Operations Decision Research Assignment

Operations Decision

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Assignment 2: Operations Decision     

Introduction

Food industry in the United States has over the recent past undergone significant changes (Cachon & Terwiesch, 2012). The changes in the food industry have involved the emergence of low-calorie foods that are frozen and microwavable since they have gained wide acceptance among consumers across the country. According to Andreyeva, Long and  Brownell (2010), this trend of increasing acceptance of low caloric foods that are frozen and microwavable has been motivated by heightened awareness among consumers towards healthy foods as well as healthy eating habits. The two leading competitors within the United States in the food industry involving the production of low-calorie as well as microwavable foods are: Healthy Choice which is a subsidiary of ConAgra and Lean Cuisine which is a subsidiary of Nestle Foods. In the United States, these two companies in the food industry control a significant market share and both have a considerable grip in the food industry market. These two features of the identified companies have enabled them to grow tremendously over the last decade with regards to revenues as well as range of their food products. In order to satisfactorily answer all the questions asked in Assignment 2, reference is made to the regression calculations presented in Assignment 1 and answers to varied operation decisions are as follows:

1. Market structure analysis is an important marketing plan tool that provides insights into the required strategies (Russell & Taylor, 2005). Saito (2011) noted that the food industry market needs are considered to significantly influence sales volumes and revenue of such companies subsequently impacting of their profitability. This means that it is imperative to carry out an analysis of growth trend of the target market since it shows the companies’ ability to predict or forecast future market trends, which is important in facilitating long-term decisions to be made. The market structure in the food are rapidly changeable and quite dynamic in the United States even though they can vary from one state to another or from one region to another within the same state (Noreen, Brewer & Garrison, 2013). Therefore, the companies should ensure that the appropriate market structure is embraced since the imperfectly structured market characterized by oligopoly require effective managerial and operational strategies in order to achieve competitive edge in the market (Luke, Froed & McCann (2015).
2. According to Best (2010) and Daly (2012), there is a vast range of factors that can be attributed to market structure changes, and two of the most important factors considered include consumers’ income levels and consumers’ tastes and preferences. These two factors are majorly the cause of shifts in the demand of products in the market. For instance, an increase or decrease in the income levels of consumers can either result to increased or decrease consumers’ purchasing power subsequently leading to diminishing demand for products (Cachon & Terwiesch, 2012). Also consumer tastes and preferences is the other fundamental factor that playa a vital role in determining market structure and its monitoring should be carried out regularly (Baye & Prince, 2013; Mankiw, 2014). According to Whelan (2011), consumers’ tastes and preferences determines whether they are interested in a particular product; whereby high interest translates to more sales, while low interest results to low sales. Thus, the company should consistently monitor these two factors and ensure they remain favorable by implementing the necessary corrective actions whenever signs of unfavorability are observed (Forstater, 2007; Mankiw, 2014).
3. Analysis of the market structure is a vital process in determining the position of a company in the market. Thus, on basis of the assignment 1 calculation results, the cost functions of Lean Cuisine both long-run and short-run can be determined by calculating performance indicators of the company in the market including AVC, VC, TC, ATC as well as MC as shown below:

Short-run Equilibrium

Long-run Equilibrium

In both calculations, that is, in the determination of the short-run and long-run equilibrium prices are observed to remain equal to quantity subsequently leading to equilibrium in the cost functions of the company. According to Baye and Prince (2013), market dynamic variations are attributed to upward and downward shifting of the equilibrium quantities. As a result, the obtained information can be used to realize optimal product demand through appropriate shifting of the prices in a direction that is favorable to consumers (Andreyeva, Long & Brownell, 2010). According to Daly (2012), the obtained information is also vital in identifying price changes that are unfavorable in a timely manner in order to allow corrective or mitigation interventions to be appropriately and swiftly taken (Best, 2010).

4. The expectations of any company when beginning or expanding its operations is that they will be prosperous, but sometimes circumstances become unfavorable forcing discontinuation of the operations. Baye & Prince (2013) note that a company has the ability to decide on discontinuation of its operations either in entirety or in some divisions based on the operational or market conditions, especially when they become unfavorable. The circumstances that can lead to discontinuation of operations include when the demand for the manufactured products dwindles as well as when the products become obsolete (Saito, 2011). These two circumstances can be caused by new entrants in the markets or changes in consumer demography as well as technological advancements that make machinery and systems outdated (Cachon & Terwiesch, 2012). According to Saito (2011), necessary modifications of the old machines can be done to avoid discontinuation of operations and also the company should allocate a higher budget to research in order to ensure new, appealing and high quality products are produced. However, if the modifications do not succeed, the company should look for alternative products that can be produced by the same machines and systems failure to which they should be sold prior to more depreciation subsequent to discontinuing operations (Best, 2010; Cachon & Terwiesch, 2012; Luke, Froed & McCann, 2015). Andreyeva, Long and Brownell (2010) emphasize that it is imperative for the company to gradually discontinue its operations through a step-wise disposal of associated facilities.
5. The pricing policy can be used to ensure profit maximization is achieved by leveraging on elasticities. For instance, in the food industry where the company operations are based is very competitive and rapidly changing market dynamics making it necessary to make frequent evaluation of its products’ price elasticity against competitor products as well as prevailing market conditions in order to determine the appropriate strategy for competitive edge to be achieved (Daly, 2012). Therefore, the company should embrace price reductions mostly through discounting in order to increase demand for its products and subsequently make its food products more appealing and affordable to consumers so that it can achieve increased sales and revenues as well as improved profitability (Daly, 2012).
6. It is undoubtedly evident from previous discussion that, optimal profitability of the company is only achievable through implementation of pricing strategies that have been effectively developed (Daly, 2012; Mankiw, 2014). This is attainable by ensuring that customer income levels and demographics are appropriately articulated with regards to the prevailing economic situations. According to Luke eta al. (2015), the company can leverage on these factors to evaluate its financial performance mostly through its long-run as well as short-run profits, revenues, sales volume and ultimately market share growth. This approach is undeniably very vital because it encompasses periods of economic hardships as well as periods of favorable economic conditions; whereby in the former economic situation pricing strategy adopted is fundamental is determining financial performance, while in the latter economic situation quality and convenience factors gain significance in determining demand (Luke, Froed & McCann, 2015).
7. With regards to the supply and demand calculations carried out for the determination of the company’s equilibrium both in the long-run and short-run operations, it is imperative to implement effective interventions in order to improve the company profits as well as ensuring that the stakeholders are delivered with more value. The appropriate strategies ought to follow a properly laid down plan including brainstorming, implementation and monitoring. Embracing this approach or plan is highly imperative to ensure the company competitive edge in the market is maintained ultimately leading to increased revenues and profitability. As a result, the two actions that are recommended to ensure This is attributable to the fact that, this approach is important in order to ensure that there is improvement in the company’s profitability as well as ensuring that the stakeholders are delivered with more value include:
   1. There will be need to increase capital investment particularly in the area of research and new product development. Through continuous research and adoption of cutting edge technologies in food manufacturing, the company will be able to consistently produce high quality and novel food products (Mankiw, 2014). According to Whelan (2011), this is an essential strategy in enabling production of food products that are more appealing to consumers at low production and operational costs, which will in turn improve the company profitability.
   2. The other recommended action will be to devise and implement a marketing plan that is effective through appropriate advertising and promotional strategy to improve visibility of the company’s food products in the market and dispel the stiff competition (Cachon & Terwiesch, 2012; Daly, 2012). The company will be required to advertise its food products through a variety of promotional channels both mainstream and upcoming ones, methods and/or techniques as well as media outlets (Baye & Prince, 2013).

References

Andreyeva, T., Long, M. W., & Brownell, K. D. (2010). The Impact of Food Prices on Consumption: A Systematic Review of Research on the Price Elasticity of Demand for Food. American Journal of Public Health, 100(2), 216-222. doi:10.2105/AJPH.2008.151415.

Baye, M. & Prince, J. (2013). Managerial Economics & Business Strategy, (8^th ed.). New York, NY: McGraw-Hill Education.

Best, R. (2010). Market-based Management, (3^rd ed.). Upper Saddle River, NJ: Prentice Hall.

Cachon, G. & Terwiesch, C. (2012). Matching Supply and Demand: An Introduction to Operations Management, (3^rd ed.). New York, NY: McGraw-Hill Education.

Daly, J. (2012). Pricing for Profitability, (4^th ed.). Hoboken, NJ: John Wiley & Sons, Inc.

Forstater, M. (2007). Economics. Chicago: Chicago Review Press.

Luke, M., Froed, B., & McCann, B. (2015). Managerial Economics. Boston, MA: South-Western College Publishers.

Mankiw, G. (2014). Principles of Microeconomics, (7^th ed.). Boston, MA: South-Western College Publishers.

Noreen, E., Brewer, P., & Garrison, R. (2013). Managerial Accounting for Managers, (3^rd ed.). New York, NY: McGraw-Hill Education.

Russell, R. S. & Taylor III, B. W. (2005). Operations Management: Quality and Competitiveness in a Global Environment, (5^th ed.). Hoboken, NJ: John Wiley & Sons, Inc.

Saito, Y. (2011). Managerial Decisions to Discontinue Operations and Future Firm Performance. Available at: http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1906125

Whelan, J. (2011). Economics Supply and Demand. Cambridge, UK: Cambridge University Publishers.

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