You Are The Consultants

1.

To ensure that the correct size of heart valve is available for heart surgery, Heart Plus, the make
of the valves employs salespeople to place and maintain inventories in hospitals in its market.
After a value is used in surgery, Heart Plus, bills the patients insurance company and credits the
sales person with the sale. Each sales person earns a commission based on a percentage of
revenue of the sales in their territory.
Because Heart Plus does not get paid until it sells its valve, it must bear the cost of holding
inventory calculated as the cost of capital (assumed 12%) time the wholesale cost of the valves
placed in the hospital.
Problem:
Heart Plus faces a cost of holding inventory that is higher than its competitors. The salespeople
are clearly overstocking hospitals in their territory. Considering that Heart Plus does not want to
lose good sales people how do you fix the problem?

2. A large coal-burning electric power plant is located on a river and every week a dozen barges
arrive loaded with coal to feed the power plant. The Transportation Division of the parent
company which is responsible for transporting the coal to the Power Plan Division pays a barge
company to make the coal deliveries.
Once the barge arrives at the docks, the Power Plant Division is responsible for unloading it..
The Power Plant Division is very slow to unload the barges, especially if more than one barge
must be unloaded simultaneously or if a barge arrives on a weekend. The Power Plant Division
has just one crew of dockworkers who rarely work over time or on weekends. If the company
ties up the barges for more than a three day period the barge companies charge the
Transportation Division a fee for time above and beyond the customary three days.
Problem:
Since very few barges are unloaded within three days the Transportation Division faces
unusually high transportation costs. You have been asked to fix the problem. What do you
recommend?

3.

A large video program and internet provider has seen a 10% annual rate of subscriber growth
over the past three years. The growth rate has been spurred by a marketing department that
typically has three or four marketing campaigns a year to drive new subscriptions.

Over the past year subscriber uncollectables have grown 40% above the previous years. The
executives of the company want to see at least double digit business growth for the company
and have agreed to new marketing campaigns to promote new subscribers.
Problem:
The reason for the high growth rate in uncollectable accounts is not clear. The growth in these
accounts has caused the net earnings of the company to be lower than expected. What do you
recommend that the company do to solve the uncollectable issue?

For the assigned problems make sure to develop a hypothesis statement and present logically
associated business decision alternatives. Prepare not more than three slides presenting your
statement of the problem/issue, hypothesis and potential business alternatives. The presentation
should take no longer than 10 minutes.
In addition, presenting your approach to addressing problems above use your training in economics and
answer the following questions as a guide to your proposed actions.
a. Who responsible for making the decision?
b. Does the decision maker have enough information to make a good decision? If not what
information is required?
c. Do they have incentive to do so?
d. How would you go about determining the best course of action?