Al LI Industrial Company Ltd. Case Study Solution
Introduction
Ai Li Industrial Company Ltd., a manufacturer of premium color cosmetics, faces a pivotal decision regarding its production strategy. With a decade of success in exporting individual cosmetic items worldwide, Ai Li's CEO, Lin Wong, has recognized the industry's shift towards cosmetic kits and the need to foster closer relationships with end buyers. This case revolves around Jing Zhang, head of Ai Li's key account team, as she contemplates a lucrative opportunity from a major North American department store.
The decision to bid for this large order, while potentially rewarding, could strain Ai Li's manufacturing capacity and necessitate a reevaluation of its current production strategy. This case delves into the complexities of optimizing production, aligning with market trends, and charting a strategic course in the dynamic world of color cosmetics.
Problem Statement
Ai Li Industrial Company Ltd. faces the challenge of optimizing its production strategy in response to shifting industry trends. The company must determine whether its current manufacturing processes are operating at an optimal level, considering existing production capacities and demand. Additionally, Ai Li must evaluate the feasibility and impact of pursuing a potentially lucrative opportunity to produce cosmetic kits for a major North American department store.
The decision involves balancing production capacity, profitability, and market demand while ensuring alignment with the evolving cosmetic industry landscape. Ai Li must navigate these complexities to make informed strategic choices for sustainable growth.
Currently Manufacturing of Production Facilities (Without Kits)
A comprehensive picture of Ai Li Industrial Company Ltd.'s current production status emerges. Ai Li operates three manufacturing facilities located in Dong Guan, Huizhou, and Liuzhou, each with distinct hourly labor rates. Dong Guan has the highest labor cost at $4.80 per hour, followed by Huizhou at $3.80 and Liuzhou at $3.00. The total profit margin analysis sheds light on the profitability of Ai Li's product portfolio.
This metric, expressed as a percentage of unit price, varies significantly across products and facilities. The profit margin for each product differs based on the manufacturing location and the associated labor and material costs. Some products exhibit substantial profit margins, while others are less profitable.
Production capacity data presents a clear view of each facility's maximum monthly production hours, representing their operational limits. However, there are noticeable discrepancies between capacity and utilization. For instance, in Dong Guan and Liuzhou, certain products show zero production, suggesting that these facilities may not be fully exploiting their potential. Huizhou appears to be closer to its capacity, but further optimization might still be possible.
Considering these insights, it is reasonable to conclude that Ai Li's production facilities may not currently be operating at an optimal level. There is potential for improving resource allocation and production quantities to maximize profitability. To achieve this, Ai Li should explore adjustments to its production mix, taking into account factors such as labor rates, total profit margins, and production capacity constraints.
The objective function of optimization is to maximize the total profit margin, representing the company's total profit under existing conditions. Constraints encompass production capacity limitations, adherence to the existing production plan, and the fundamental requirement that production quantities cannot be negative. Solver optimization can serve as a valuable tool in this endeavor, enabling Ai Li to fine-tune its production strategy for enhanced profitability while maintaining operational feasibility. By addressing these opportunities, Ai Li can position itself to thrive in the dynamic cosmetics industry.
Alternatives have been presented to (Ai Li Company)
The primary alternative presented to Ai Li Industrial Company Ltd. is the opportunity to enter the production of cosmetic kits. This opportunity has arisen from a major North American department store's request for Ai Li to manufacture compact cosmetic kits for the upcoming holiday season. Specifically, two types of kits, Kit A and Kit B, have been proposed:
Kit A
Kit A is a cosmetic kit consisting of a variety of makeup products designed to provide a complete makeup solution for the day. (Kit A) offers a comprehensive makeup solution for the entire face, including eyes, cheeks, and lips. It costs ($1) to package each Kit A the labor required to pack each Kit A is (0.1 hours)...........
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