Flawed case

Hi Guys,

I went through this case, and I have the impression that it has 2 very serious mistakes.

1. I don't understand while we ignore lost profit that Onboard is currently doing while calculating synergies from sourcing 2-layer PCB. In the case, Chip will switch its sourcing of 2-layer PCB to Onboard because it has lower unit costs, which makes perfect sense. But the way how savings are calculated (simply currently born costs by Chip minus costs if switching to Onboard) neglect the fact that Onboard will forego profit it makes on current clients. They produce and sell PCB to their current clients but will stop doing so if Chip&Chip takes over their whole production. This loss in profit is completely ignored in the case, but it lowers ROI and might change recommendation

2. I am not quite sure why we take $3 as a unit profit from sourcing from the Vietnamese plant. In fact, the case states," These boards will generate a profit of $3 instead of $1.5 for the 2-layer ones. If this is is $3 profit instead of $1.5, we need to take incremental profit, which is 1.5, not 3.0! It makes unit profit two times lower compared to the current solution. In calculations like that, we always need to look at incremental values, not the absolute ones.

Happy to get your perspective.

Thank you!

Best

Paweł