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EXECUTIVE SUMMARY
Kleenwater has been successfully manufacturing and selling high-quality water purification systems in recent years. The profit of last year reached $47,000 with the 2,800 units of sales. Because of the production limit, Kleenwater can only produce 3,500 units a year. The new 500 units request each from Queenfisher and Ronaya brought up three issues, short of factory capacity for the contact, losing high-end product image and possible low profit margin.
I have looked at four criteria trying to arrive to a recommendation. The criteria used are profits, risk, synergy and prospective. I used profit as the fundamental criteria and others are also the important consideration factors for my recommendation.
I firstly reviewed the latest income statement and separated the costs that change with the production and fixed. Some data were also adjusted to reflect the real operation of the company.
I listed four alternatives to outline which strategy Kleenwater should be using in order to maximize the profit and at the same time take risk, synergy and prospective into account. The four alternatives are
Reject the request from both Queenfisher and Ronaya,
Accept Queenfisher’s and reject Ronaya’s,
Accept Ronaya’s and reject Queenfisher’s,
Accept both and cut the sales in local market.
I finally recommended that Kleenwater should accept Ronaya’s request and reject Queenfisher’s request. By implementing this recommendation, the firm will make $119,500 profit in the coming year, an increase of $72,500, or 154%, from the past year.
Problem statement
Kleenwater is a high-quality water purification systems manufacturer. The President of the compan ...