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Special orders - Coggle Diagram
Special orders
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Advantages
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Increasing production can have HRM benefits, such as increased wages for workers and payment of bonuses.
Spare capacity is used, increasing return on capital invested.
Can be useful to keep workers busy if the normal orders aren't sufficient due to poor economic conditions. Special orders can help keep workers in their jobs.
Further orders may follow. Some businesses will accept that an unprofitable special order if there's a possibility that it will result in a profitable regular and long term.
Disadvantages
What if existing customers discovered the discounted price offered to the new customer? Will they demand the same? They may become resentful and could look for a new supplier.
Will the new customer demand even lower prices in the future and will there be a requirement to prioritise the new orders over existing customers? This could have an adverse effect on loyal and long term customers.
Working at near or full capacity can put pressure on quality. If the business is already operating at full capacity how can it cope with existing customers in addition to the special order.
The new customer may undercut existing customers when selling the finished product. This could impact on their sales, which could then impact on future orders.
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Businesses may receive orders for their products that differ in terms of the profile of their regular orders.
The difference is often based on price paid, quantity ordered or the lead time .
Special orders can be one off or they could be a new buyer establishing a relationship with the supplier.
Decision to accept special order depends upon the potential immediate and future quantitative and qualitative benefits that result from the order.
The first stage in examining the value and impact of a special order is to use quantitative measure, the contribution.