Reducing operating costs is probably the easiest and most effective way to increase profit margins. In most situations reducing operating costs in a company can’t be done without a tradeoff. In this exchange a company might have to sacrifice quality in order to decrease costs or take measures that negatively affect employees in order to reduce labor expenses. In most of these situations management must make difficult decisions that have the potential to help or harm the company in the long term.
Rocket-Blast, LLC, a beverage maker, has seen its profit margins reduced, which presents a real problem for the company going forward (Precord & Macdonald, nd). Management has decided that operating costs must be reduced in order to increase profit …show more content…
If the labor force is increased the amount of hours that each employee works will be decreased in order to maintain the same labor cost, this will lead to workers quitting their jobs because they are not working the amount of hours that they need to maintain their standard of living (Precord & Macdonald, nd).
If this solution is implemented management predicts that 3 production workers and 2 receiving workers will quit each month (Precord & Macdonald, nd). Also management has being able to forecast how much these resignations will cost the company (Precord & Macdonald, nd). It is expected that hiring costs to replace these workers will be $1500 for production and $400 for receiving each month (Precord & Macdonald, nd). Also, each production worker that quits will cost the company $1500 in overtime cost while each receiving worker that resigns will cost the company $400 (Precord & Macdonald, nd). The total cost per month accounting for all these expenses is close to …show more content…
This reduction in total cost is caused mainly by the lower detention fees that Salt Lake Kegs charges. On the other hand if the syrup carrier is changed from Midwest 3PL for Great Plains 3PL, the total cost to transport syrup will increase by $61.48 per trailer.
Based on the information described above changing the Keg supplier could be a solution if the company wants to reduce detention fees because the total transportation cost for the company would be lower. The company should remain with the current syrup carrier which offers the lowest total transportation cost.
If the keg supplier is changed the monthly cost for all detention charges including the syrup carrier would be reduced to $37,125 from $120,037.5, this represents a cost reduction of $82,912 per month.
The
Rocket-Blast, LLC, a beverage maker, has seen its profit margins reduced, which presents a real problem for the company going forward (Precord & Macdonald, nd). Management has decided that operating costs must be reduced in order to increase profit …show more content…
If the labor force is increased the amount of hours that each employee works will be decreased in order to maintain the same labor cost, this will lead to workers quitting their jobs because they are not working the amount of hours that they need to maintain their standard of living (Precord & Macdonald, nd).
If this solution is implemented management predicts that 3 production workers and 2 receiving workers will quit each month (Precord & Macdonald, nd). Also management has being able to forecast how much these resignations will cost the company (Precord & Macdonald, nd). It is expected that hiring costs to replace these workers will be $1500 for production and $400 for receiving each month (Precord & Macdonald, nd). Also, each production worker that quits will cost the company $1500 in overtime cost while each receiving worker that resigns will cost the company $400 (Precord & Macdonald, nd). The total cost per month accounting for all these expenses is close to …show more content…
This reduction in total cost is caused mainly by the lower detention fees that Salt Lake Kegs charges. On the other hand if the syrup carrier is changed from Midwest 3PL for Great Plains 3PL, the total cost to transport syrup will increase by $61.48 per trailer.
Based on the information described above changing the Keg supplier could be a solution if the company wants to reduce detention fees because the total transportation cost for the company would be lower. The company should remain with the current syrup carrier which offers the lowest total transportation cost.
If the keg supplier is changed the monthly cost for all detention charges including the syrup carrier would be reduced to $37,125 from $120,037.5, this represents a cost reduction of $82,912 per month.
The