Case Study The Fitzgerald Machine Company is a 25MM per year

Case Study:-

The Fitzgerald Machine Company is a $25MM per year custom metal fabrication shop. It has a work force of 30 machinists and 15 office personnel. Don Bradish was hired from Peptine Corporation three months ago as Fitzgerald\'s production scheduler. His background includes an undergraduate industrial engineering degree and three years of purchasing experience with Peptine immediately after college. He is a good fit for Fitzgerald\'s needs. He was hired by Jane Fitzgerald, Vice President of Operations and daughter of the company president.

Recently the company has been having difficulty meeting delivery schedule deadlines. Don was hired to improve the company\'s performance in on-time deliveries. So far, he has been learning the systems of the operations and studying possible solutions, but he has not yet determined the best course of action to recommend.

On Friday, June 21, a $300,000 order, which had been in the shop for nearly two months, was scheduled for shipment. On the Wednesday before scheduled delivery, the customer called and asked that delivery be delayed due to a labor dispute and work stoppage at his location. Although he expected the strike to be settled within one week or less, he was concerned that delivery of the order from Fitzgerald during the strike might cause unnecessary misunderstandings in the labor dispute. Don discussed this request with Jane, and they agreed to accommodate the customer\'s request on the condition that the customer agree to being billed on the originally scheduled delivery date and to pay on the originally contracted payment terms. The customer accepted those terms.

On Friday morning, June 21, the production manager reported to Don that the order would not be completed as scheduled and would probably require at least one more week to finish. Concerned about the impact of this delay on his job status, Don decided to investigate the cause of the delay before informing Jane of the problem. Before he could complete his inquiry, Jane called to inform him that she had just mailed the invoice for the order as agreed. She also suggested that Don negotiate with the customer a storage fee for the order, which would be paid in addition to the billing arrangement.

Don wondered what he should say to Jane next.

NOTE: Each answer and response should a minimum of 10 sentences in length and provide detail and examples.

Utilitarian approach

1. How would you measure costs for the options in this case study? Use examples applying the utilitarian approach.

Solution

1.

The first option is that Don should not negotiate with the customer a storage fee for the order. From the utilitarian approach:

The foreseeable benefits to Fitzgerald are that the delay in manufacturing exactly matches the delay requested by the customer. This benefit can be calculated as 10% of the order value that is $30,000.

The benefit to the customer is that the delay will meet his requirements and he will receive the goods when the strike is over. This benefit is also 10% of the order value that is $30,000.

The cost to Don is that he may lose his job if he does not negotiate with the customer a storage fee since Jane has asked him to charge a storage fee. The hardship, time delay, and the effort of Don to find a new job if he is fired are calculated in money terms. This cost is $40,000.

From the Utilitarian point of view the net benefit from this approach is $30,000 Plus $30,000 equals $60,000 less Cost $40,000 equals $20,000.

The second option is that irrespective of the findings of his investigation Don should negotiate with the customer a storage fee for the order.

The foreseeable benefits to Fitzgerald are that the delay in manufacturing exactly matches the delay requested by the customer. This benefit can be calculated as 10% of the order value that is $30,000.

The benefit to the customer is that the delay will meet his requirements and he will receive the goods when the strike is over. This benefit is also 10% of the order value that is $30,000.

The benefit to Dan is that if he successfully negotiates the storage fee, he will be perceived as a good performer by Jane. This will have a positive impact on the performance evaluation of Don. The benefit of this impact on Don can be evaluated as $10,000.

The benefit to Fitzgerald from the storage fee is the actual fee realized by the customer. This fee is estimated to be $5,000.

The cost to the customer, who will have to pay the additional storage fee for the order, is $5,000.

From the Utilitarian point of view the net benefit from this approach is $30,000 Plus $30,000 Plus $10,000 Plus $5,000 equals $75,000 less Cost $5,000 equals $70,000.

From the Utilitarian approach, the second option should be selected because the net benefit is $70,000 when compared to the net benefit of $20,000 in case of the first option. The drawback of this approach is that the second approach is not just. It is not just to charge the customer storage fees when the goods are not ready for shipment.