Several years ago, Nabisco spent $330 million building a facility in Brazil to
produce Oreo cookies and Ritz crackers for sale in their South American markets.
At a recent board meeting, managers at Nabisco were discussing closing the
Brazilian plant because profits from South American sales declined sharply last
year. One senior vice president opposed shutting down the Brazilian plant saying,
“We spent so much money getting our Brazilian facility going, we just can’t quit
now.” Evaluate the vice president’s advice. Explain why you agree or disagree.
Consider this statement: “Conservationists want to save too many spotted owls.”
Use graphical analysis accompanied by a concise narrative discussion to explain
circumstances under which this statement would be true. Make sure your graphs
have clearly labeled axes and curves. [Note: Good answers are dispassionate and
logical.]
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The advice given by the senior vice president at Nabisco to not shut down the Brazilian plant should be evaluated based on several factors. While the initial investment of $330 million in building the facility is significant, it is crucial to consider the current profitability and future prospects of the plant.
To determine the validity of the advice, the following factors should be considered:
1. Profitability: Analyze the profitability of the Brazilian plant by assessing the financial performance and sales figures from South American markets. If profits have declined sharply, as stated in the board meeting, it suggests that the facility may not be generating the expected returns.
2. Market trends: Examine the market trends in South America for Oreo cookies and Ritz crackers. Determine if the decline in sales and profitability is a temporary setback or a long-term trend. Consider factors such as changing consumer preferences, competition, and economic conditions that could impact the market.
3. Cost analysis: Conduct a cost-benefit analysis to evaluate the ongoing expenses of operating the Brazilian facility. Consider factors such as labor costs, raw material availability, transportation, and distribution expenses. Compare these costs with the potential benefits of continuing operations.
4. Potential alternatives: Explore alternative strategies to improve profitability, such as rebranding, product diversification, cost-cutting measures, or exploring other markets within South America. Assess the feasibility and potential impact of these alternatives compared to shutting down the facility.
5. Long-term prospects: Assess the long-term viability and potential growth opportunities in South America. If the decline in profits is temporary and there are indications of future growth, it may be worthwhile to continue operating the Brazilian plant and weather the current downturn.
Based on a comprehensive evaluation of these factors, it can be determined whether the senior vice president's advice aligns with the company's best interests. It is essential to prioritize long-term profitability and sustainability rather than solely considering the initial investment made in the Brazilian facility.
To evaluate the vice president's advice, we need to consider the financial aspects of the situation. The decision to close or keep the Brazilian plant should be based on whether it makes economic sense for Nabisco. Let's break down the evaluation process:
1. Assess the initial investment: The vice president mentions that $330 million was spent to build the facility. This is a significant investment, and it needs to be considered when evaluating the situation. Calculate the return on investment (ROI) by comparing the profits generated from the South American sales to the initial investment.
2. Analyze profit decline: The profitability of South American sales has declined sharply, according to the scenario. Determine the reasons behind this decline. Is it a temporary issue, or are there long-term market challenges? Consider factors such as market conditions, competition, changes in consumer preferences, and any external circumstances impacting sales.
3. Determine potential solutions: Identify options available to Nabisco. Can they take steps to improve profitability in South America? Are there alternative markets or strategies they can explore? Consider the potential costs and benefits of each option.
4. Compare costs and benefits: Evaluate the financial impact of continuing operations in Brazil versus shutting down the plant. Compare the potential future profits, potential costs of maintaining the facility, and potential costs of plant closure (including potential loss of jobs, equipment write-offs, and possible negative reputation).
5. Consider long-term implications: Think about the strategic importance of the South American market for Nabisco. Is it a growing market with potential for future profits, or is it becoming obsolete due to changing market dynamics? Weigh the long-term potential against the short-term challenges.
6. Make a recommendation: Based on the evaluation, form an opinion on whether Nabisco should keep the Brazilian plant open or close it. Support your recommendation with data and analysis.
It is essential to remember that this evaluation process is hypothetical, and actual decisions should be made by considering all relevant factors, including market research, financial analysis, and assessments made by experts within the company.