In order to be able to make a sound and justified decision, I will fully disclose the situation, the events that have taken place, and my assumptions before elaborating the decision I would take as a Chief Executive Officer of the company involved.
My domestic sensor company is facing increasing demand, working capital limitations, and restricted manufacturing output at the beginning of the year 2011. The Vice President of Production recommends expanding capacity of our offshore location for the following reasons: increasing demand in certain regions, rising shipping costs which make it more profitable to produce overseas instead of domestically, and the offshore location has lower labor and material costs.
However, the offshore location has been known to violate labor laws in the past. It is therefore up to debate to send an auditor to the facility despite inflating labor cost by 5% and no prove to be very effective in the past. Regardless, the Vice President of International Operations is in favor of sending an auditor since the facility has not been audited in eight months and we risk 3% higher legal costs, negative media attention, and potential loss of supplier if our lax auditing policy becomes public. It is also unsure whether the supplier can keep up with increased production. The Chairman of the Executive Committee of the Board of Directors reminded me that an alternative provider means training costs and production lag. Training the workers on our material specifications would take more than six months. I see two problems here: our company is employing a subcontractor who is frequently violating labor law and difficult to oversee due to distance, and our company may not meet increasing demand for our products because we are undecided where to produce and unsure whether the offshore capacity is sufficient. Employing a subcontractor who violates labor is a real threat. It may have developed because at the beginning cuts were made, a new offshore location was urgently needed or one was unaware of the problem. This needs to be changed in the long term since it is unacceptable for a successful, internationally acting company to conduct business knowingly in an unethical way. One might argue that this has been an issue before, since it did not seem to be news to the CEO but this …show more content…
Therefore productivity at the offshore location needs to be increased. I will direct to get the audit standard back on track for two reasons: assess the actual possible production capacity and to investigate the violation of labor laws. We are aware about this supplier’s violation of labor law and it is our responsibility to do our best to control and impede this. An increase in labor cost due the ordered audit is acceptable because we can avoid negative media attention which would very likely result in lower customer satisfaction and decreasing demand. At the same time, it is important that we look for alternatives for our existing offshore supplier. One that is not very distant is easier to oversee; in that way we can prevent similar things from happening again. This step also allows us to assure the public that we conduct business in an ethical way and do care about our employees, even the ones overseas. A plan needs to be elaborated to change the offshore location, this can be presented to the public any time if negative attention
My domestic sensor company is facing increasing demand, working capital limitations, and restricted manufacturing output at the beginning of the year 2011. The Vice President of Production recommends expanding capacity of our offshore location for the following reasons: increasing demand in certain regions, rising shipping costs which make it more profitable to produce overseas instead of domestically, and the offshore location has lower labor and material costs.
However, the offshore location has been known to violate labor laws in the past. It is therefore up to debate to send an auditor to the facility despite inflating labor cost by 5% and no prove to be very effective in the past. Regardless, the Vice President of International Operations is in favor of sending an auditor since the facility has not been audited in eight months and we risk 3% higher legal costs, negative media attention, and potential loss of supplier if our lax auditing policy becomes public. It is also unsure whether the supplier can keep up with increased production. The Chairman of the Executive Committee of the Board of Directors reminded me that an alternative provider means training costs and production lag. Training the workers on our material specifications would take more than six months. I see two problems here: our company is employing a subcontractor who is frequently violating labor law and difficult to oversee due to distance, and our company may not meet increasing demand for our products because we are undecided where to produce and unsure whether the offshore capacity is sufficient. Employing a subcontractor who violates labor is a real threat. It may have developed because at the beginning cuts were made, a new offshore location was urgently needed or one was unaware of the problem. This needs to be changed in the long term since it is unacceptable for a successful, internationally acting company to conduct business knowingly in an unethical way. One might argue that this has been an issue before, since it did not seem to be news to the CEO but this …show more content…
Therefore productivity at the offshore location needs to be increased. I will direct to get the audit standard back on track for two reasons: assess the actual possible production capacity and to investigate the violation of labor laws. We are aware about this supplier’s violation of labor law and it is our responsibility to do our best to control and impede this. An increase in labor cost due the ordered audit is acceptable because we can avoid negative media attention which would very likely result in lower customer satisfaction and decreasing demand. At the same time, it is important that we look for alternatives for our existing offshore supplier. One that is not very distant is easier to oversee; in that way we can prevent similar things from happening again. This step also allows us to assure the public that we conduct business in an ethical way and do care about our employees, even the ones overseas. A plan needs to be elaborated to change the offshore location, this can be presented to the public any time if negative attention