Scenario
The owner of a small printing company is considering the purchase of additional printing equipment to expand her business. If the owner expands the business and sales are high, projected profits (minus the cost of the equipment) should be $90,000; if sales are low, projected profits should be $40,000. If the equipment is not purchased, projected profits should be $70,000 if sales are high and $50,000 if sales are low.
Are there options other than the purchase of additional equipment that should be considered in making the decision to expand the business?
In the specified scenario, the company clearly needs to upgrade its equipment so that its products could meet the requirements set by the customers. However, to improve the quality of the goods, the firm will have to consider not only the upgrade of the tools but also the improvement of the staff’s skills. Since using new equipment requires specific skills, the production process may slow down or even be jeopardized once unskilled employees start operating the equipment in question. Therefore, training sessions must be carried out so that the employees could acquire the necessary competencies. Furthermore, the existing quality control processes should also be improved. The employees must be aware of the new demands and check the products for compliance with these requirements. Thus, higher customer satisfaction rates can be expected (Wang, 2010). An increase in the number of satisfied customers, in its turn, is bound to affect loyalty rates among the designated population positively.
If the owner is optimistic about the company’s future sales, should the company expand by purchasing the equipment?
Despite the optimistic attitude of the owner, the company needs to make sure that the goods produced by the firm comply with the existing quality requirements (Hughes & Alper, 2014). The latter, in their turn, are upgraded on a regular basis. Using outdated equipment, the organization may fail to follow the requirements mentioned above; herein the necessity to use modern equipment lies. Hence, the owner of the entrepreneurship must invest in equipment as well, even though the current prognosis is quite positive for the firm. Moreover, the fact that sales are going to be at least 29% higher compared with the alternative points to the necessity to invest in equipment.
Is the owner’s optimism or pessimism about sales the only factor that may impact the company’s profits?
Although the owner’s opinion concerning the performance of the organization and the future success is not to be underrated, there are other factors that may tip the scale and trigger a drop or increase in the firm’s sales. Particularly, the factors such as the use of resources, the promotion strategy, and the customer relations (Johnsen, Howard, & Miemczyk, 2011) should be listed among the essential elements of a company’s successful performance.
By creating an elaborate promotion campaign that attracts the target denizens of the population and establishing a strong connection between the latter and the company, one is likely to increase sales rates significantly (Wang, 2010). A sustainable use of resources, in its turn, will also trigger ample revenues. More importantly, a well put together risk management strategy that will guide the firm through a possible crisis is also a crucial part of the road to success in the target market (Sprcic, 2014).
The equipment to be purchased is known in the industry to have a useful life of five years. How might this impact the printing company?
A comparatively short shelf life of the equipment to be purchased may affect the company negatively as the firm will have to update it quite often. Purchasing rather expensive tools every five years can be viewed as a rather costly strategy (Johnsen et al., 2011). However, the specified expenses can be interpreted as an investment in the entrepreneurship’s further growth. Buying expensive tools, the firm will promote high quality standards and, thus, attract more customers. Consequently, the loyalty rates among clients are likely to increase significantly.
Reference List
Hughes, N., & Alper, D. (2014). The global movement and tracking of chemical manufacturing equipment: A workshop summary. Washington, DC: National Academies Press.
Johnsen, T., Howard, M., & Miemczyk, J. (2011). Purchasing and supply chain management: A sustainability perspective. New York City, New York: Routledge.
Sprcic, D. M. (2014). Risk management: Strategies for economic development and challenges in the financial system. New York, NY: Nova Science Publishers, Incorporated.
Wang, J. (2010). Supply chain optimization, management and integration: Emerging applications. Hershey, New York: IGI Global.