is because the new production methods will give creative and production managers more time to come up with new ideas.
Cons
Innovation requires investment in research and development which is expensive in most cases. The company has to invest in various equipment and personnel to assist in research and development. Doing research during innovation is also time-consuming and may not offer an immediate and permanent solution to the current problem faced by Jellico.
Employing more Personnel
Pros
Since the main challenge faced by Jellio is increasing its output to meet its customers’ demands, adding more personnel will help in addressing this challenge. The personnel will be assigned at various stages during the production process in order to increase the rate of output. Employing more personnel also creates employment opportunities and this improves the publicity of the company.
Cons
Employing more personnel increases the labor costs incurred during the production of items. This makes the product expensive to Jellio and may reduce its profit margins. Employing personnel in the production process may also result in a reduction in the quality of produced items. Previously, Jellico depended on Champeny’s handiwork to produce its items and this resulted in unique and authentic products. More personnel may dilute the uniqueness and authenticity of Jellio’s products.
Discussion and Critical Thinking
The best option for Jellio to consider applying is increasing its production capacity through building production facilities. Although this requires more capital to be used in buying and building production sites, this option has strong benefits. One of the benefits of increasing the production capacity is that once the facilities are built, Jellio will be free to produce more items for a long time with very little additional capital required. A strategically located production facility also lowers distribution costs and enables Jellio to easily obtain its raw materials. Building a local production facility also improves the publicity of Jellio since it results in the creation of local employment opportunities. This will make more customers attracted to the company.
Conclusion
The best alternative for Jellio’s consideration is building its own production facilities. This will be achieved by buying land or buildings and developing them into Jellio’s production facilities. This will increase the company’s production capacity since it will be possible to automate the production process using various machines. Building production facilities is a long-term investment and will help ensure that the company increases its profit margins in the long run.
References
Baker, D. (2013). How to manage the growth of your business efficiently.
Bragg, S. M. (2006). Outsourcing: A Guide to… Selecting the Correct Business Unit… Negotiating the Contract… Maintaining Control of the Process. Hoboken: John Wiley & Sons.
Kearns, S. (2013). 5 dangers of overly fast small business growth strategies.
Parashar, B. (2013). Outsourcing advantages and disadvantages – a review. Web.
Waters, R. (2012). Innovating business models for sustainability. Web.