Question

Workplace Application - Assessment 2 What’s the current situation? “Extreme rain fall” events in Brazil have been on the rise since the 1980s. In Guarujá a coastal town 25 miles from Soa Paulo, 18 people were killed in a single monsoon rain. The rise of global temperatures worldwide is likely to produce more extreme events for the area. Pirelli Tires a well-known performance tire manufacturer has been hit especially hard. In 2003, Pirelli built a 345,000 square foot manufacturing plant in region with an output of 2,500 tires per day. The plant employs 300 people with the option to expand its employment with an additional 350. Pirelli’s operation in Bauru sustained heavy damage and will have to undergo substantial repair and additional costs to continue to produce there. The plant helped stabilize the economy of the city, increased property value, and attracted numerous local businesses. In order for the company to protect its $120 million dollar investment it must repair its facility and roadways for employees to travel in safety as well as additional insurance costs The estimated cost for facility repairs due to heavy rain events is $30M, and the insurance policy will only cover $10M. The insurance payout of $10M will not be used if the Tire manufacturer elects not to repair the current facility. Pirelli Tires is now faced with the difficult task of deciding whether to repair its existing facility in Bauru or move its operation permanently to an abandoned manufacturing space located in Campinas. Campinas is being considered as a potential option for the following reasons: 1) Facilities and infrastructure are already available from a previous tire operation making the environment ideal. 2) Adequate parking is available for over 900 employees. 3) Pirelli’s brand partnership with local business make the area more attractive 4) The area has significantly better work talent. The abandoned manufacturing space, however, must undergo major renovation to bring it up to current operational standards. Existing areas must be reconfigured, and additional square footage must be added to increase the space for tire production. The tire curing press space of 20,000 square feet must be increased to 30,000 square feet to adequately match the output of Bauru. Other required construction will include management office areas overlooking the production floor (1,600 square feet), human resource office areas (2,400 square feet), and an expanded dining and break space for employees (2,410 square feet). Two functional features of the current Bauru facility must also be included in the renovation: an 800 square foot security gate entrance and guard office. A local contractor estimated that the latter would cost $30,000 to install. And finally, the restrooms will be remodeled, and an additional hourly wage clock punch station will be installed at a cost of $36,000 and $4,500, respectively. The average cost of construction and finishing (including all fixtures and fittings) is currently estimated at 7,520 Brazilian Reals per square foot. The US based architectural firm retained for the project will charge a standard fee of $550,000 regardless of which option is selected. What are you supposed to do? You are required to evaluate the feasibility of both options (i.e. stay or move) and provide a recommendation, via email, to Dana Helms, COO, of Pirelli Tire. You may assume that both projects will take the same amount of time to complete. Apply the appropriate business writing standards for content, style, and organization in your email. Currency Conversion Rate: 1 USD = 5.71 BRL

Please note the following as you complete your response: 1. Determine the bottomline message 2. Provide a suitable subject line 3. Ensure that your content is concise 4. Employ a suitable visual representation to display quantitative information 5. Employ parallel form Grading Rubric A suitable subject line 2 An appropriate bottomline 2 A list of supporting qualitative data in parallel form 4 An appropriate visual representation of comparative quantitative data 5 A call to action 1 Introduction to data 2 Suitable wrap-up statement 1 Overall organization, form, and grammar 3 TOTAL POINTS 20

Answer 1

Solution:

The following is the structure of the Memo that would be sent to the COO of Pirelli Tire:

------------

To,

The Chief Operating Officer,

Pirelli Tire, Brazil.

Date: Jul 07, 2020

Sub: Evaluation of Location Strategy (Bauru Vs Campinas) and Recommendations

Hello Madam,

Over the past few days, the senior leadership team has carefully analyzed the viability and attractiveness of the following two project options:

Project 1 - Improvement and Repair of the Bauru facility

Project 2 - Setup of a new facility at Campinas

Our observations and recommendations on both projects are as given below:

Cost Analysis and Comparison of the projects

Project 1 - Bauru Repair and Improvement
Overhead	Number of units	Cost per unit	Total cost
Repairs less insurance claim	1.00	$2,00,00,000.00	$2,00,00,000.00
Architectural Fees	1.00	$5,50,000.00	$5,50,000.00
Total Expense for Project 1			$2,05,50,000.00
Project 2 - Proposed New Facility at Campinas
Overhead	Number of units	Cost per unit	Total cost
Expansion of the Tire Curing Press Area (in sq ft)	10,000.00	$1,316.99	$1,31,69,877.41
Construction of Management Office Area (in sq ft)	1,600.00	$1,316.99	$21,07,180.39
Construction of HR Office Area (in sq ft)	2,400.00	$1,316.99	$31,60,770.58
Construction of Break and Dining Area (in sq ft)	2,410.00	$1,316.99	$31,73,940.46
Construction of Security Entrance (in sq ft)	800.00	$1,316.99	$10,53,590.19
Construction of Guard Office	1.00	$30,000.00	$30,000.00
Remodeling of Rest Rooms	1.00	$36,000.00	$36,000.00
Installation of Hourly Wage Clock	1.00	$4,500.00	$4,500.00
Architectural Fees	1.00	$5,50,000.00	$5,50,000.00
Total Expenses for Project 2			$2,32,85,859.02
		Cost Difference	$27,35,859.02

So, based on cost estimation, Project 2 would require an additional investment of USD 2.74 Million more than project 1 which roughly equates to about 13.3% higher cost.

Benefit Analysis:

Benefit analysis of both projects are as shown below:

Criteria	Project 1 - Bauru	Project 2 - Campinas	Remarks
Cost	The repair of the Bauru facility will cost approx. USD 20.6 Million	Set up of Campinas facility will cost USD 23.3 Million	Location 1 is better.
Talent Pool	Talent may not be available for future expansions	The area has a high talent base that can support future expansion	Location 2 is better.
Supplier Relationship	Pirelli has suppliers in the local area	Pirelli has stronger supplier relationships in that area.	Location 2 is better.
Availability of Space for Expansion	Low - Bauru does not have enough space for expansion and parking.	High - Campinas can accommodate expansion and more parking	Location 2 is better.
Ease of Switch	N/A	High - Due to take over of an existing tire manufacturing facility	Location 2 offers an easy switch

From the above analysis, we note that while Project 1 cost is lower, Project 2 offers a significant advantage to Pirelli in terms of future growth.

Recommendation:

Given the potential short-term and long-term benefits associated with Project 2, the leadership team feels that would be a more profitable investment for Pirelli to keep future growth plans in mind. Hence, Project 2 (Setup of a new facility at Campinas) is our recommendation. At the same time, given Pirelli's long-standing relationship with the local community at Bauru, we need to ensure we retain maximum jobs, offer relocation benefits, provide suppliers adequate time to make changes, communicate a clear transition timeline to local authorities, etc. so that the local community views the move favorably.

Sincerely,

XYZ.