Question1 Identify the type of specialized investment that each of the following

Question

Question1 Identify the type of specialized investment that each of the following stuations require: 1. You need to hire an employee to operate a machine that only your company uses. 2. Your input supplier is far away from your facility 3. You need your supplier to provide you with an input that they do not usually produce and that only you can use in the production process. Question 2 A car assembly company ASSEMCO is legally obligated by a contract to buy 25 engines from ENGOo at the end of two years at a price of $5000 per engiue. Accordingly, ASSEMCO started assembling cars fit ENGCO engines. In the second year, due to some events in the car inanufacturing industry decides to increase the price of their engines, or otherwise it will go bankrupt. What should the manager of ASSEMCO do in this case? How could this problem have been avoided? Did the manager choose the wrong method of procuring inputs?

Explanation / Answer

Q1)

1 - in this given case the company should invest in specialized manpower in case they are hiring from outside of the company and in case the recruitment is from internal sources the company must invest in the training and development of the respective employee. This is because the company wants to run/operate a specialized piece of machinery which could only be operated by someone who has knowledge and skills to operate it.

2 - In this scenario there are two options (assuming that the supplier remains same, there is always an option to change the supplier) in front of the company, where they can invest in developing a seamless logistics chain or built a plant near the supplier ( for instance constructing a plant where inputs are endemic to the region is more feasible than having an efficient logistics chain) proper study to be undertaken and then one of the two decision must be taken.

3 - Here if the company wants the input to be according to their specification and the supplier, here the company can invest in two ways, one it can invest in the small chain where they can tweak the input material from supplier or they can partner with supplier by doing part investment to supply the input of their specification, this would also help them in keeping cost at minimal.

Q2

As the case say that ASSEMCO is legally obligated to buy 25 engines from ENGCO at the price of $5000, where they are legally obligated to buy and sell respectively, had there been any clause in the agreement about the price changes by the external factors, it would have been fair on side of ENGCO to deviate the price from the agreed price. This could have been avoided if the ASSEMCO and ENGCO had an agreement which said about the deviation of the price plus when the price per engine was finalized the ENGCO should have provided the final cost by considering the effect of external factors in the case of any mishappenings as said in the case. firstly the quote given by the ENGCO to ASSEMCO is not given by considering all factors, one cannot accurately predict the flow of economy, as said in case the auto industry saw some ups and downs which could be due to various factors, the manager considered the factors for pricing on the date when agreement was made, the wrong pricing was adopted rather than wrong input methods.

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