Research Paper on "Operations Decision"

Research Paper 4 pages (1367 words) Sources: 3

[EXCERPT] . . . .

Operational Decision: Tinker's Toys

Tinker's Toys is a small toy manufacturer that specializes in a niche market. It creates hand-crafted wooden toy model sets with gears and motors. The sets are then sold for the end user to put together, and the finished products replicate old-fashioned wooden toys in both their look and movements. Tinker's Toys has been in business for the last fifteen years and markets primarily to small model-shops and educational toy retailers. It does not have any large customers like Hobby Lobby, Michael's, or Toys R. Us. It does not have an online retail direct-marketing presence, but does manage some of its wholesale sales online. Tinker's Toys main competition was a firm called Wooden Wonders, but Wooden Wonders expanded quickly just prior to the recession and then closed in late 2011

Environmental Scan Factors

"Environmental scanning is the acquisition and use of information about events, trends, and relationships in an organization's external environment, the knowledge of which would assist management in planning the organization's future course of action. Organizations scan the environment in order to understand external forces of change so that they may develop effective responses which secure or improve their position in the future" (Choo, 1999). Therefore, the organization must look at both internal and external factors to determine the business environment.

Many businesses think that the economy is the most significant environmental factor in business decisions. This may be true for a firm with no resources to whether economic cycles, but in an organization that has some resources, losses in a down economy do not dictate that the business be closed. On the contrary, long-term economic decision-making may benefit by keeping a company running, even at a loss, during a slow economic cycle. Demand for hobby toys has been down as a result of the recession, but with the economy slowly recovering, orders for the toys have been increasing again. A competitive firm closed because of the economic downturn, which places Tinker's Toys in a good position to increase market share as the economy recovers.

Social and cultural trends suggest a strong market for Tinker's Toys. The recent elections reveal a strong nostalgic feeling in a large segment of the American population. By advertising these toys as nostalgia pieces, it should be possible for Tinker's Toys to capitalize on these feelings of nostalgia. Moreover, the toys are somewhat "nerdish" in that they require building the pieces and mechanical parts. While "nerds" have long-been marginalized by society, they are actually seeing somewhat of a cultural heyday. The most popular sit-com on network television, Big Bang Theory, features a group of nerds, and the overall societal stigma that once attached to hobbies that were academically inclined seems to be waning.

The government trends are a significant factor for a small business and the healthcare mandate will have a financial impact on the business. In 2014, the business will be required to provide healthcare coverage for all employees. That is expected to cost the business some money, as the insurance cannot cost the employee more than 9.5% of salary and has to cover 60% of healthcare expenses. However, the actual costs of that insurance are not yet determined, as the legal struggles over the healthcare laws and the insurance company response to those laws has not yet been determined. Those expenses will not directly impact the next fiscal operating year.

Financial Performance

The monthly operating expenses for the firm include wages and fixed costs. They have 100 workers, working 20 days/month at $70 a day. The total in wages is, therefore found by the following equation: 100*20*70= $140,000. The other costs are $2,000 per day at 20 days, 2000 *20= $40,000. Therefore, the firm's total monthly operating expenses are $180,000. The firm produces 6,000 units at $32 per unit, which is 6000*32= $192,000. This appears to leave a profit of $192,000 - $180,000 = $12,000 per month. However, the information received from the firm is that the fixed costs are high enough that total costs are greater than total revenue. This means that fixed costs exceed $12,000 per month. The… READ MORE

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