Question

Tan Trading Company manufactures furniture in Penang for local and European markets. The company is unable to produce enough to meet the demand of the local and European market. This is due to shortage of raw materials, which are source locally. It is extremely important for the company to produce enough to meet the demand of the local and European market. If the company loses the customer to other competitors, it will be extremely difficult to recapture the local and European market.

1. A report to the management under the current economic environment and state in your views the options available to overcome the material or other resource shortage under the current economic environment. You are required to make the recommendation to the management on the options available.

2. Conclusion

Answer 1

Ans.

Our report to the management under the current economic environment and recommendation on the options available to overcome the material or other resource shortage under the current economic environment:

- As aggregate demand continues to grow, a boom phase of the cycle begins.

- In a boom phase, the economy may experience shortages and the demand for factors of production may exceed supply.

It is possible that the excess demand is triggered by overly optimistic expectations of demand for products, which means that the supply of physical capital and production capacity may exceed the demand for products in the future.

- Company should look at finding new partners for the inputs in the global market and make alternative solutions so that the supply of the inputs is not affected.

- If the shortages continue for long and create a bottlenecks, a general inability to satisfy demand, and hence, price increases which may not be sustainable and there may be loss of the market share and company may loose some clients permanently.

- Also company can look at if can do the backward integration and buy some companies globally who are the suppliers for the raw material.