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In: Business and Management

Submitted By Akanni1975
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1. Profile of Arewa Textiles Limited.
Arewa Textiles Limited having recently just finalized the process of applying a special finish to textiles materials (fabrics for ladies’ dresses (Higher priced material and lower priced material) and upholstery), the company is ready to introduce the product to the market. The company presently enjoys monopoly on the products due to years of quality research works put in the process of production, highly competitive, easily available in commercial order and a secret formula for achieving the special finish on textile materials. Mr. Ahmed Arewa an executive of the company carried out a market survey in Abuja, Lagos and Port Harcourt to determine the anticipated demand and possible selling price of the product before it is launch into the market to mitigate the risk involved. The company have to decide what business to solicit, is it the upholstery materials or the fabric for ladies’ dresses. In addition, they need to decide what class of the fabric for ladies’ dresses to seek since the dress market is divided into two sector; higher priced fabric and lower priced fabric. Arewa’s profitability depends on her ability to be creative with different patterns of styles on the textile materials. The company has in place two machines that can operate at 100% single-shift capacity for 2000hour in a year for the special finish process.

b Profile of Upholstery Market
It is assume that the acceptance of the of the upholstery market is more uncertain when compared to the fabrics for ladies’ dresses and that it will required a higher promotional expenses for it to be profitable compared to the fabrics for ladies’ dresses.

c Profile of Higher price Fabric
The market survey reveals that the fabric can be sold for between N300 to N700 per yard, averaging N400 per yard but the demand is uncertain however buyers have shown interest though not steady. The production process for the fabric is faster when compared to the Lower price fabric, as more yards of products are produce within the same period. It is assume that the higher priced fabric market requires lower promotional expenses when compared to the upholstery market. d Profile of Lower price Fabric
The demand for the product is certain and achievable with less stress though only sustainable for two to three years. It becomes unpredictable subsequently. The market survey reveals that the fabric can be sold for between N260 to N400 per yard, averaging N340 per yard. The fabric appearance is similar to that of the higher price fabric, which makes it impossible to sell both fabrics in the same market at the same time. The production process for the fabric is slower when compared to the higher price fabric, as fewer yards of products are produce within the same period. It is assume that the lower priced fabric market requires lower promotional expenses when compared to the upholstery market.
2. Mr Arewa’s Assistant Problem
Mr Arewa’s Assistant problem in the case is twofold namely: * How to decide which market to solicit between the upholstery and the fabrics for ladies’ dresses.

* How to choose between the higher price fabric and the lower price fabric or combine both market for profitability.

3. Mr Arewa’s Assistant Objective
His objective is to strategically identify a market that will optimize profitability and sustain business.
4. Decision Criteria that will Guide the Decision Alternative that will be chosen to solve the Company’s Problems * Minimize uncertainty with respect to Demand.

* Improve profitability

* Minimize Cost

* Sustain business existence

5. Quantitative Analysis that will be used to evaluate the decision criteria
The income statement of the two sectors was computed at 100% singles- shift operating capacity as shown in the attached appendix. Since the demand for the high priced fabric was uncertain and to avoid waste the breakeven point quantity was computed so as to determine the reasonable quantity to produced on the high price fabric. Profitability statement was computed for different percentage of demand – 25%, 50% and 75% for the high priced fabrics to estimate the expected demand of the product. However, since the company was sure that enough business would be achieved effortlessly for the lower priced materials, the process was operated at 100% single-shift capacity and the income statement for this is also computed.

6. Decision Alternatives Available to Mr Arewa’s Assistant * Scenario 1 – Produce the lower priced fabric for the first three years where demand is certain and combine with the upholstery market when the demand decline putting the breakeven quantity into consideration in subsequent years.

* Scenario 2 – Produce the Higher priced fabric for the first two years assuming a 25% demand and switch to lower priced fabric if demand is poor.

* Scenario 3 – Produce the Higher priced fabric for the first two years assuming a 50% demand and switch to lower priced fabric if demand is poor.

* Scenario 4 – Produce the Higher priced fabric for the first two years assuming a 75% demand and switch to lower priced fabric if demand is poor.

* Scenario 5 – Produce the Higher priced fabric for the first two years assuming a 100% demand and switch to lower priced fabric if demand is poor.

6. Evaluation of Decision Alternatives based on the decision criteria identified above: S/No | Criteria | Decision Alternative | | | 1 | 2 | 3 | 4 | 5 | 1 | Minimize uncertainty with respect to Demand. | * | * | * | | * | 2 | Improve profitability | * | * | * | * | * | 3 | Minimize Cost | * | * | | * | * | 4 | Sustain business existence | * | * | * | * | * |

7. Recommended Decision Alternative for Mr Arewa’s Assistant
Based on my review, as detailed in the above table of the identified different scenario using the decision criteria also already previously identified, I recommend that the company should produce the Lower priced fabrics at 100% single-shift capacity for the first three years, with continuous development of new styles and continue to conduct more research to improve the process and make it more competitive with other innovation that might come into the market. The company should be mindful of their breakeven point from the fourth year and above, so as to ensure that production remains profitable based on the demand trends and they can augment their production by diversifying into the upholstery market.
8. Implementation Plan for Arewa Textiles
Arewa should commence the production of the lower price fabrics, develop different pattern of style to be introduce intermittently into the market to spice up consumer and fulfill their needs. The company should also intensify her research towards the improvement of the process so as to remain competitive in the market.
9. Additional Information that will affect the above decision:
If there are more details on the sales volume of the higher priced products, then it will be easy to estimate the profitability of the products and the comparison with Lower priced products will be more precise.
Supposing we have information on the profitability of the upholstery market, it would have been better to seek this business alternative, as his demand might not be clouded with the huge uncertainty in the fabric market. More so, the business will remain a going concern as against a business that is face with extinction within three years.
The pricing of the products will have be more definite to ascertain if there were information of the major factors that affect pricing vis a vis value of fabric, amount of material added, complexity of the process, current competitive situation and customer’s bargaining power. If this information is available the actual difference between the selling price of the lower and higher priced fabric will be easily to estimate and this will translate to the profitability of the sectors.

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