Asthe appointed CEO of P&G, hard and very significant decisions will be reached. In this innovative political environment, theadministration is encouraging business owners to relocation production back tothe USA. The average factory worker outsidethe US makes about $37 per day or 13,505 per year (Economist, 017), while here inthe US the average worker makes $12.41 per hour, averaging 30,524 per year. If all aspects of production is fully relocatedback to the USA, we would lose a lot of profits (Payscale, 2017). Having theproduction overseas is beneficial for price, however, the negative is reducedcontrol and unexpected events that are hard to plan for.
Another decision to makeis placement of our factories in location to our vendors and potential risks. Productionplants located closer to our natural resources can reduce shipping costs and delayperiods. Also considering the risk of a disasters is imperative. Puttingfactories in hazardous locations could risk production and potentially lose investors.Production and Costs: Analyze the Factors & DecisionsThe final vital input regarding Tideis the land/natural resources.
Factorsof this production includes natural resources available and the rent P&G disbursesto keep their offices, warehouses, product shelving, etc., these would be consideredfixed costs. On the other hand, natural resources could be a variable costsince these could fluctuate in price and could affect the output of the product.
“Other environmental factors include drought, which could affect the productionof the liquid version of Tide. Electricity is alarge variable cost for P&G. In anarticle written by Cincinnati Business Courier in 2015, P&G stated thatthey planned to rely on windmills to provide all the electricity needs of itsfive plants in North America that make Tide and other detergents. Another vital input is the labor toproduce Tide. Labor is defined as”expenditures of physical or mental effort”(Merriam-Webster, 2017) for typically a wage. A wage is defined as “a payment usually of money for labor orservices usually according to contract and on an hourly, daily, or pieceworkbasis” (Merriam-Webster, 2017).
Laboris an important component for a company because this is how the products are produced,manufactured, advertised and shipped. P&G employees more than 95,000 individualsworldwide. The cost of labor would be considered variable. Labor is an expense thatfluctuates with output. P&G employs people in the US and in other countriesto develop products and uses external labor to produce its goods. Regarding Procter and Gamble (P&G),there are three significant elements for production of their product Tide.
Thefirst main input would be the capital in relation to the production of their Tide.The machinery, warehouses, technology are all important factors of capital. Allthe man-made resources that are spent for production of Tide are merged intocapital. The machinery and warehouses would be fixed costs; these elements areones that do not bank on the result of production. The technology would be deemedvariable because these things are reliant on the output.
Capital can be seen throughthe packaging of Tide; P&G states “Using more recycledmaterials in the production of our packages means we are notdepleting resources, but instead, putting existing resources to use in newpackages. Currently, Tide Liquidbottles contain at least 25% post-consumer recycled material, and we plan toincrease that amount.”Research show that Tide is looking to increase 25% to 50% or above. Production and Costs: Inputs and Costs”Classicaleconomic theory defines the factors of production as the three broad categoriesof input — capital, labor and land” (Chron, 2017).
There are two types ofcosts that a company will incur which are “Fixed” and “Variable” Costs. Fixedcosts are costs that are not related to output of a product, which includebuildings, rent and machinery. A Variable cost is one that is related to outputthese types of costs include utilities, materials, labor costs.