Spark Publishing and Printing House: Short-Run Management Decision Raises a ‘hamlet-Like’ Dilemma
Autor: rio99 • April 7, 2018 • Case Study • 967 Words (4 Pages) • 5,415 Views
CASE STUDY
SPARK PUBLISHING AND PRINTING HOUSE: SHORT-RUN MANAGEMENT DECISION RAISES A ‘HAMLET-LIKE’ DILEMMA
- Background of the Case
Spark Publishing and Printing started when Narottamdas Sheth established Spark Printing Press, a small operation, near his mansion in Ahmadabad, in the western Indian state of Gujarat. Although he had a degree in English Literature, the political environment in India has invoked him to start the Gujarati daily, NavoAwaj. After independence, he continued publishing the daily and also introduced an English magazine called Spark. The death of Narottamdas forced his only son, Sudhir Sheth, to take responsibilities of the business. He ventured into publishing, changed Spark Printing Press to Spark Publishing and Printing House (SPPH) and became a well-known name in the industry. He dropped the daily and magazine his father had started in line with new business model.
Sudhir divided the business into two departments; Publishing Department and Printing and Distribution Department. He then modernized the printing department by acquiring a state-of-the-art printing machine with a cost of INR 2,000,000.
Sudhir decided to hand over the business to his son, Sameer, who had a management degree from a prestigious institute. Sameer took over the business in January 2014. Due to the rapid technological changes and innovations brought by the 21st century, the scope of publishing industry expanded to include electronic resources. On the printing front, many small companies providing specialized printing and distribution facilities had emerged.
Sameer Sheth is now facing a major dilemma. He is in the process of making a decision regarding whether to keep or outsource the printing and distribution functions to Fine Printing Press (FPP) under an initial one-year contract.
- Statement of the problem
- Is it reasonable or more beneficial to keep the Printing and Distribution Department or outsource the P&D functions to Fine Printing Press?
A1. If they decided to outsource, can they assure the quality and efficiency of printing and distribution services rendered by FPP in order to prevent tarnishing the image of SPPH?
A2. What are those relevant and irrelevant costs that is material to the decision whether to keep or pass the Printing and Distribution work to FPP?
- Proposed Solution
SWOT ANALYSIS
Strengths
- Has established strong image and good reputation in the industry
- The proprietor has business acumen and professional background in English Literature that is relevant in the line of business he is in.
- They are able to adapt to the technological changes and innovations; they acquired a state-of-the-art printing machine.
- They expanded to include electronic resources such as e-books, micro-publishing, websites, blogs and video-game publishing.
Weaknesses
- They have personal attachment to their employees that hinders efficient management decisions.
Opportunities
- They have the capacity to adapt to the technological changes, specifically, in upgrading their machines unlike other small companies.
Threats
- Many small companies offering specialized printing and distribution facilities have emerged.
- With the rapid technological advancement, there is a risk that the company might not be able to cope up and a possibility that their services might become trivial to their target market.
Qualitative Factors
- Ethical Considerations: SPPH should consider the employees that would be laid off in case of accepting the offer of FPP.
- Relations with the Suppliers: If SPPH will accept the offer, they would have to cancel the delivery of printing supplies. They have to assure that they would not prejudice their suppliers.
- Quality of the printing materials: If they will accept the offer, SPPH would have to be sure of the quality and efficiency of the printing and distribution services offered by FPP.
- Brand Image: If SPPH will accept the offer, they should guarantee that it would not tarnish its image.
Identification of Relevant Costs
Salaries and Wages | ||
2 Staffs (Manek and Hiralal) | 48,000 | Relevant. If the firm decided to outsource, they won’t need to spend any more for their salary, however, Sameer still intends to pay them equivalent to their present salary. |
2 Specialists | 96,000 | Irrelevant. Whatever the firm chooses, they will still incur this cost. |
Manager (Ashwin) | 72,000 | Relevant. This cost will not be incurred if they decided to outsource. |
3 Staffs (Laid off) | 72,000 | Relevant. 18,000 (corresponds to the 3 months). The rest is irrelevant. |
Total | 288,000 | |
Material and Supplies | ||
Stock of Printing Materials | 90,000 | Irrelevant. Its already incurred, a sunk cost. 88,000 – Relevant Cost. It’s a salvage value. It can be considered an opportunity cost if the firm decide to keep the department. 25,000 – Relevant. They will have to pay for penalty if they decided to outsource the functions of P&D Department. |
Rest of the Materials | 250,000 | Relevant. They won’t have to incur this costs if they decided to outsource. |
Total | 340,000 | |
Depreciation | ||
Depreciation on machinery | 100,000 | Irrelevant. A sunk cost. The salvage value of 125,000 is the relevant one. It’s an opportunity cost if they decided to keep the functions. |
Depreciation on Vehicle | 50,000 | Irrelevant. A sunk cost. The 100,000 scrap value is also irrelevant. Either way, they will still use the machine. |
Total | 150,000 | |
Allocated General Overheads | ||
General Overhead Costs | 115,000 | Irrelevant. Either way, they will still incur this costs. But the 60,000 from possibility of renting out the space is relevant. It will be considered as an opportunity costs if they decide to keep the functions |
Warehouse Rent | ||
Rent | 48,000 | Relevant. This cost will be shouldered by Publishing if they decided to outsource. The spark publishing would have a 42,000 savings for choosing the option 1. |
Other Operating Expenses | ||
Avoidable | 64,000 | Relevant. They won’t incur this cost if they decided to outsource. |
Unavoidable | 15,000 | Irrelevant. This cost will still be incurred either way. |
Total | 79,000 |
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