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solution

I have attached the case study below.

If you were in the position of Art Flynn, what would be your analysis of the import substitution project? What action would you take and why?

Issues:

Why is Art Flynn interested in working on this project?

Does the minority supplier issue have a bearing on this case?

What is the quantitative analysis in this situation?

Is it possible to meet MI’s 15-month payback target?

What is your assessment of the advice given by Louise Moffat?

What alternatives are open at this point?

Should supply bonuses be paid on the basis of savings targets?

Case 11-2 McMichael Inc Art Flynn, packaging buyer for McMichael Inc. (MI), was own molding shop. It depended heavily on automotive working on an import substitution project involving a local contracts, a situation Bert Wood wished to correct by minority supplier. He was concerned, however, that his ef acquiring more nonautomotive business. In conjunction with MI’s engineers, Bert Wood had worked out a mold forts would be fruitless because his original proposal had design for the cream dispenser and included several s been flatly rejected by the plant manager as too expensive gestions for minor improvements. The cost of the mold McMichael Inc., a medium-sized company, had over the s $56,000, an investment Bert Wood was in no posi years specialized in prescription skin-care products, a mar tion to make and that MI would have to absorb up front ket niche in which it had developed an excellent reputation. About three years ago, after extensive testing, MI had intro- Bert Wood quoted a unit price of $0.27 based on pur quantities 30,000 units at a time and an annual duced a new facial cream in a special package that allowed chase o for precise measurement of the quantity dispersed. The volume estimated at 300,000 units. Bent Wood had sub container, manufactured by a French firm for a different ap- mitted a cost breakdown of this quote as follow plication, was fairly expensive at an FOB MI’s factory cost 16g of $0.36. What concerned Art Flynn even more, however, Resin were the quality and delivery problems encountered. Com Labor 8e Overhead munications with the manufacturer were difficult, and Art had the impression the manufacturer did not seem to care 27e much about MI’s business, which, as Art knew, was only a small proportion of their total volume produced. Overhead breakdown: With the cooperation of MI’s marketing, engineer- le Power ing, production, and quality control personnel, Art had le Depreciation Interest found a local minority supplier who appeared capable of Space, insurance, light meeting MI’s requirements. This custom molding firm 3e and heat, taxes, supervision OSA Inc., was owned by Bert Wood, a bright engineer, who had purchased the firm several years earlier when When Art submitted this quot long with the request for the previous owner wished to retire. OSA Inc. had its a S56,000 mold investment up front, the plant manager and own tool and die manufacturing operation as well as its

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