1.

Air Republique

Air Republique is a regional airline that has operated out of West Africa for 25 years. Th
e market for civilian aviation in Africa is projected to grow by almost 6% per year over th
e next two decades, but the many logistical challenges of the industry have led to unrelia
ble profits, and several startup airlines across the continent have gone through bankrupt
cy.

Air Republique positions itself as a budget airline that runs reliably on-schedule. Operatin
g with higher prices and more passenger amenities is difficult due to low incomes in the re
gion and the fact that many of the longer flights to and from West Africa are dominated by
larger carriers based outside the region. Volatility in the price of jet fuel, uncertainties in th
e politics and regulations of several countries, and slow growth in the global economy are
among the many challenges to Air Republique.

Additionally, the airline industry faces increasing pressure to lower its carbon emissions
substantially, which would be very difficult for Air Republique to accomplish without purc
hasing more fuel efficient planes. Practical alternative jet fuels and battery powered aircr
aft also do not appear to be coming to market in the near future. Airlines based in Europ
e and the Middle East have now started to promote themselves as the more eco-friendly
choice as they focus on air fleet upgrades. These airlines not only have more profitable l
ong-haul routes to rely on; they also tend to have greater access to capital and skilled la
bor for fleet maintenance than Air Republique. Air Republique employs far more local W
est Africans than the larger carriers, but the firm has not been able to make this into a ve
ry valuable unique selling point. In order to increase sales, Air Republique’s managemen
t is considering two primary options:

Option 1: Add 10 new routes to serve North Africa as far as Egypt, and East Africa as far
as Kenya, which could increase sales but require purchasing new planes to service the r
outes.

Option 2: Focus on upgrading the interiors of its existing planes, and gradually replacing
its older planes with more fuel efficient models.

Question Marks

1: Define the term operations management. 2

Operation management refers to the business function of combining inputs t
o produce output such as goods and services that are valued by consumer
s. In addition it is also producing these in the most efficient and cost effectiv
e way.

2: With reference to Air Republique, explain two ways in which operations m 4

anagement must coordinate with one of the other business function departm
ents.
Operation managers are responsible for collaborating and working with man
agers from other departments to meet organizational objectives. Funding (fi
nance department) is needed for all aspects of operation management. For
example,volatile price of jet oil, Air Republique needs to secure its jet fuel fo
r their future flights, the operation manager must cooperate with the finance
manager to secure the fuels in bulk when the price is assumed to be the low
est. In addition, it is also important to know how much budget the operation
management can spend for their maintenance for all flights. As a result, the
communication should be well communicated between different department
s.

3: Explain two factors of production (inputs/resources) that Air Republique m 4

ust manage as it produces air travel services.
The two factors of production that Air Republique must manage as it produc
es air travel services are as follows:
1. Aircrafts should be managed well this includes maintaining the aircraft t
o make sure the aircrafts are able to digest different routes. It will be a t
otal disaster for the company if there are any unexpected accidents dur
ing flight as an air travel services provider.
2. Jet fuels should be also managed well due to its fluctuating price of jet
fuel. Since Air Republique would buy the fuel in bulk, a 1% increase is
a big increase and this will contribute to increase in cost for the compa
ny.

4: Analyze one way in which social sustainability may be important to Air R 4

epublique’s operations.
Social sustainability examines the ability of businesses and people to deve
lop in such a way that they can meet the social well being of current and fu
ture generations. Social sustainability is important to Air Republique’s oper
ation. Embracing social justice can bring about many business opportuniti
es in terms of recruitment, staff retention and corporate reputation. Since
Air Republique employs locals far more than higher carriers, this recruitme
nt should include and accept women as equals if there is to be social sust
ainability. As a result, increasing and applying CSR in Air Republique is im
portant in their daily operations.

5: Explain one advantage and one disadvantage of Air Republique focusin 4

g on ecological sustainability
One advantage of Air Republique focusing on ecological sustainability is th
at it will increase brand loyalty where ecological sustainable practices will i
ncrease the company’s image positively. As a result many consumers will
use Air Republique than other air travel providers.
One disadvantage of Air Republique focusing on ecological sustainability i
s that it will increase the cost of the company. Environmentally friendly inn
ovations such as using battery power aircraft would be a huge investment
for the company that may worsen the cash flow of the company.

6: Explain two ways in which operations management may focus on econo 4

mic sustainability.
Increased global demand and consumption make it ever more difficult to s
ustain the output of goods and services over time. Economic sustainability
requires businesses to use their resources (land, labor, capital and enterpr
ise) efficiently and in a maintainable way. The operation management coul
d use materials that are environmentally friendly, easier to recycle or that a
re biodegradable. In this case, Air Republique could use amenities such a
s biodegradable cups and nylons to serve their consumers. Furthermore,
overusing scarce resources is a major threat to a country’s economic well
being. For example, emerging economies such as countries in Western Af
rica could lead to depletion of finite resources which are non renewable re
sources.

7: Recommend one of the two options that Air Republique is considering. 10

Air Republique is a regional airline based in West Africa that has been in o
peration for 25 years. The market for civilian aviation in Africa is expected t
o increase at a rate of over 6% per year over the next two decades, but th
e industry's severe logistical obstacles have resulted in unpredictable earn
ings, and several startup airlines across the continent have gone bankrupt.
As a result, Air Republique is considering two options to increase its sales.
The first option is to increase their routes to serve the North African region.
This will be a good option to increase sales since it will attract more consu
mers who would like to travel to various regions. Since Air Republique’s is
a budget airline service provider it will appeal more to their consumers wh
o have low income level. In addition, Air Republique may benefit from eco
nomies of scale which will reduce their cost.
Furthermore, purchasing new airplanes will also benefit the company and i
ncrease the sales since rational consumers prefer to fly new airplanes tha
n old airplanes. They could become more competitive than before which c
an compete with larger carriers. In addition, fuel efficiency would be much
better than the old planes which can help the company since jet fuel prices
are volatile.
On the other hand, purchasing the new airplanes would be very expensive
which will harm the company’s cash flow. In addition, training the existing
workers would be needed since new airplanes will bring new technology to
the company. Adapting to these changes would need excess cost since Ai
r Republique would need to hire skillful engineers and workers to maintain
the new aircraft.
Moreover, the uncertainties and slow growth in the global economy are th
e main challenges to Air Republique. This also means that the consumers
would not travel to other countries unless they are business customers. It
can be predicted that the payback period will be longer than expected sinc
e they are budget airlines having cheaper ticket prices.

The second option of upgrading the existing airplanes could benefit the co
mpany especially with more fuel efficient models. As explained above the
unpredictable jet fuels can damage the firm's financial position and if the pl
ane is economically efficient in using the fuel, it will obviously help Air Rep
ublique’s working capital. Modernizing the interiors of the existing planes w
 ill give consumers confidence which will increase the brand image and cus
tomer base. It may also become the unique selling point of the company in
which they can have competitive advantage against other companies.
However, this may not be competitive as other larger carriers if they are up
grading to a battery powered model. Although planes with more fuel efficie
nt models may help the firm but it would not be as much efficient than batt
ery powered models. In addition, these companies would also follow a bett
er image than Air Republique since they are performing CSR. Companies
who are more responsible to CSR are likely to increase their customer bas
e and brand loyalty.
The budget constraints which they may face during these changes will da
mage the company’s financial position. The uncertainties may further redu
ce the sales of Air Republique. This may lead the company to insolvency.
Considering the external environment of Air Republique is crucial. This ma
y include the financial ability of the company, the management and leader
ship style, motivation, etc.
Air Republique have to focus on their aim and objectives. Whether they sh
ould aim to profit maximize, sales maximize or revenue maximize. Since th
ey are budget airline changing the objectives and strategies between short
term and long term would be important.
Among the stakeholders, there may be stakeholder conflict between the s
hareholders and the managers when choosing between the two options. I
n this case, shareholders may prefer option two since it is less likely to har
m their dividends. However, the two options would benefit the consumers.
In the short run option 2 will be much better for Air Republique and option
1 in the long run. If they have the source of finance then the option would
be a much better option. Unless there are further details for Air Republiqu
e, it is likely that option 2 is better option than option 1 for the current situat
ion.

2. Albin’s

Albin’s is a large chain of stores offering a wide range of electronics like audio and video
equipment, computers, and kitchen appliances. Albin’s primarily sells electronics from ot
her brands, and its suppliers span the globe. For the last ten years they have also sold A
lbin’s brand items, starting first with basic products like connectors and cables, and then
adding speakers and headphones. Albin’s contracts with a manufacturer to produce the
Albin’s brand. The manufacturer also produces components for other companies, but Alb
in’s branded final products are all unique to the Albin’s brand. Having established an affo
rdable set of products, Albin’s has been able to slow the decline in sales that other electr
onics retailers have experienced due to rising e-commerce competition. Managers are c
onsidering the development of other products such as kitchen and home appliances too.

An additional source of stability for Albin’s sales is its installation and repair services, for
which it is considered a great source for expertise and quick service. This was initially a s
mall fraction of business, but it now accounts for up to 20% of sales at some stores. Rev
enue from phone repair alone has grown on average 7% per year for the company as a
whole. The firm is also considering setting up a recycling program where customers woul
d be given store credit for bringing in their old products, which Albin’s would either resell
as used goods, or sell to recyclers if the product has no remaining market value. A challe
nge with this plan though is finding third party recyclers that would willing to pay high eno
ugh prices to make it financially beneficial for Albin’s. In some cases, they might donate r
ecycled products that are still usable to non-profit organizations.

The threat to Albin’s from online retail and larger stores is very significant, and there has
been a noticeable uptick in showrooming, in which customers try out products in Albin’s
stores, and then buy them online. Store managers are allowed to offer customers price
matching, but the company does not advertise the fact that this may be available.

Question Marks

1: With reference to Albin’s, describe two roles of operations management. 4

One role of operation management is to produce the product in the most effi
cient and cost effective way. As Albin is outsourcing its product production t
o a manufacturing firm. This would be the most cost effective way to produc
e their electronic products.
The other role is to add value during the production process using inputs su
ch as land, labor, capital and enterprise. Albin expanding its repair services
have added value for the products where the sales have increased up to 2
0%.

2: Explain two ways in which the operations department at Albin’s would hav 4
e to work with marketing.
One way the operation department at Albin’s would have to work with the m
arketing team would be that the electrical products should be produced base
d on the research of the market in order to meet the needs and wants of cus
tomers. In other words, they should produce electronic products that meet th
e taste and preferences of consumers. This will be done by the marketing te
am.
Another way would be that electronic products should be distributed using a
ppropriate channels. The rising ecommerce sales have recently affected the
sales of Albin products so it will be wise to select the appropriate channels t
o maximize their profit.

3: Analyze the role that economic sustainability may play in Albin’s selling pr 4
oducts under its own brand.
Albin’s selling products under its own brand may play a significant role in ec
onomic sustainability since they will become more responsible in their use of
resources. For example using materials that are environmentally friendly, ea
sier to recycle or that are biodegradable. In the current situation where Albin
is setting up a recycling program would be a good first step to start economi
c sustainability. For example using materials that are environmentally friendl
y, easier to recycle or that are biodegradable.
In addition, the responsibility would further reduce scarce resources which t
hreaten a country’s economic well being.

4: Explain two ways in which Albin’s could promote social sustainability of its 4
operations.
One way Albin could promote social sustainability of its operations is to give
equal opportunities to both male and female employees. In other words, em
ploying female employees is similar to the level of male employees. Gender
discrimination reprenst an inefficient allocation of human resources. This will
enhance business opportunities where corporate reputation would become
positive.
Another way could be diversifying the community of Albin’s workplace where
there is no racism. This will also increase customer loyalty and brand image
positively due to application of CSR.

5: Evaluate the possibility of Albin’s starting up a recycling program. 10

Albin’s is a large chain of stores offering a wide range of electronics like audi
o and video equipment, computers, and kitchen appliances. The firm is curr
ently considering setting up a recycling program. Recycling is considered to
be a company performing ecological sustainability. Ecological sustainability r
efers to the capacity of the natural environment to meet the needs of the cur
rent generation without risking the ability of future generations to meet their
own needs. There are advantages and disadvantages to implementing this
decision.
One advantage of setting this program would improve the sales of Albins pr
oducts since they would give store credit to their customers and this will ince
ntivize the customers to return to Albin’s store. As a result it will increase the
sales of the firm.
Another advantage could be that this activity would increase the brand imag
e since the recycling program is showing responsibility for sustainable beha
vior. It is also a way to show CSR and this may increase the customer base
and brand loyalty. Thus, it will increase the firm’s cash flow.
On the other hand, there are disadvantages towards the program. In cases
where they cannot sell or find the right recycler who would buy the used pro
duct high enough to benefit the company financially, this would harm the fin
ancial position of the firm. As a result, the uncertainty would be high.
Furthermore, this program would need extra factors of production such as a
warehouse to store the used goods, and employees to handle these product
s. This may increase the total cost of the company which would burden the c
ompany financially.
Stakeholder conflict would rise between the manager and the employees if e
 xtra work is given without any incentives. Repair shops are increasing their s
ales which can contribute to the overall account of the company where this c
ould be used to establish the new recycling program. Donating the products
would be a good idea as well since this will increase the brand image and ev
entually work positively. It could be better than finding the recyclers.
It may not work well in the short run since different internal and external stak
eholders would need time to adjust to this new program. Thus, it may work i
n the long run if the program could last more than 3 years. They might donat
e the products

3. Poroke Tires

Poroke Tires sells automobile tires to car manufacturers and consumers. The brand is b
est known for their higher end performance tires for luxury and sports cars, but they also
make several types of tires for mid-range price points. The Poroke factories use a combi
nation of mass and batch production. For instance, they might do a run of a few thousan
d all-weather tires for SUVs of a certain size, and then another few thousand of another t
ype and size for sports cars. Many of the types of synthetic rubber required for each run
are made in large batches, and then the process of converting the rubber into strips of tir
e material is completed on a mass scale with machinery that is able to handle all of the d
ifferent rubber. Mass production is used for certain layers of rubber and other materials t
hat form the base components for all of their tires. Each tire might have up to 18 different
types of rubber.

Operations managers have helped the firm automate and scale up several of their proce
sses, and innovations in the industry have allowed them to cut down on the time it takes
to clean and prepare equipment from one batch to another. However, the number of diff
erent tire varieties that car companies demand has grown in the last decade, and Porok
e has increased the number of sizes they manufacture by more than 50%. Sales are up,
but they now tend to be split up with a lower volume of each kind of tire being ordered by
automakers and tire shops.

The company finds itself needing to conduct more research and development as consu
mer preferences, regulations, and other factors continue to change in different ways in di
fferent countries. The need to keep up with the continual improvement in designs and m
aterials from other tire manufacturers has also made it difficult for Poroke to realize great
er economies of scale. It has also led managers to research cell manufacturing. In theor
y, this method might allow them to develop different product prototypes faster, but mana
gers have not yet fully mapped out how it might be applied at Poroke.

Question Marks

1: Define the term mass production. 2

Mass production is used by businesses that focus on large scale production
techniques for mass market goods. It is suitable for the large scale producti
on of homogeneous (identical or standardized) products such as oil, bottled
water and light bulbs

2: Explain a benefit and a drawback of using cell manufacturing at Poroke. 4

One benefit of cell manufacturing is that cells are responsible for quality ass
urance, it should lead to less wastage and a lower rejection rate. Since Por
oke manufactures high quality tires using cell manufacturing would increase
the quality of tires as well as reducing wastages.
One drawback could be the costs of recruiting and training suitable staff to
work in cells. It will increase the variable cost since recruiting suitable staff
will be expensive to hire.

3: Analyze one way in which Poroke’s production method is impacted by m 4

arket conditions.
Provoke’s production method is impacted by market conditions since the de
mand of tires would be changed by the taste and preferences of consumer
s. As the car companies demand different tire varieties Provoke should also
follow the demand and offer those varieties to meet the needs of their poten
tial consumers. As a result, changing production methods to adapt to meet t
hose market demands is crucial for Provoke profit. Thus, Provoke should s
plit up with a lower volume of each kind of tire being ordered by automakers
and tire shops.

4: Analyze one impact of batch production on Poroke’s workforce. 4

One impact of batch production on Poroke’s workforce could be likely to be
semi-skilled since the batch production method involves identical goods bei
ng made in groups rather than in a continuous flow. It is far more capital int
ensive than job production. There is downtime between batches as machin
ery might need and or changing prior to the manufacturer of the next batch.
Thus, a highly skilled workforce is not necessary in this production method.

5: Explain a benefit and a drawback of Poroke automating its production pr 4

ocesses.
One benefit of producing using automation is that average unit costs of pro
duction are lower compared with job production due to there being some ec
onomies of scale. As a result, Poroke using automation will gain profit in the
long run.
One drawback of Poroke using automation is that it requires an efficient sys
tem of stock control as stockpiling of manufactured goods could be very ex
pensive for Poroke to purchase.

6: Evaluate the merits of Poroke’s current combination of batch and mass p 10

roduction.
Porkoke tire produce automobile tires to car manufacturers and consumers.
They are currently using the combination of batch and mass production. Ba
tch production is a production method that involves identical goods being m
ade in groups (batch) rather than in continuous flow. In addition, mass prod
uction is used by businesses that focus on large scale production technique
s for mass market goods. It is suitable for the large scale production of hom
ogeneous (identical or standardized) products such as oil, bottled water an
d light bulbs. There are merits using the combination of the two production
methods.
The advantage of using batch production would decrease the average cost
s of production since there are some economies of scale. This will allow Pr
ovoke Tire to have competitive advantage since they can lower their price d
ue to some benefits from economies of scale. As a result, it will increase th
eir customer base as well as sales.
The second advantage would be the flexibility to meet a variety of demand t
hereby providing some choice to customers. Provoke Tire currently needs t
o adjust its different tire batches to meet the taste and preferences of their c
ustomers. This production method would work well to meet the demand of c
ar companies. Therefore, this will increase customer loyalty.
On the other hand, there could be less flexibility as customers have to selec
t from a range of standardized output. Since the current customer demand r
equires different varieties, it will be difficult for Provoke Tire to meet their de
mand. This may lose their customers or even new customers where the co
mpany would not be able satisfy the current demand.
Moreover, there is downtime between batches as machinery might need cle
aning and or changing prior to the manufacturer of the next batch. This will
reduce the productivity of the company where the sales revenue will fall eve
ntually.
The other production method using mass production would reduce the cost
s per unit of production where the company will benefit from economies of s
cale more than batch production since the output will be greater. This may i
ncrease the output and lead to meeting the demand of current customers. I
n addition, using automation means a low level of manpower is required in t
he production process, thus lowering labor cost. As a result it will benefit th
e financial position of the firm where it will increase the retained profit for fut
ure investment.
However, it requires an efficient system of stock control as stockpiling of m
anufactured goods can be very expensive. Although tires are not perishable
goods, they may degrade since they are made with rubber. As a result, stoc
kpiling would not only cause working capital problems but also wastage of p
roducts that cannot be sold to their customers. Furthermore, mass producti
on are interdependent, so if a problem occurs in one part of the assembly li
ne, production as a whole comes to halt. Thus, reduce the output which ma
y worsen the demand of customers.
Using both productions may synergize together and increase benefits but at
the same time reduce its efficiency. In this case it would be more beneficial
if Provoke Tire concentrate on one method and manufacture the best sellin
g products. Otherwise using cellular manufacturing. This involves teams wo
rking on certain parts of the production line increasing through specializatio
n.

4. Te Ora Insurance
Te Ora Insurance is a company that sells insurance policies directly to consumers and to
employers who opt to subsidize the cost to their employees. Their core products are ter
m life insurance, in which customers pay to have insurance coverage for a period of typi
cally between 20 and 30 years, and accident insurance that covers several sets of incide
nts at standardized prices for all customers. However, they also offer many different life i
nsurance options to fit each customer’s circumstances. The collection and analysis of ris
k factors and other data is critical to how Te Ora’s sets its policy offerings and pricing.

Most consumers get policies written through a financial advisor or insurance agent who i
s licensed to write policies for several different insurers. Te Ora pays these agents a co
mmission when they sell each policy. For business clients, Te Ora pays its insurance ag
ents a salary for selling standardized policies for the business. Insurance salespeople ar
e given mass produced copies of brochures and other marketing materials, and once pla
ns are purchased, customers are given both printed and digital copies of their individual
plans. Most of Te Ora’s plans have similar features, but because there are many variabl
es that could impact individuals’ likelihood of death or accidents and desired level of cov
erage, policies can vary greatly from customer to customer. Most prices and coverage le
vels though fall within standardized rate tiers.

A recent threat to Te Ora has come from online-only competitors who use algorithms to pr
ice policies using data that customers input, leading to policies that are often cheaper tha
n Te Ora. Te Ora’s management believes that their reliance on highly qualified and perso
nable agents to walk customers through a process customized to their needs will remain
a powerful selling point, but they are concerned that unless they are able to standardize o
r automate more policies through an online platform, they will lose many customers to co
mpanies with lower fees.

Question Marks

1: Describe one of the production methods used by Te Ora Insurance. 2

One of the production methods used by Te Ora Insurance could be job pro
duction since there are life insurance options to fit each consumer's circum
stances.

2: Analyze a benefit to Te Ora using mass production for its marketing broc 4
hures.
The benefit to Te Ora using mass production for its marketing brochures co
uld be that due to the high degree of automation as mass production is capi
tal intensive, the cost per unit of production is lower due to benefiting from e
conomies of scale. In other words, as output increases the costs to make th
e brochures will decrease due to spreading of fixed cost. As a result, the br
ochures would be cheaper to produce.

3: Explain why Te Ora may use a different production process for policies 4
made for business clients versus individual consumers.
Te Ora may use a different production process for policies made for busine
 ss clients versus individual consumers. One reason is that it is more benefi
cial for Te Ora company since it can reduce the total cost where reduction i
n cost would contribute towards company profit. The second reason would
be that it saves more time for the company since the policies made for indiv
idual consumers are more time consuming than business clients.

4: Evaluate Te Ora’s potential decision to automate the generation of polici 10

es online.
Te Ora Insurance is a company that sells insurance policies directly to cons
umers and to employers who opt to subsidize the cost to their employees.
Automating the generation of policies would potentially benefit the compan
y. E-commerce is the trading goods and service using online electronic syst
ems and computer networks such as the internet. There are advantages an
d disadvantages of using e-commerce.
One advantage of using E-commerce would provide Te Ora company with
another distribution channel. This means that it will be more convenient for
potential customers to reach the company product. This will increase the sa
les since many customers would mean that there would be a higher chance
for the customers to buy the insurance. Therefore, it will increase the sales
of the firm than before.
Second advantage would be that operating costs may be reduced significa
ntly. Te Ora paying out their employee cost could be reduced as well as the
costs to make brochures where customers can read it through the website
of Te Ora. If greater customers are able to enroll the insurance through e-c
ommerce. As a result, a fall in total cost would benefit the company's cash f
low positively.
On the other hand, the automated system cannot replace a highly qualified
agent walking through and explaining the policies, which is a unique selling
point of the company. Subscribing insurance is a huge investment if we acc
umulate it for several years. Many people prefer one on one consultation ra
ther than online automation.
Second disadvantage may be the threat of fraud and hackers who can acce
ss many customers' information. This will damage the firm’s image and rep
utation where they will lose their customers. This could lead to a serious pr
oblem not only to the firm but customers as well.
In the short run the company would face some difficulties to adjust to the ne
w system of selling their product but will benefit in the long term since many
customers would prefer convenience rather than making appointments with
an agent.
The main concern would be the cheap fees offered by various competitors
and the cheap fee would really burden Te Ora company’s current market p
osition. However, if they could create a system where that can add more su
pport to their potential customers when using e-commerce such as instant c
hatting or phone calls would at least reduce compete with other rivals.

5. Jul Farms

Jul Farms (pronounced Yule) is a Christmas tree farming company in the Pacific Northw
est region of the United States. The company started as a collection of Christmas tree far
ms in which customers cut down their own trees, and this is still a big part of their busine
ss. The largest revenue sources though are sales to other firms that sell their cut Christm
as trees across North America. Jul also ships trees to East Asia, which makes up betwee
n 5% and 10% of sales. Nearly all of the company’s sales happen between November an
d December.

A small but growing share of Jul Farms’ revenue is Christmas tree scented candles and
essential oils made from the four types of trees that it grows; sales of these products are
offered only at its farms, during the Christmas tree season. Jul Farms sources the oils fro
m European companies and the candles from an East Asian manufacturer. The market f
or therapeutic and aromatic essential oils has been growing in excess of 8% for the last
decade, and Jul Farms’ owners would like to insource the production of these oils to a ne
w facility that it would open in the US state of Oregon. Customers are increasingly asking
them both to ship the oils and sell them year round.

Jul’s tree farms in the US would give them a large enough supply of the evergreen needl
es required to produce essential oils. Furthermore, the Pacific Northwest region has see
n even stronger growth in this market than the rest of North America. The owners believ
e that within a few years they could produce the oils at a lower cost than they currently p
ay to their supplier, and that in-house production in Oregon could add a marketing advan
tage.

Question Marks

1: Define the term insourcing. 2

It is the use of a firm’s own resources to fulfill a certain role, function or ta
sk which would otherwise have been outsourced. In other words, it involv
es the retention of a task, function or project within the organization.

2: Explain an advantage and a disadvantage of Jul Farms purchasing its 4

scented candles from an East Asian supplier.
One advantage of purchasing its scented candles from an East Asian sup
plier is that it could be cheaper in terms of cost to purchase from this sup
pliers. Since Jul Farm sells their trees to East Asian countries, Jul’s Farm
would have the currency to purchase the candles from these suppliers. In
other words, they will benefit from the exchange rate.
One disadvantage of purchasing candles from an East Asian supplier cou
ld be that there might be delays in receiving the product. In addition, the s
hipping cost maybe expensive as well. Thus, Jul’s farm would need to pla
n ahead to receive the goods.

3: Analyze an advantage to Jul Farms producing its Christmas trees on fa 4

rms in the Pacific Northwest of the US.
An advantage to Jul’s Farm producing its Christmans trees on farms in th
e Pacific Northwest of the US could be that there is strong market growth
in that region. Increasing market growth in that region will result in an incr
 ease in customer base which will impact Jul’s Farm profit. As a result it wi
ll increase the company’s retained profit where they can use it for future i
nvestment to produce oils at lower cost.

4: Evaluate Jul Farms’ decision to produce evergreen essential oils in the 10

US.
Jul Farms (pronounced Yule) is a Christmas tree farming company in the
Pacific Northwest region of the United States. They were outsourcing the
essential oils from Europe and Eastern Asia but deciding to produce oils i
n the US. Insourcing is the use of a firm’s own resources to fulfill a certai
n role, function or task which would otherwise have been outsourced.
One advantage of insourcing is that it enables Jul Farms to have better c
ontrol of what it would have otherwise outsourced. In this case it means t
hat controlling the quality and the output would be much easier than outs
ourcing the oils. The quality of outsourced products may not be good as e
xpected and this will impact the sales of Jul Farm.
Second advantage is that it will increase jobs domestically and aid the loc
al economy. The market has been growing excess of 8% and this is a go
od sign for both the company and its economy. Therefore establishing the
oil production would increase the employment rate for that region which w
ill contribute to economic growth.
On the other hand, implementation costs are likely to be high, affecting pr
ofits at least in the short term. Insourcing would be most suitable when th
e function, task or project is only temporary or when there is no significant
capital investment involved. However, in this case Jul’s Farm would have
to put high investment and it would take some years to produce the actua
l oil.
Furthermore, internal staff might not have the necessary skills or experien
ce. This will increase the cost of production since the productivity is low a
gainst the wage the company is paying. In other words, the company wou
ld not benefit from economies of scale. Resulting high cost of producing t
he oil.
There might be stakeholders conflict between the shareholder and the m
anager. It can impact the company where the shareholders would not be
happy for this decision moving forward since it will reduce their dividends.
In the short run the company would suffer from cash flow problems due to
high investment cost. However, after payback is done in the long run it wil
l benefit the company greatly in terms of sales and profit,

6. Bloomfield Labs

Bloomfield Labs is a pharmaceutical company based in Ireland. After years of focusing on

the most widespread illnesses, Bloomfield is looking into ailments such as snake bites an
d so-called tropical diseases. This category of ailments in total affects close to one billion
people, but many conditions in the category affect small numbers of people and are more
common in very low income areas and remote locations. As a result of the limited researc
h by drug companies who see little profit potential, they are often called “neglected tropica
l diseases” or NTDs.
Developing a new drug can cost companies between $300 million and $2 billion, and mo
st of the research into NTDs has been done by non-profit organizations and universities.

Bloomfield Labs has R&D facilities on the European continent and the United States. It
also owns eight manufacturing plants around the world and has outsourced five producti
on lines to subcontractors in East Asia, Africa, and South America. The firm has a 5 yea
r plan to subcontract to an additional 2 facilities in the Americas. Their priority though is
on building a new research facility for the development of drugs for NTDs to compliment
the five R&D labs that it already has globally. Bloomfield plans on partnering with a non-
profit foundation to conduct the research. The new R&D facility would most likely be loc
ated in Australia or China, though it is also looking into South Africa due to its proximity t
o areas with high concentrations of NTDs.

Australia and South Africa have linguistic advantages, as the majority of medical rese
arch publications are in English. South Africa, though, has a lower population of the s
killed researchers needed, and it has slipped significantly down in the World Bank’s E
ase of Doing Business Index, far behind China and particularly Australia. Australia is f
urther from many of the markets for which NTD drugs would be developed, but it has
a strong research university system, well developed capital markets, and a tax incenti
ve program to locate R&D facilities there. China offers a quick regulatory approval pro
cess, excellent infrastructure, and a large, well-educated population with lower averag
e wages than are typical in Australia.

Question Marks

1: Define the term outsourcing. 2

Outsourcing is the practice of subcontracting non core activities of an orga
nization to a third party provider (an external organization) in order to impr
ove operational efficiency and reduce costs.

2: With reference to Bloomfield Labs, distinguish between quantitative and 4

qualitative factors that may influence business location decisions.
Quantitative factors are measurable in financial terms and will have a direc
t impact on either the costs of a site or the revenues from it and its profitab
ility. For example, the labor costs, transport costs and government grants
are all quantitative factors that influence business location decisions. In thi
s case, moving to South Africa due to high concentration of NTDs would b
e quantitative factors that influence Bloomfield Labs location decisions.
On the other hand, qualitative factors are non numerical aspects of the co
mpany that are somewhat more intangible to make business location decis
ions which includes the labor supply, ethical considerations, infrastructure
and managers preferences. In this case moving to China due to strong infr
astructure and Australia due to the strong research university system woul
d be the qualitative factor for Bloomfield Labs making location decisions.

3: With reference to Bloomfield Labs, explain three common factors that m 6

ay impact where a firm locates its operations.
Location refers to the geographical position of a business that is where it is
sited. The location decision depends on many factors such as the nature o
f the business (in this case manufacturing and R&D), the nature of the pro
duct (in this case drugs) and the nature of human resources ( in this case
skillful researchers). Location decisions will occur in different situations de
pending on the firm’s circumstances.
The nature of manufacturing and R&D should have to consider the proximi
ty of the raw materials. This will lower the total cost and contribute to the p
rofit of the company. In this case South Africa would be the location due to
its proximity to areas with high concentrations of NTDs.
The nature of the product is drug and legalizing or producing new drugs co
uld be time consuming and costly. It would be wise to find a location where
the approval process is quick so that Bloomfield could stay on their strateg
ic plans. In this case China would be the best location since China offers a
quick regulatory approval process.
The nature of human resources, since the company produces drugs they a
re heavily dependent on researching and innovating new drugs. This will in
crease their competitiveness against their rival companies. Therefore, loca
ting where there are lots of skillful researchers or research based universiti
es would be beneficial to Bloomfield Lab. In this case, Australia and China
would be the best locations.

4: Analyze one benefit to Bloomfield labs outsourcing drug production. 4

One benefit to Bloomfield labs outsourcing drug production would allow Bl
oomfield Lab to concentrate on its core activities such as researching new
drugs and other core business activities where they have the greatest stre
ngth. The outsourced durg production firm will be selected based on the k
nowledge of expertise and professionalism in producing drugs which will b
e cost effective than Bloomfield producing itself, without compromising the
quality.

5: Examine the benefits of Bloomfield Labs operating manufacturing and 10

R&D facilities in diverse global locations.
Bloomfield Labs is a pharmaceutical company based in Ireland. After yea
rs of focusing on the most widespread illnesses, Bloomfield is looking int
o ailments such as snake bites and so-called tropical diseases. As a res
ult, operating manufacturing and R&D facilities in diverse global locations
may benefit the company.
One benefit would be to access cheaper and/or better quality resources
such as land, labor or raw materials. Looking into South Africa due to its
proximity to areas with high concentrations of NTDs would be a great mo
ve to benefit from changing location. However, South Africa, though, has
a lower population of the skilled researchers needed. This means that it
will not fulfill one of the important factors of deciding location. Furthermor
e, South Africa is far behind China and Australia in the World Bank’s Eas
e of Doing Business Index. As a result, the company would struggle to a
dapt when located to South Africa.
Australia could be another option to look out for since Bloomfield Lab is a
lso prioritizing research skills. Since it has a strong research university sy
stem, well developed capital markets, and a tax incentive program to loc
ate R&D facilities, Bloomfield Lab would highly benefit from locating to A
ustralia. However, Australia is further from many of the markets for which
NTD drugs would be developed. This would increase the shipping cost w
hich will impact the price of the drugs. Therefore, it will reduce the compe
titiveness of the firm with other similar companies producing the same dr
ugs.
Another benefit could be avoid trade protectionist policies when foreing g
overnment impose trade restrictions on imported goods by locating in the
ses overseas countries. In this case, moving to China would be a great o
ption since the country offers a quick regulatory approval process, excell
ent infrastructure, and a large, well-educated population with lower avera
ge wages. However, there could be cultural differences and language ba
rriers that can slow down the company’s strategic plans. In this case, Chi
na seems to be the best option if Bloomfield Lab could overcome the cult
ural and language barriers. Since Bloomfield Lab has already outsourced
five production lines to subcontractors in East Asia it is less likely to be a
barrier for the company.
In the short run, it would not benefit the company when located in a new l
ocation where they are not familiar. However, in the long run after adjusti
ng themselves to the country (having better local knowledge) would likely
benefit from both internal and external economies of scale. Thus increas
e sales and profit.