Business Details – Operation Decisions Pizza Industry Essay:
The pizza industry is one of the most competitive industries not only in the United States, but also globally. US alone is home to over 75 major pizzerias, each with a good number of outlets distributed across the region. My business is called RockyPizza. RockyPizza is a Pizza and refreshment delivery service headquartered in Michigan, United States. RockyPizza has ten franchised stores spread across the US. It offers pizza cooked in a variety of styles which is served or delivered along with bread, soda, and salad, depending on the specifications of the clients. Despite the fact that RockyPizza has various outlets, all are managed centrally at Michigan where production of pizza takes place and all decisions regarding sales, employment, advertising, and any other factors affecting its operations and profitability are made. RockyPizza, like any other food production and delivery services, is a sensitive industry with very many underlying factors behind the sales that the company generates within a given period of time. Some of these services include: quality of services provided, the number of consumers in the region, the company’s image, and the prices of the food stuff. At RockyPizza, customers get the products in two ways, they can physically purchase from one of our outlets or via the Rocky Pizza’s website. This implies that we incur delivery costs only when bulk purchases are made or when an order is placed at the company offices. In each case, delivery fees are charged depending on the distance between the pizzeria and the specified delivery location. Since RockyPizza is an upcoming Pizzeria, the units produced are about 6000 per month and has about 100 workers on average.
Environmental Scanning Essay
Environmental scanning can be defined as the process performing an in depth analysis of business’s performance in order for the management to be able to identify and interpret possible trends and threats to the organization, which can have a negative impact on firm’s profitability (Lester & Waters, 1989). Generally, trends in a business environment are as a result of five factors, which include: economic, competitive, social, technological, and legal factors. In any environmental scanning, trend explanation is a vital element. In order to understand and be able to provide a viable environmental scan of RockyPizza, three major components must be analyzed, these factors include: the suppliers of raw materials, the firm itself, and its customer base. Each of these components is affected by the trend factor in a different way. Social factors (demographic shifts and cultural changes) are changes that affect the clients and hence affecting the sales of a company. Economic factors (Macroeconomic conditions and consumer income); pizza industry is greatly affected by the amount that consumers are willing to spend on food and also the available disposable income. Technological factors (changing technology and its impact on customer spending), technology advancement has also been a major factor that affects the operation of RockyPizza (Wheelen & Hunger, 2012). A good example is the online purchase of Pizzas, this affects the customer base as there is a likelihood of a customer landing into another pizza company website and placing the order there. Competitive factors, as indicated above, the Pizza industry is one of the most competitive industry in US. With about ten pizzerias being added to the list each year, RockyPizza must streamline its operation in order to maintain its customer base. Legal factors being the last environmental force includes: laws that govern the industry and self regulations. These two regulatory factors are key determinants on the firm’s operations.
Pizza Industry Financial performance:
Finance performance analysis is an important tool that every business organization must use in determining its profitability. Financial performance entails leverage assessment, profitability analysis, efficiency of the organization’s operations, and the solvency of the company. In the case of RockyPizza, it is important to carry out cost and output analysis so as to determine whether it has a future in the Pizzas industry (Program on Energy the Environment and the Economy (Aspen Institute), 1998). With this information, the company might opt to change its marketing, operation, and production strategies in order for it to reach optimum point. The following is cost versus sales analysis;
Number of workers=100
Days of operations= 20
Daily Wage rate = $ 70
Variable costs per day: $ 2000
Units Produced per month: 6000 Units.
Price per Unit: $ 32
Monthly Wages: 100 workers * $70*20 days= $ 140000 per month
Unit Sales Per month: 6000 Units*$32 = $ 192000 per month
Monthly variable costs: $ 2000* 20 Days = $40, 000 per month
Total Variable costs: $ 140000 +$40, 000 = $ 180,000 per month
The profit equation: Profits= Generated revenue Less (Fixed and variable costs)
Assuming the fixed costs = k
Profits = $ 192000 per month – ($ 180,000 per month +k per month). This implies that Profits = $ 12,000 –K. It can be deduced that, for a company to be making profits, k must be less than $12,000 else, the profits are negative meaning the company is making losses. From the above calculations, it is evident that RockyPizza is making losses in a month and given the fact that the margin cost for the last month is $30, it implies that for every one extra unit that the RockyPizza produces, the cost increases by $30. From this analysis, RockyPizza can’t use the option of producing more pizzas as an alternative to low returns, it must come up with other strategies that are do not increase the expenses for it to survive in the market. In the short term, as loss making can be a part of company growth process, it should not be a ground for the management to dissolve the business. The company can only deliver more sales by cutting on daily operation costs, adopting better marketing strategies, and also enhancing the quality of their products as food quality is a major factor that affects the number of units a food business can sell in a given duration (Stokes & Royal Microscopical Society (Great Britain), 2008).
RockyPizza can only discontinue its operations under three conditions; if it continues to make losses in a long time, legal order-if the business is issued with a court order to stop its operations in the area, and stiff competition. In all of these circumstances the management might decide to merge with either bigger or a smaller organization that sells pizza or they might decide to introduce other kinds of food in their menu so as to target a bigger customer base. Mergers can be a very crucial tool since there is pooling of resources, expansion of capital base-that can be used in advertising and other marketing strategies which can increase the chance of profit making. It is worth to note that profit making is the core goal of any business organization.
Lester, Ray, & Waters, Judith. (1989). Environmental scanning and business strategy. Boston Spa, Wetherby, West Yorkshire: British Library.
Program on Energy the Environment and the Economy (Aspen Institute). (1998). Uncovering value : integrating environmental and financial performance. Washington, DC: Aspen Institute.
Stokes, Debbie, & Royal Microscopical Society (Great Britain). (2008). Principles and practice of variable pressure/environmental scanning electron microscopy (VP-ESEM). Chichester, U.K.: Wiley.
Wheelen, Thomas L., & Hunger, J. David. (2012). Strategic management and business policy : toward global sustainability (13th ed.). Upper Saddle River, N.J.: Pearson Prentice Hall.