Question

You are the CFO. You know that capacity utilization is important. If long-term operating assets are used inefficiently, the cost per unit produced is too high. Cost per unit does not relate solely to manufacturing products. It also applies to the cost of providing services and many other operating activities. However, if we purchase assets with little productive slack, our costs of production at peak levels can be excessive. Further, the company may be unable to service peak demand and risks losing customers. In response, the company might explore strategic alliances. These alliances can take many forms.

Some require a simple contract to use another company's manufacturing, service, or administrative capability for a fee.

Another type of alliance is a joint venture to share ownership of manufacturing or IT facilities. In this case, if demand can be coordinated with that of a partner, perhaps operating assets can be more effectively used.

As the chief financial officer, what thoughts do you have? Is one of these forms better than others all the time? Which factors would you consider in deciding on the form of a strategic alliance?

Answer 1

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