Carlos Gormaz

10/16/2016

MGMT 6330-01 Dr. Yilmaz

Week 7 Hawthorne Plastics Inc. Case Study

In this case the company has a dilemma regarding the decision on how to
produce batches plastic strapping, given the indeterminate about the length of
the molecular chain in the raw. One of the main problem is related to the
decision whether to test raw materials and the choice of the production to be
made, and also they have to chose with process is more appropriate and what
should be the right pressure amount to make it, finale they must to be aware
that any decision made will impact on the cost and quality of the final product.

1. Which process should Mr. Nelson specify for the manufacturer of

polypropylene strapping?
I believe that Mr. Nelson have 2 clear options to chose. Process 2 that is able to
produce High quality if pressured is maintained above 150 PSI and process 3,
that essentially don’t have limitation to create long chain molecule with high
quality. If Mr. Nelson is looking for high quality he must to chose Process 3,
however due to the complexity, he will choose high quality if the pressure is
maintaining above 150 PSI that is Process 2.

Process 1: Cost per pound

Variable Costs 13 c
Fixed Costs 0.2 c
Raw Materials 23 c
Revenue 50 c
Profit Margin 13.8 c
Process 2: Cost per pound
Variable Costs 15 c
Fixed Costs 0.7 c
Raw Materials 23 c
Extra Clean up 0.25 c
Revenue 53 c
Profit Margin 14.05 c

Process 2 is far the best option for Mr. Nelson because the profit margin is
better than process 1 & 3.

PROCESS 2 P (Long chain molecule) = 50 %

In this process the probability of obtain a long chain molecule is 50/50 chances.
According the data obtained on table # 2 on 10 production runs using process 2,
the minimum pressure observed on 6/10 was over 150 PSI. On the other hand 4
runs under 150 PSI 151,153,153,153,154,154;146, 146, 147,148

Long 0.6 P =0.3

LONG CHAIN 0.5

0.5x0.6= 0.3
0.5X0.4= 0.2

Standard 0.4 P = 0.2

LARGE 0.5x 0.5 P = 0.25

SHORT CHAIN 0.5

Standard 0.5X 03 P = 0.25

The probability of obtain a high quality strain is 0.3, and the probability of
obtain an average quality strain is (1-03) = 0.7

Process 3: Cost per pound Process 1: Cost per pound

Variable Costs 17c Variable Costs 13 c

Fixed Costs 1.2 c Fixed Costs 0.2 c

Raw Materials 23 c Raw Materials 23 c

Extra Clean up 0.25 c

Revenue 55 c Revenue 50 c

Profit Margin 13.55 c Profit Margin 13.8 c

In this process the machinery plays an important role to achieve the success. If
the machine is feed with the appropriate raw material, long chain molecule. The
probability to obtain a long chain molecule batch is 50% or 0.5

2. How much of a premium price per pound could Nelson afford to pay to
acquire raw material which was guaranteed of the long molecular chain
variety?

Process 2 per pound Process 3 per pound

Variable Costs 15c Variable Costs 17c
Fixed Costs 0.7 c Fixed Costs 1.2 c
Raw Materials 23 c Raw Materials 23 c

Extra Clean up 0.25 c Extra Clean up 0.25 c

Revenue 56 c Revenue 60 c

Profit Margin 17.05 c Profit Margin 18.55c

Depending on the process the company could paid for raw material a minimum
of 17.05 c per pound, if they chose Process 2, however is they prefer process 3
the amount will be 18. 55 c.

3. What further analysis would you suggest?

Well, this video is amazing for two reasons 1) I just open my own store on S.
Congress 4360, Suite 113, Austin 78745. We are the first Organic Gift Store, we
have in inventory all about USDA Organic Essentials Oils, Organic proteins and
more. What will be the perceived value that I will deliver for my clients. I didn’t
think about that before watch the video. Now I know about the importance of
the target market, and also about what my customer expects with the essential
oils or organic shakes and vitamins.

2) where I do differentiate with my competitor, Do Terra and Young Living,

those companies so far have a big part of the market share with oils, but not
organic. We only have USDA Organic products and that is the big
differentiation with them. Everyone knows that organic is more expensive than
non organic, but we brake this rules offering price and quality. Nice information
thanks.

What is the perceived value that I delivered for my customers. We have a nice
set of

I believe that in this case is more appropriate to develop a tree diagram, to

calculate the probability of obtain the best quality long molecular chain.,
however is needed more information to complete all the needed test. But is not
a bad idea to propone a regression analysis to have a better global idea of
Minimum Pressures (PSI) beyond ten production runs.

P(positive test/ Long chain= 50*.96= 48%

Long chain

50% P (Negative test/ long chain= 50* .04= 2%

 p( positive test/short chain= 50* .76=38%

Short chain P(Negative Test/short chain=50*.24=12%

50%