Factors and Inputs in Producing Head and Shoulders Shampoo

Head and Shoulders: Inputs, Factors, and Decisions

Inputs

One fixed input for P&G's Head and Shoulders would be the machines and CAD used to create the packaging of the product and the computer-aided-design (CAD) used to generate the packaging features. Both are aspects of the same fixed cost because the machines and the designs used to steer them in production do not change with rises and falls in production (neither more nor fewer machines are needed -- it is only their use that might change). Furthermore, as for CAD, for a global company like P&G, a generic label or design may need "minor modifications on a country-by-country basis" but for the most part this does not alter, nor does it change with alterations in production levels (Czinkota, Ronkainen, 2006, p. 477).

Two variable inputs would be commodities and distribution. Commodities, such as palm oil and linear alkyl benzene, which are "key inputs for making soaps, shampoo and detergents" (Bhushan, Malviya, 2012), fluctuate as needed in terms of supply and demand levels related to production. Distribution is also a variable input that depends upon production levels: if a product is not yet global but only domestic, obviously distribution costs will alter when it goes global, as has Head and Shoulders over the years. Breaking into new markets will add to distribution costs; thus it is a variable input for the product.

Factors

The factors that impact the choice of inputs to produce Head and Shoulders are the price of commodities, culture, and inflation. The price of commodities is always fluctuating, so it would be naive to think that this should not be a factor in choosing which inputs to examine. Commodities prices change all around the world with futures contracts, etc., and so it is essential to take stock of this action.

Culture is another factor that is a must when evaluating inputs. Different cultures approach the product in their own way. For example, in America, it is common practice to buy bottles of shampoo, sometimes even big bottles (to both save on costs and to eliminate the need to go out and purchase again when the smaller bottle runs out). Yet, in a country like India, the reverse is true. Here the bottle costs more than the little packets or sachets of shampoo that are sold in stalls and in grocery stores. Indians are accustomed to paying rupees for their shampoo packets and even buying dozens of them at a time instead of springing for the more expensive (but more accommodating) bottles. The reason is that this is just part of the culture which may be defined as an emerging market.

A third factor would be inflation, which rises and falls around the world too. Sometimes the threat of the inverse is on the horizon (deflation) and it all depends upon what the global economy is doing and how the banks are handling the nations' economies. Inflation has to be something to consider when monitoring inputs as well, because it must be accounted for in terms of describing margins.

Decisions

The production decisions that I would make, therefore, would be to apply production criteria to individual markets based on the price of commodities, the cultural traditions, and the rate of inflation, all of which affect variable inputs.

The price of commodities would have to be factored into the decision making process because in reality "global companies may have an advantage in being able to utilize resources from around the world" (Czinkota, Ronkainen, 2006, p. 477). Thus, it would make sense to see what prices are doing in different parts of the world before making a production decision. For example, in India, the price of commodities such as palm oil and linear alkyl benzene have dropped, the former by nearly 30% at times in a single year (Czinkota, Ronkainen, 2006, p. 477), and this would play an important part in production costs, if it can be determined that a considerable arbitrage action can be taken by purchasing these commodities in cheaper markets and incorporating them into cheaper productions in other markets where labor costs are also low.