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Economic Case Study - Universal

Economics - Summary
The economics involved in the make or buy issue were unusually complex. In 1982 the manufacturing facilities that were required to make a meaningful volume of semiconductors for Universal would have cost in excess of $50 million. There was concern about Universal's ability to run a high-tech semiconductor facility effectively and efficiently. Further there was the issue of culture. Would the semiconductor industry culture mesh? It became apparent that a decision to manufacture integrated circuits (ICs) was a very high cost strategy. It was likely that the resulting ICs (manufactured by Universal) would cost two to five times as much as purchased ones. However, management felt that the cost penalty might be a sound investment in quality and technology and give Universal a significant competitive advantage.

1) What are UMC's six strategic concerns?
2) Develop a one-sentence statement of the problem confronting UMC in this case?
3) What alternatives are available to Universal?
4) What are the advantages and disadvantages of each?
5) What action do you recommend?
6) if Universal were to buy all or a portion of the semiconductors from one or more outside suppliers, what specific characteristics must such a supplier possess?


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1) What are UMC's six strategic concerns?

Looks to be the big one is just-in time manufacturing comes to a screeching halt with stock-outs and projected auto-industry demand for the chip is not going to change the semiconductor status quo in the foreseeable future. Sourcing from multiple customers irritates shaky supplier relations. The auto industry projected demand for chips is 9-fold the present requirement. The actual effect on the auto industry is probably geometric to this factor. Purchasing is culturally thought of as a reactive function with little experience in forward planning, business planning, or strategic planning. The semiconductor industry ...

Solution Summary

This solution is provided in 467 words. It discusses the problems facing Universal and what solutions could occur to improve the company's manufacturing and supply process.