Fineprint is a printing company owned by John Johnson. This company, operates under the leadership of Johnson and does high quality coloured brochure printing for the customers in the locality. Most the capacity for fineprint in terms of how much it can print is that in a normal month, the production reached to 150,000 brochures per month. The main customers for the Fineprint Company are big companies that require printing services for a lot of work. As such, Fineprint is one of the biggest printing businesses in Charlottesville, Virginia. Johnson being the owner of the company works with one sales representative and one press operator who are the only long term employees of the company. The others employees are normally hired temporarily to handle orders depending on how many brochures are being printed by the company. Even though Johnson felt that his costs in his printing work was fixed, the fact is that some situations made his costs to vary. He was therefore undecided on how to handle such varying situations.
One situation that is greatly varying the cost of Fineprint is the special order that Jenkins called to talk about. Jenkins, a friend of Johnson has been working on a new product which he is really working hard to ensure that it gets into the market. For kick starting the new product therefore, the small company owned by Abbie Jenkins in the nearby Keswick Virginia needed to print 25,000 brochures the next month. Even though Johnsons Fineprint Company printed brochures at a price of $17 per 100 brochures, Abbie Jenkins requested if Fineprint could do an order of 25,000 brochures at a price of $10 per 100 brochures. This was a difficult decision for Johnson to make as it was highly varying the fixed costs of the company bin the printing business. Jenkins said that she did not have enough money to pay $17 per 100 brochures and if Fineprint did not accept the order then he Jenkin was ready to look for another company to do the printing.
SmallPrint Company owned by Earnest Bradley was also doing printing of high quality brochures but one of its big customers had notified Bradley that it was closing its business. Bradley therefore felt that the much he had invested in buying the printing press mainly to serve that customer was a waste. He therefore went to Johnson to ask if Johnson could give him some orders to handle at a price of $8 per 100 brochures.
Analysis and answers to questions
Johnson should accept Jenkins order. This is because of the fact that there is a high possibility that Jenkins can land on Earnest Bradley and get equally high quality brochures at a lower cost of $8 per 100 brochures than the quote of $10 per 100 brochures that he had suggested to Johnson. Since companies are closing down, there is likely to be a high competition from SamllPrint and it is therefore important if Johnson can establish a relationship with Jenkins company which can be a potential customer in future. Furthermore, Johnson should accept the order and then give the order to small print which according to him is highly dependable and produces equally high quality and elaborate brochures. This way, he will get $2 for every 100 brochures printed by Small Print for free since Bradley is only requesting to work on any order at a price of $8 per 100 brochures.
If the capacity for Fineprint Company was 200,000 per month, then I would recommend Johnson to refuse Jenkins order but suggest SmallPrint to Jenkins who can print at a cheaper price that is affordable to Jenkins. This is because with such a capacity, it would be very uneconomical to engage in production of only 25,000 brochures at a lower price of $7 less than the usual price that Fine Print charges.
Definitely, outsourcing 30,000 brochures to Small Print will really help Fineprint to produce brochures in large quantity but at a cheaper price. However, this should be done with a lot of care where the two company owners have to sit down and ensure that the agreement to do so only remains within their knowledge. Otherwise, Fineprint risk losing customers to SmallPrint owned by Bradley.
In conclusion, Johnson faces a tough task of making a decision that has a great potential of determining his future capacity. He should therefore take the offer from Jenkins and work with SmallPrint who are charging only $8 per 100 brochures. By outsourcing some orders to SmallPrint, Johnson can make a lot of money without compromising the quality of the Brochures.
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