Why might the objective to maximize profits be difficult to use at the plant level? What advantages, or disadvantages, are there to using "minimize unit cost" instead?

At the plant level, decisions are made regarding the production level, resource allocation, and management of production-related activities at a specific manufacturing plant of a company. It is a subset of the broader company-level strategy and is influenced by business environment constraints, management capabilities, and the competitive dynamics within the industry.

Profit maximization is the primary objective of any typical company that aims to generate the highest possible net income given its operations. Applying this overall objective to the plant level can be difficult because: 1. Plant managers have limited control over some factors that impact profits directly, like market price, advertising expenditures and firm-wide resource allocation. 2. Profit maximization may result in increasing revenue at the production cost's expense, leading to the exhaustion of resources or underutilization of production capacity. 3. It can drive managers to focus on short-term financial gains rather than long-term sustainability and success. These difficulties may lead to a myopic focus on profit at the expense of other equally important considerations such as resource utilization, employee satisfaction, and environmental impact.

Minimizing unit cost, on the other hand, refers to the pursuit of achieving the lowest possible average cost of production per unit by focusing on optimizing production processes, reducing waste, and increasing efficiency. This objective has certain advantages and disadvantages at the plant level: Advantages: 1. It promotes the efficient use of resources and reduces wastage, thus leading to less environmental impact and better overall sustainability. 2. It can lead to the adoption of cost-effective technology and innovation in production processes. 3. It is a more tangible and achievable goal for plant managers and employees compared to profit maximization, which may depend on external factors. Disadvantages: 1. The focus on reducing cost per unit may discourage investment in product development, new technologies, skilled labor, or other value-adding activities, which might hurt long-term competitive advantage. 2. Excessive focus on cost reduction may lead to compromising product quality. 3. It might incentivize plant managers to cut corners on employee safety and working conditions in a bid to reduce expenses. In conclusion, using the objective "minimize unit cost" instead of profit maximization at the plant level may simplify decision-making, promote efficiency, sustainability, and address some of the difficulties related to profit maximization. However, it may also risk compromising long-term competitiveness and employee well-being if cost-cutting measures are taken to the extreme. A balanced approach that integrates both objectives, while considering other important aspects like safety, innovation, and employee satisfaction, may be most beneficial at the plant level.