11 Decision-Making Assessment: calculations and written answers Name Institution Affiliation Course Code

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Decision-Making Assessment: calculations and written answers

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Decision-Making Assessment: calculations and written answers

1. Company Data and Decision-Making Analysis

Company Overview

Company Name: Sneaker Inc.

Competitive Strategy: Customer Intimacy.

Markets and Distributor:

Decision Analysis

Decision 1: Lowering Shoe Prices

Reducing shoe prices is usually premised on the idea of increasing market penetration and customer base. This is particularly useful in competitive markets where price sensitivity is high. By lowering its prices, Sneaker Inc. will be available to more consumers and would hence increase its customer base (Ali & Anwar, 2021). This approach is called penetration pricing, and it may work really well in the relatively short run, especially if the higher volumes of sales pay off for the lower profit margins per piece.

Nevertheless, this approach has potential disadvantages. First of all, it opens the door to attracting price-conscious customers, the loyalty of which is unlikely to last. Such customers may easily shift to competitors if they offer lower prices later (Ali & Anwar, 2021). Moreover, constantly cutting prices may bring to mind the image of poor quality, which is bad for a brand, particularly in a market where product quality is a powerful differentiation tool.

Therefore, the implementation of a price reduction strategy should also involve a detailed analysis of different dynamics that are presented in the market. It involves the examination of market dynamics, pricing competition strategies, and appreciation of price sensitivity with an end user (Ali & Anwar, 2021). Timely market research plays a significant role in the direction of such transformation and taking into account possible changes in price adjustment policies for consumers’ behavior and preferences.

In conclusion, other conditions would rationally justify reducing prices; for instance, a high price could result in losing significant market share to competitors in the long run, therefore targeting higher market share, taking responsive action from aggressive pricing by competing firms, and repositioning of product marketing bases on change in trend. The decision would also entail assessing the cost structure of the company to ensure that it can remain in business while offering prices that are affordable to consumers.

Decision 2: Reducing Staff Wages

Since the company may not be able to reduce operational costs in such a short time, this measure should take effect as one of the steps toward reducing operating costs for Freescale Corporation. Secondly, Reduce salaries and allowances paid to regular day workers. Therefore, this decision could provide immediate financial relief to Sneaker Inc. since the latter would be one of the major expenses – payroll costs. However, this decision has implications far beyond financial penalties.

Reduced customer satisfaction might result in increased employee turnover over time, which, in turn, is associated with costs related to personnel training and losing skilled employees through the process (Arani et al., 2020)). Besides all, the wage cut may even provoke public criticism that definitely will result in a bad image of the company as an employer and obviously make it difficult for the company to find good human resources.

Deciding whether or not to cut salaries for staff requires a multidimensional vision of the labor market and internal cost structures. First, the competitiveness of the proposed wages has to be assessed, followed by a regular evaluation of the firm’s financial performance and analysis of possible implications for employee satisfaction and productivity (Arani et al., 2020). Such a decision could also necessitate negotiations with labor unions and an open communication plan implemented to keep the morale of the staff at bay.

In making such a decision, it is important to find a balance between short-term financial benefits and long-term strategic objectives, as well as the overall vision of the company. Another way is to look for other ways of cost reduction or to use wage adjustments more strategically, say by performance-based incentives where the company’s goals and the employee’s interests align.

2. Financial Decision-Making

Investment Options: R&D Investment vs. New Distribution Facility

R&D Investment

Investing in R&D is a naturally forward-looking policy aimed at improving the quality of goods and innovation. Westminster Sneakers would have its main objective in this investment, which is to strengthen its competitive position in the market by providing its customers with better quality goods. This may, therefore, result in greater market share and customer loyalty and the fact that the company would be in a position to charge more for its products or services.

R&D investments are, however, marked by relatively high levels of uncertainties and longer time spans before benefits are realized. RD has an unpredictable outcome, and it is possible that the amount of invested money may not correspond to the improved product quality or reaction of the target market. Also, R&D benefits are usually realized in the longer term, making it less appealing when the financial performance has to be improved in the short run.

Investment in Distribution Facility

On the other hand, the investment in a new distribution facility supports a cost leadership strategy well. This investment aims to improve the efficiency of operations and decrease costs. Westminster Sneakers could also potentially reduce its logistics and storage costs by investing in a distribution center as a way of smoothing its supply chain and improving its service levels due to faster delivery times.

Such an investment provides more predictable and immediate returns compared to R&D. Cost savings can be measured relatively easily and realized in the short to medium term. This invests in a distribution facility, which is a more risk-mitigated alternative for a company seeking a rapid boost in operational efficiency and cost management.

Impact of Cost of Borrowing (5%)

Net Present Value (NPV) Analysis

5% is the interest rate agreed upon when borrowing and is a big deciding factor in these investment options. To make this analysis, the NPV, i.e., the sum of the present values of future cash flows minus the initial investment, is an essential tool. An increase in the cost of borrowing leads to an increase in the discount rate employed during NPV calculations, thereby lowering the present value of future cash flows.

5% Interest rates When looking at the investment for R&D, the long-term nature of the expected return makes the impact of 5% borrowing costs significant. A high discount rate diminishes the current value of the future cash flows, making the investment unattractive. This is even more relevant in light of the uncertainty and risk associated with R&D; the future benefits might not be great enough compared to the cost at a higher discount rate.

On the one hand, for the distribution center, the fact that the immediate and more predictable cost savings can be more fun when considering the cost of borrowing can be more compelling. Since they take effect sooner, they are less hit by the discounting effect of the borrowing cost. This makes the investment in a distribution center more financially attractive as the returns are more certain and less fractionalized by the cost of borrowing.

3. Linear Programming and Sensitivity Analysis

Formulating the Linear Programming Problem

Objective Function

The objective is to maximize the profit. Profit is calculated as the sum of the profits from each product, where profit per unit is the unit contribution margin. The contribution margin for men’s trainers (X) is £5, and for women’s trainers (Y) is £7. Therefore, the objective function is:

Maximize Profit=5X+7Y

Constraints

Rubber Soles Constraint:

The supplier can provide a maximum of 1,500 rubber soles per day.

Therefore, the total number of trainers produced per day (X + Y) cannot exceed 1,500.

Constraint: 1,500X+Y≤1,500

Vulcanization Constraint:

Vulcanization time for men’s trainers is 20 seconds per pair and 30 seconds for women’s trainers.

The vulcanization machines are available for 10 hours (or 36,000 seconds) per day.

Constraint: 20X+30Y≤36,000

Stitching Constraint:

Stitching time for men’s trainers is 10 seconds per pair and 30 seconds for women’s trainers.

Assuming stitching is a non-binding constraint, it can be represented as 10X+30Y≤36,000

However, given the high capacity of stitching relative to vulcanization, this constraint may not actively limit production.

Non-negativity Constraint

Additionally, the quantities of men’s and women’s trainers produced must be non-negative: X≥0, Y≥0

Sustainability in Sneaker Companies

This has put sustainability in the sneaker industry as an imperative rather than an option in an ecologically conscious marketplace today. Sneaker companies face a twofold challenge to make their business models compatible with sustainable practices without compromising on profitability and marketability (Ali & Anwar, 2021). This includes looking at carbon footprint, ethical sourcing, labor practices, and effective waste management. A comparative study of two market leaders in the industry, Adidas and Nike, can give information on how major brands are incorporating sustainability into their primary business approaches.

Sustainability Issues in Sneaker Companies

Reducing Carbon Footprint

The footwear industries contribute significantly to global carbon emissions, largely through its production processes and supply chains. More and more sneaker companies are coming to minimize their ecological footprint by optimizing their manufacturing processes, using renewable sources of energy, and improving their logistics for less high emissions during transportation (Hussain & Malik, 2020). First of all, this contributes to combating climate change but is also in line with the growing consumer demand for environment-friendly products.

Ethical Sourcing of Materials

The term “sustainable sourcing” means the purchasing of materials in a manner that doesn’t cause any harm to the environment and, at the same time, ensures ethical practices are followed (Hussain & Malik, 2020). This involves the use of recycled materials, purchasing from dealers who engage in sustainable farming, and avoiding such materials that contribute to environmental pollution, like certain types of plastics and leathers. There are fair labor practices in the supply chain, which means that ethical sourcing involves following labor laws and avoiding child labor.

Labor Practices

The industry that is frequently criticized for the use of exploitative conditions in hub manufacturers must establish an ethical labor system. Companies seek to improve the safety of their working conditions, pay equitably, and respect workers’ rights (Arani et al., 2020). This contributes not only to the social side of sustainable development but also increases brand quality and customer loyalty.

Waste Management

Product The issue of Product End-of-life waste management is critical. The positive interventions include such initiatives, which bring about recycling programs and designing products that are disassembled with ease, as well as encouraging people to return the used product, greatly helping to reduce waste and promote circular economy principles.

Comparative Analysis of Adidas and Nike

Sustainability is an undeniably controversial topic. However, Adidas subtly imbed sustainability in the fabric of its corporate philosophy. Being fanatically devoted to the process of reducing greenhouse gas emissions, the company is an avid proponent of using green, sustainable materials. Their outstanding debut trans, forming waste plastic debris in the ocean into a unique brand of shoes, is a major step towards environmental protection (Rausch & Kopplin, 2021). Adidas is steadily moving towards using 100% recycled polyester by 2024, a testament to its strong eco-friendly philosophy. In addition, their financing of such industry-breaking innovations like Futurecraft.Loop, the recyclable running shoe, only reinforces devotion to great ideas under a circular economy.

In a similar but separate path, Nike incorporates sustainability from the combination of product design and innovative procedures. “In the world of sustainability, everything we do must be powered by actions that reduce our carbon emissions and limit negative environmental impact.” This served as Nike’s (2021) battle cry under the banner of its Move to Zero campaign, where it embarked on what is deemed to harness close to 100% renewable energy sources – targeting an ambitious goal of zero-carbon and throwing no materials into waste (Hussain & Malik, 2020). Their line of products incorporates sustainable elements like recycled polyester and cotton that are eco-friendly. One such example is the breakthrough introduced by Nike in its innovative Flyknit technology, which cuts down on waste material by as much as 60% over traditional methods of sneaker design. In addition to that, Nike’s Reuse-A-Shoe program is also a representation of its commitment to the holistic administration of a product life cycle by converting rejected footwear into athletic surfaces.

References

Ali, B. J., & Anwar, G. (2021). Marketing Strategy: Pricing strategies and their influence on consumer purchasing decisions. Ali, BJ, & Anwar, G.(2021). Marketing Strategy: Pricing strategies and their influence on consumer purchasing decisions. International Journal of Rural Development, Environment and Health Research, 5(2), 26-39.

Arani, M., Dastmard, M., Ebrahimi, Z. D., Momenitabar, M., & Liu, X. (2020, October). Optimizing the total production and maintenance cost of an integrated multi-product process and maintenance planning (IPPMP) model. In 2020 IEEE International Symposium on Systems Engineering (ISSE) (pp. 1-8). IEEE.

Hussain, M., & Malik, M. (2020). Organizational enablers for circular economy in the context of sustainable supply chain management. Journal of Cleaner Production, 256, 120375.

Rausch, T. M., & Kopplin, C. S. (2021). Bridge the gap: Consumers’ purchase intention and behavior regarding sustainable clothing—Journal of Cleaner Production, 278, 123882.