Case Analysis Lg Electronics

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INTRODUCTION In order to stay competitive in an industry with an increasing number of players, companies have to be able to stay on top of their costs, as well as that of their competitors. Costing is a very tricky business in itself. Companies are wont to making costing mistakes by going with the wrong assumptions. The case of Tork versus LG shows how Tork conducts its breakdown of competitor costs in order to come up with strategies that will eliminate the costing advantage of LG. Tork is also burdened by an additional dilemma of continuing to produce low-end units or buying from LG, as well as deciding whether to pursue a legal battle against LG for dumping - that is, selling its products below cost. CASE CONTEXT LG…show more content…
We made some analysis as to the effects of reducing costs by making material costs similar for Tork and LG, while maintaining fixed cost and labor as they are. We found out that despite this cost reduction in material cost, the costs of producing the low -end units for Tork will still be more expensive than sourcing them from LG (Appendix 2, Table 3). Another way to look at the relevant cost savings is by looking at the savings incurred as a result of avoidable costs should Tork stop production of its Model A units. Obviously, with the continued production of the other models, Tork will still incur the fixed costs. This is presented in the Appendix 2, Table 4. In this scenario, Tork will only be able to save about $66.75 Million. However, in the same table, we can see that fixed costs total to around $67 Million. So the savings that Tork will get from purchasing LG units will not be able to cover the entire total fixed costs, although it is able to cover about 99.63% of the total fixed costs. THP Group 2 Case Study on Make-or-Buy Decisions: Tork Corporation Page 2 of 5 With a decision to purchase from LG for the Model A units, we then tried to calculate LG’s costs based on the assumptions stated in the preceding section (Item d, under Quantitative analysis). Since material cost is one of the key cost drivers for the production of the units, it is best to take
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