Running head: [ Microeconomic Analysis on The Procter and Gamble Company 1

2

Title Page

Part One Milestone Two

1. Three key inputs or factors of production

Three key inputs or production factors involved in the production of Bounty, Charmin, and Puffs products made by Proctor and Gamble are: Land, Capital and Labor.

Land

Land or natural resources is the first key production factor for Bounty. The Cocoa beans extracted from the Cocoa trees are the most important natural resource required for producing chocolate. Land or natural resources fall into the fixed cost category as they do not vary with the change in the production plans. Any natural disaster affecting the Cocoa trees can directly affect Proctor and Gamble’s chocolate production ability (P&G Annual Report, 2018).

Capital

Capital is the second key production input for producing Bounty. The product is made by using different technology, machinery and material components. Some examples of the physical capital include machinery, equipment and building to support the production process. Proctor and Gamble purchases capital components from different sources to produce the product. Capital falls into the fixed cost category as it does not vary with the production (Dean & Kretschmer, 2007).

Labor

Labor is another key production input directly involved in production of Bounty is ‘Labor’. Labor denotes all the physical or mental efforts exerted by humans during the production process. Proctor and Gamble uses internal and external employees to produce and distribute the products.

Laborers work in 35 manufacturing plants across the world (P&G, 2019). Opening manufacturing plants in low cost regions like South Africa and India allows Proctor and Gamble to reduce production costs. It purchases the Cocoa for producing chocolate from small farmers. Taste testers are also involved to ensure the product quality. The overall labor cost is divided into different activities, ranging from purchasing or harvesting cocoa, producing chocolate, distributing and marketing the product. The direct labor can be categorized as variable, whereas, indirect labor (like employees involved in marketing activities) can be considered fixed cost (BSL, 2016).

2. Factors that influence the choice of inputs to produce chosen product

Cost is one of the major factor influencing the choice of inputs to produce the ‘Bounty’. Opening production facilities or outsourcing some production parts can minimize the cost, but lessen the firm’s control over the production process. Whereas, opening production plans near headquarters can result into better control, but will significantly raise the overall production cost. Risk is another factor that may affect decision of opening production facilities in areas with high natural disaster risks and water shortage that may affect cocoa production. Such calamities can delay the production, spoil the dairy products and result into late entrance of new product versions in the market (Cullor, 1997).

The required lead time (as expected by the customers) is another factor that affect the choice of inputs. The volume and variety also influence the input choice of firm as highly skilled labor is required to offer a variety of products along with general machinery and effective control system. Whereas, low product variety requires average skilled labor and automated mass production with special machines. Lastly, the external environmental dynamics influence the choice of production inputs. The changes in the customers’ tastes, increasing health consciousness and use of latest technology influence the production process and requires firms to readjust their labor and capital strategies accordingly (Gregory, 2017).

3. Production decisions based on the analysis of the factors influencing inputs’ choice

It is important to compare the cost and desired control over the production process and make decision by balancing both factors. It can be achieved by opening production facilities in low cost areas and introducing effective control mechanisms by centralizing important processes. The detailed risk analysis will be conducted to identify the internal weaknesses and external threats when opening production facilities in new areas. There are many chocolate product brands and ‘Bounty’ by Proctor and Gamble currently faces tough competition in the consumer market (P&G Annual Report, 2018).

A detailed market analysis needs to be conducted to determine what product variety is desired by customers, and how Proctor and Gamble can fulfil those expectations. The results of market, customer and competitor analysis may result into important modifications in the labor (in terms of skills) and capital (machinery). It will be important to ensure that the production process is not interrupted. Costs and production are interdependent and it is important to attain an equilibrium. Financial analysis of the company will help in deciding how much firm can invest in capital and skills of labor to offer new product variety without facing financial constraints (Dean & Kretschmer, 2007).

Finally, the production decisions will be supported with a detailed consumer preference analysis. The results of consumer preference may result into revising the manufacturing process and re-branding so that the offered product may satisfy the customers’ overall expectations, ranging from taste, packaging, price, branding, distribution and marketing.

References

BSL (2016). Successful Sustainability Strategy: Procter & Gamble Case. Business School Lausanne. Retrieved from: https://www.bsl-lausanne.ch/wp-content/uploads/2017/01/Luca-F-Procter-Gamble-Case-Study.pdf

Cullor, J. S. (1997). Risks and prevention of contamination of dairy products. Revue scientifique et technique-Office international des épizooties16, 472-481.

Dean, A., & Kretschmer, M. (2007). Can ideas be capital? Factors of production in the postindustrial economy: A review and critique. Academy of Management Review32(2), 573-594.

Gregory, L., (May 25, 2017). Procter & Gamble’s Operations Management: 10 Decisions, Productivity. Panmore Institute. Retrieved from: http://panmore.com/procter-gamble-operations-management-10-decisions-productivity

P&G Annual Report (2018). Annual Report- 2018. Retrieved from: https://www.pg.com/annualreport2018/index.html#/

Proctor & Gamble (2019). Official Webpage. Retrieved from: https://www.pgcareers.com/our-locations