A. Based on the case study provided, the cheapest production cost would to be contract Alpha Products for $4.00 per clock. Next would be to get the clocks from Silver Star for $11.00 per clock. The margin of profit would be $10.50 and $3.50 respectively.
B. The factors to be taken in to consideration should be the background of the companies bidding for manufacturing. Based on the case, the engineering company would take at least 6 months to identify and revise the factory defect and the company would suffer from the loss since Kmart would take the order somewhere else if the demand is not met. Giving the job to Alpha would indeed maximize profits due to low manufacturing costs although the organization’s stability is in question. With issues like alleged tax evasion and labor turnover, it does not speak well to give the order to the firm since the supply could be interrupted. Silver Star on the other hand might minimize the profit but they have built a reputation of quality. This would bolster the reliability of the product after the last 2 models were recalled because of electrical discharges.
C. Technology Plus should try to negotiate with Silver Star in order to bring down the cost of production. Bargaining with Silver Star like quoting the estimated cost of the alarm clocks could make the firm reevaluate its initial offer. If the manufacturing cost cannot be lowered then suggest a payment arrangement plan to defer the expenses of the company. Alpha products in the meantime should not be considered as a viable option since it might become detrimental to factors of supply and stability. For the immediate concern of supplying to Kmart, Silver Star is the stable choice. They can start production and the order with Kmart can be fulfilled. Given the quality of their work, the product would gain immeasurable reputation as shown by the initial interest and also garner a status of quality and dependability. Silver Star would also bring in their expertise on the matter and solve the issue therefore ensuring repeat business with Technology Plus. Later on once the engineering department has been able correct the flaws, concerns with manufacturing can be reassessed to see if it would be better to keep production with Silver Star or assume manufacturing themselves.
It is a win-win situation for the company since the Korean company may perhaps solve the concern about the previous failings therefore making sure it never happens again and if the engineers still not able to come up with the answer and the orders still pour in from Kmart then the manufacturing cost terms with Silver Star lower if the negotiations did not go well at the start.