Arel Textiles

1.        Profile of Arewa Textiles Limited.

Arewa Textiles Limited having recently just finalized the process of applying a special finish to textiles materials (fabrics for ladies’ dresses (Higher priced material and lower priced material) and upholstery), the company is ready to introduce the product to the market.  The company presently enjoys monopoly on the products due to years of quality research works put in the process of production, highly competitive, easily available in commercial order and a secret formula for achieving the special finish on textile materials.  Mr. Ahmed Arewa an executive of the company carried out a market survey in Abuja, Lagos and Port Harcourt to determine the anticipated demand and possible selling price of the product before it is launch into the market to mitigate the risk involved.  The company have to decide what business to solicit, is it the upholstery materials or the fabric for ladies’ dresses.  In addition, they need to decide what class of the fabric for ladies’ dresses to seek since the dress market is divided into two sector; higher priced fabric and lower priced fabric.  Arewa’s profitability depends on her ability to be creative with different patterns of styles on the textile materials.  The company has in place two machines that can operate at 100% single-shift capacity for 2000hour in a year for the special finish process.

b        Profile of Upholstery Market

It is assume that the acceptance of the of the upholstery market is more uncertain when compared to the fabrics for ladies’ dresses and that it will required a higher promotional expenses for it to be profitable compared to the fabrics for ladies’ dresses.

c        Profile of Higher price Fabric

The market survey reveals that the fabric can be sold for between N300 to N700 per yard, averaging N400 per yard but the demand is uncertain however buyers have shown interest though not steady.  The production process for the fabric is faster when compared to the Lower price fabric, as more yards of products are produce within the same period.  It is assume that the higher priced fabric market requires lower promotional expenses when compared to the upholstery market.

d        Profile of Lower price Fabric

The demand for the product is certain and achievable with less stress though only sustainable for two to three years.  It becomes unpredictable subsequently.  The market survey reveals that the fabric can be sold for between N260 to N400 per yard, averaging N340 per yard.  The fabric appearance is similar to that of the higher price fabric, which makes it impossible to sell both fabrics in the same market at the same time.  The production process for the fabric is slower when compared to the higher price fabric, as fewer yards of products are produce within the same period.  It is assume that the lower priced fabric market requires lower promotional expenses when compared to the upholstery market.

2.        Mr Arewa’s Assistant Problem

Mr Arewa’s Assistant problem in the case is twofold namely:

• How to decide which market to solicit between the upholstery and the fabrics for ladies’ dresses.

• How to choose between the higher price fabric and the lower price fabric or combine both market for profitability.

3.        Mr Arewa’s Assistant Objective 

His objective is to strategically identify a market that will optimize profitability and sustain business.

4.        Decision Criteria that will Guide the Decision Alternative that will be chosen to solve the Company’s Problems

• Minimize uncertainty with respect to Demand.

• Improve profitability

• Minimize Cost

• Sustain business existence

5.        Quantitative Analysis that will be used to evaluate the decision criteria

The income statement of the two sectors was computed at 100% singles- shift operating capacity as shown in the attached appendix.  Since the demand for the high priced fabric was uncertain and to avoid waste the breakeven point quantity was computed so as to determine the reasonable quantity to produced on the high price fabric.  Profitability statement was computed for different percentage of demand – 25%, 50% and 75% for the high priced fabrics to estimate the expected demand of the product.  However, since the company was sure that enough business would be achieved effortlessly for the lower priced materials, the process was operated at 100% single-shift capacity and the income statement for this is also computed.