Question

Elevators generally break down at random times and for different reasons. Elevator maintenance contractors must have trained service personnel to provide routine and emergency service. Shan On Elevator, Hong Kong, has 200 service personnel to maintain 1,000 elevators.

1. Suppose that Shan On has received a contract to maintain an additional 1,000 elevators. Do you expect that Shan On will need to double service personnel? Why or why not?
2. Escalators and elevators use quite different technology and parts, but many clients operate both escalators and elevators. Are there any economies of scope for a contractor to maintain both escalators and elevators?

Answer 1

Answer : In this case, the main problem is that Shan on Elevators has been break down some time because of various reasons such as :

Inefficient personnel Problem in quality of raw material Handling problem Useage is not according to instructions

SWOT Analysis :

STRENGTH : Barriers of Entry is very high Higher profit margin Investment in new technology Specialised skill is provided to personnel

WEAKNESS :

Competition from big players so try to make reputation in the market. Reputation is not good in the market because elevators has been break down randomly. Cost of runing business is very high.

Oppournities

: Strong prospects of growth as it is a new technology based industry. Proper R&D resources has been implemented for development.

Threats :

Strong competition between them. Higher investment oppournities. From SWOT Analysis we have come across various points such as :

Firstly, Shan on elevators has to work upon there break down reasons. As reputation of the company has been affected so company be careful about there higher quality in the product. Proper training has been provided to personnel. Efficiency of the company has been increased by employing higher quality in machineary. Investment in R&D for future growth --------------------------------------------------------------------------------------------------------------------------------------------------

Answer a : From my point of view it is not necessary to increase additional 200 personnel for additional 1000 elevators because it is not know that the present personnel are 100% utilised there capacity . I am not expecting that shan on will need to double service personnel because they employed few more personnel and reduced there cost of maintianing esclators. A company should grow and increased there production with maintiance and it has better chance to decrease there costs.

Answer b : The example " a " refers to the " Economics of scale" . It is a situation where cost of maintianing the esclators has been decreased as volume of maintiance has been increased. The profit of the esclator business has been increased.

Answer c : There is economics of scope for a contractor to maintian both esclators and elevators. The reason are that the company should producing elevators and esclators so that they can enjoyed cost advantage by providing variety of related products in full utilising of an input. So, that cost per unit has been reduced and it is resulted economics of scale gained by the company.