Under what condition should a management team consider bidding for a private-label footwear contract?

A management team should consider bidding for a private-label footwear contract primarily when they predict idle production capacity. This situation presents a strategic opportunity to utilize available resources effectively.

Idle production capacity means that the company has the ability to produce more products without incurring significant additional costs. By securing a private-label contract, the company can generate additional revenue from utilizing this excess capacity, thereby improving overall efficiency and profit margins. It allows the company to maintain a steady production schedule, reduce costs associated with underutilized assets, and maximize the return on investment in production facilities.

In scenarios where market demand is unstable, having a private-label contract might not be as attractive due to uncertainty in sales volumes. Surplus inventory could indicate a mismatch in production and sales strategy rather than a reliable stream of revenue from a private-label deal. Similarly, when competitor prices drop significantly, it can lead to price wars and lower margins, making it less appealing to invest time and resources into bidding for contracts. Thus, the optimal condition arises when there’s a forecast of idle production capacity, ensuring that the company can leverage its strengths strategically.