In order to stay competitive in an industry with an increasing number of players, companies have to be able to stay on top of their costs, as well as that of their competitors. Costing is a very tricky business in itself. Companies are wont to making costing mistakes by going with the wrong assumptions.
The case of Tork versus LG shows how Tork conducts its breakdown of competitor costs in order to come up with strategies that will eliminate the costing advantage of LG. Tork is also burdened by an additional dilemma of continuing to produce low-end units or buying from LG, as well as deciding whether to pursue a legal battle against LG for dumping - that is, selling its products below cost.
LG …show more content…
steel) and other components (Appendix 3, Table 5). Freight is calculated based on the given volume, while other cost elements -- overhead and direct labor – take the percentage increases from Tork’s cost (Appendix 4, Table 6).
We then examined the size and weight of the corresponding models to see which ones are comparable.
It can be seen from Table 6 that among the mid to high end models, only models C, E and F are comparable (by cubic feet and weight).
In the same table, it can be seen that even though LG’s units are bigger in size, its weight is almost equal to that of Tork’s (models E and F). Moreover, the case states that LG sources their compressor from the same supplier as Tork’s for the high-end units. Hence, we assumed that LG must be using almost the same parts as Tork in Models E and F. With this assumption, we then used the cost of steel as multiplier for the weight of LG’s E and F units.
In the succeeding calculations, we can see that the material costs for both LG and Tork in Models E and F are almost the same. But with Tork gaining a significant advantage in freight costs, LG’s units turned out to be much more expensive for Models E and F.
We then aim to establish other considerations that Stan Lerner must consider in making his decision via the SWOT analysis. This analysis is based on the assumption that the target market is North America.
Cheaper costs, especially for