Late Delivery of Hull from Top Crest:

When Considering all the issues this seems the most important one when considering the
time. As the hull which is due on December 1st is said to be delivered on February 1st, all the
other procedures regarding the boat will also be delayed resulting in a two month late
delivery to the customer. So Merbatty are under a pressure to take a decision as soon as
possible.
Option 1: Accepting the Compensation given by Topcrest
According to Appendix 1, this option seems the most financially beneficial one than the
others. But we cant ensure that the customer will ask only 25000 as a discount for a two
month late delivery. If they expect more than 90385.6 as a discount then there will be no
profit coming from the offer. Also Merbatty cant sue Topcrest even though they breach the
contract of paying Ex-Gratia Payment, so sometimes accepting the option might lead to loss.
Also since Topcrest and Merbatty are having a 20 year relationship and as they both are
highly valuing them then accepting the offer would be the suitable option, but as Topcrest is
one of the Worlds top three hull suppliers and nowadays as they are getting more orders,
Merbatty cant be sure that this would be the last time that Topcrest is delivering lately.
But there are some problems like the staff members who are skilled might leave the job if
they are kept idle for 2 months. This can be solved by using them to help to build the other
boats and use the other boat builders to help on this boat after the hull is delivered. This
would save the unnecessary payment for idle hours.
Also if the boat is delivered two months lately then it would affect the reputation of
Merbatty and might lead to reduction in customers. But as only one hull is late which is 0.3%
of the total sales in 2014 which wont much affect the reputation.
Option 2: Getting Hull from another Hull supplier
From Appendix 1 we can clearly see that this option is not financially beneficial. But
choosing this option would be a good solution in the long term if TopCrest is continuously
delivering the hulls lately. But choosing this option would lead TopCrest to withdraw their
offer and also not to prioritize Merbatty in their upcoming orders.
But this option would reduce the loss of reputation impact on Merbatty as it lets Merbatty
to deliver the boat 15 days earlier from May 31st. But it would be delivered lately than the
actual so it can be said that gone reputation is gone whether it is given 1.5 months late or
2months late.

Option 3: Paying an extra amount to Topcrest to deliver the hull on time

Merbatty can pay an extra amount to Topcrest in order to deliver the hull on December 1st .
But that extra amount should be as much as high to satisfy Topcrest to prioritize Merbatty
over the big contract that they have won. This option would be suitable if the boat is
needed by the customer on that specific date (March 31st) and they are not ready to accept
late delivery. This option would help Merbatty keep up its reputation but at a high cost.
According to our view ,as it is only one hull spending a high much amount is not efficient as
this late delivery of one hull is not going to make a great impact on the reputation.

Option 4: Cancel the Customers contract:

Merbatty can inform the customer that the boat would be late for delivery and if the
customer is not ready to accept this then it is financially better for Merbatty to cancel the
customers order. But this would really give a bad idea about Merbatty and the future sales
might get affected.

Recommendation:
When considering all the pros and cons from each of these options, in our opinion in order
to guard the 20 year relationship and also to get the financial benefit. Merbatty should
follow option 1 and accept the compensation offered by Topcrest, irrespective of the bad
reputation. But if Topcrest follows to do the same in the future then it is advisable for
Merbatty to choose another suitable hull supplier.

Appendix 1 :
Option1:

Number of staff who are idle:

Number of hours each staff member is idle for 2
months (Upto February 1st)
Normal Wage Rate
Compensation Rate offered by Topcrest
So profit gained
Discount Payment offered
Discount paid to customers
Ex-Gratia Payment given by Topcrest
So Total Gain

Calculation
1940*0.1
152*0.05*2

(30-18)*194*15.2

194
15.2
18
30
35385.6
25000
(25000)
30000
65385.6

Option2:

Number of staff who are idle:

Number of hours each staff member is idle for
1.5 months (Upto January 15th)
Normal Wage Rate
So Loss due to idle time payment
Extra Payment
So Total Expense

Calculation
1940*0.1
152*0.05*1.5

18*194*11.4

194
11.4
18
(39808.8)
(50000)
(89808.8)