Question 1: Discuss what options Thomas has to reduce the overall product UMC (market, material and labor) to meet the target cost, and explain each option in relation to the case provided.
There are few options Thomas can adopt to reduce the overall product UMC to meet the target cost, details are given below on the different options Thomas can adopt;
Increased Demand In Sales
If there could be increased demand in sales, it can reduce the overall cost per unit. If there could be increased demand in sales, there would be more GPS units produced. When there would be more units produced, the per unit cost of each GPS unit will be reduced over. Likewise the company is thinking to have 100,000 units, 200,000 units or 300,000 units produced initially. If there could be 6,00,000 units manufactured initially, the overall cost for each unit will be reduced to reach out to the target cost. The reason behind it is that the transportation cost will be lowered if the company purchases more units. Also the raw material provider company provides more discounts on the purchase of more units.
Also when the per unit cost for each GPS unit is reduced to a target cost, the company can sell it out on a target price in the market. The target price Scott has given would be very competitive pricing in the market and hence the company will be able to make more sales and profitability. Hence, increased demand can provide cheaper production.
Have Production In China
Here in China labor is very cheap (Chan,2010). The company can gain this advantage of availing cheap labor from China. Apart from material, labor cost is a bigger factor due to which the product is becoming expensive. If the labor cost is reduced, Thomas can meet the target cost as given by Scott. Labor in US is very expensive, this is due to the reason that an U.S law protects labor and there is a minimum wage rate that the companies need to provide to labor staff so that they can maintain standard of living. If someone pays the labor below than the minimum wage rate, it is a crime as per the U.S law. So, if the company wants manufacturing within U.S they need to pay high wage rate to labor staff. This is because of the reason, the U.S based manufactured products are very expensive. It has been seen that the products manufactured in U.S have more cost than the market price of products manufactured in other low-ranked countries.
China is amongst those nations in the world who have the cheapest labor rate. Moreover, the cheap labor rate affects the overall price of the product. The per unit cost reduces exponentially and the company will be able to sell out the GPS systems with the target market price. In China also there isn’t any restriction on child labor, perhaps Chinese engages children in the production work from the school days. Even aged people have to take part in the production work. Because of such reasons, Chinese manufactured products are very cheap throughout the world and due to their cheap prices and economy they have the greater demand.
Redesigning The product
Another option is that to reduce the overall cost of GPS systems is to redesign the products. The recent design of the GPS system requires expensive electronic components and expensive raw material. If Thomas goes to the market and check out different other products and their design and could redesign his recent product by replacing the expensive electronic components to cheap electronic comments and cheap raw material, the cost may be reduced over.
Redesigning is a good option as other competitors are selling their products which are considerably cheaper in pricing. By checking out their products and getting the idea as to which components they have used over to decrease the price would be very viable option.
Some of the electronic components and technologies are very expensive. With the introduction of the latest technology, electronic units become cheaper as the older expensive components are replaced with the newer cheaper components. Same goes with all electronic devices. While they are introduced in the market they are considerably expensive but with the passage of time they become cheaper as further researches replace the expensive components with cheap components.
Also the phenomena of reverse engineering are well known (Liang,Fuhrman, Somogyi, 1998). In reverse engineering companies save R & D cost associated to products. They check out products from different patent manufacturers and copy their design. In this way they save several expenses associated to electronic products and their price contains only the cost associated to manufacturing. In China reverse engineering is very trendy, they copy the designs and produce massive units through which they save R&D cost and also massive production provides them with the cheapest pricing that nobody can beat. In the production of GPS units, Thomas can use similar phenomena to reduce the cost through reverse engineering process.
Bargaining With Suppliers
Another option could be bargaining with suppliers to reduce the cost of their raw material. Bargaining can work as if the suppliers have the leverage to reduce the prices, they could probably provide discounts to the company and hence the company would be able to meet the target price per unit (Brown, Fee, Thomas, 2009).
If the local suppliers cannot reduce the cost of their raw material, the company can procure items and raw materials from foreign suppliers. In different parts of the world, demand of different items varies so as their pricing. Probably in a country where there is lesser demand of the raw material, the company is looking for, there could probably be cheaper pricing.
The company can invite foreign suppliers to provide a price quote. The company can also mention their target cost to be met by any supplier and they provide a contract to that supplier.
Probably through web sources or different other sources, the company can check out the pricing of raw material in those regions where the required raw material is cheaper. The company can further interact with the suppliers of that country to provide price quotes.
Reducing The Features Of Product
Thomas can meet the target price by reducing the features in the product. If there could be reduced features in the product, there would be lesser electronic components and lesser raw material required. When there is requirement of lesser raw material and lesser electronic components, the overall cost of the GPS units will be reduced over. As explained by Scott the company is looking to have a very sophisticated product to introduce in the market. Thought Scott’s idea is unique but there are several expenses associated in the production of this sophisticated GPS product. If by any means, the company is able to reduce the features, the cost will be reduced over and the company can sell out the products to the target price. Or the company can check out those features which are making this product to be very expensive one. There could only be 01 feature or few which are affecting the pricing significantly.
Question 2: In terms of GPS-to-Go’s management, discuss the importance of revenue and earnings, and explain critically what can be done on future projects that will enable the team to meet cost targets?
In any business, the most important things are the revenue and the earnings (Osterwalder, Pigneur, 2010). The revenue and the earnings are the factors that attract the investors as well as the business analyst. However, the profitability is also dependent on the earnings and revenue of a business. Respectively, the profitability is extremely essential for the long-term prosperity of the business. In the case of GPS-To-Go’s management, the revenue and the earnings both are very important. In the case of GPS-to-Go, the revenue is the remaining amount after the deduction of all the costs. However, the profit is the amount that is present in the bank accounts. The share of profit is distributed to the owners and the shareholders. In order to earn higher revenue, Thomas has to work in accordance with Scott by combining the personal and analytical strategies. Thomas has to make sure that he talks to the technical team to pursue cost saving technique to earn higher profits. It is really important for the company to lower its cost, in order to achieve higher profits. Being the boss, Scott’s aim is to achieve as much monetary benefit as possible, so for this reason, the revenue and earnings plays an important role in the management of GPS-To-Go. When the revenue will be higher, there will be more investors in the company and this will also increase the earnings. As a result, the monetary benefits dreamed by Scott will be achieved.
Correspondingly, Thomas has to make sure that the technical team reduces the cost as much as possible. This can be done by making as much money as possible at the market of the GPS. Scott is only interested in profits, therefore Thomas has to work in accordance with the goal of his boss in order to achieve a higher amount of revenues. This shows that both revenues and the earnings play a huge role in the management of the GPS-to-Go. For a business, revenue and cost are important because people judge the businesses through it. The more there will be revenues, the more the business will be successful. In the industry, in fact, in any industry, the businesses are judged by the amount of revenue it is earning. Because it contributes greatly in the profit margin of a business.
Likewise, in the GPS-To-Go case, revenue and earnings are both equally important for the business. The mission of Scott is to expand the revenue of the business by cost reduction (Rust, Moorman, Dickson, 2002). However, Thomas needs to align the strategies accordingly to make sure that the goal is met. The increase in the revenue is possible either by expanding the sales or by reducing the cost. Now, Thomas needs to grab the thought regarding which is the best possible way to increase the revenue. When the revenue will increase with either of the ways, it will ultimately enhance the earnings as well and this will be a positive stance for the business. Therefore, the company has to make sure that the revenues and the earnings must be increased to their maximum because they are very important for the business.
Revenues are essential because they need to be utilized in the business activities that includes promotion, marketing and other related aspects of the business. However, when there will be more revenue, there will be more money to be spent on marketing the business. In return, the earnings are the payback for the business. Similarly, in the GPS-to-Go case, the earnings are significant to inject the funds back into the business for further growth. So, it is really difficult to measure the importance of revenue and earnings, because both of them are equally important for a business. The more there will be revenue and earnings, the more it will be profitable and at the top of the industry list. On the other hand, without the revenues and earnings, the business will fail eventually and suffer huge losses.
Before the commencement of the projects, it is quite important for the team members to identify the costs that will be incurred in the entire project. Once the cost will be effectively communicated to the team then it will be easier for the team to manage the cost and meet the target. Cost is the amount of money spend on the business in return of profit. Usually, costs are decided before the start of the projects and according to the cost management the target of the projects are set. Therefore, in order to meet the targets, it is essential to construct a break-up of cost that will help the team members to identify what they can do to achieve the best outcomes.
According to the case of GPS-To-Go, in order to meet the cost targets, the team members have to make sure that cost reduction is performed to its maximum. Before the beginning of the operations, the staff has to make sure that the raw materials are ordered in sufficient quantity and quality. It also includes the delivery procedure and storage cost because most of the times, the inappropriate delivery issues might lead to high storage cost for the raw materials. The technical staff who is responsible for the management of the inventory must make sure that the cost are minimized in order to maximize the profits. The main purpose of the company is to make monetary benefits, therefore the technical staff must make sure that whatever they do to run the GPS technologies must not incur costs that are not present in the schedule.
In addition, the issues of cost can be solved by involving the suppliers that are efficient in supply the raw material to the company without any delay. The suppliers must be efficient and must have expertise and sufficient knowledge to pay their contributions in the design of the GPS-To-Go. The technical staff and the managers must pay attention to the design of the product before its launched because according to the research, when a product is launched the costs cannot be handled and reduced. Therefore, the cost must be taken into account before the construction of the design rather than the launch of the product. The affiliation between design, process and suppliers works perfectly in saving the costs before the time is gone and this contributes in addressing the issues at a particular time.
Furthermore, the targets of cost can be met by not repeating the mistakes that were done in the past. The lessons that are learned from the past helps in taking effective steps in fulfilling the target. However, in the future, the failures and the success of the GPS-To-Go project team in the past will contribute to the success of the project. The best thing which can add up in the project is the cost reduction, the more there will be a reduction in the cost, the more closer the target will be. The boss of the company, Scott is interested in high profits and monetary value, which is only possible by increasing the sales and reducing the costs in the manufacturing process. Therefore, Thomas needs to work with the technical staff to reduce the cost of the entire process. However, when the cost will be reduced, the profit will increase for the company and the target will be met according to the boss of GPS-To-Go. Similarly, the lesson learned in the past will be used in the future projects for better outcomes.
The household registration system and migrant labor in China: Notes on a debate
KW Chan – Population and development review, 2010
Reveal, a general reverse engineering algorithm for inference of genetic network architecturesS Liang, S Fuhrman, R Somogyi – 1998
Financial leverage and bargaining power with suppliers: Evidence from leveraged buyouts
DT Brown, CE Fee, SE Thomas – Journal of Corporate Finance, 2009
Business model generation: a handbook for visionaries, game changers, and challengers
AOsterwalder, Y Pigneur – 2010
Getting return on quality: revenue expansion, cost reduction, or both? RT Rust, C Moorman, PR Dickson – Journal of marketing, 2002
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