Operations Strategy & Management Week3

1) The problems pertain to chapters 5 & 8, Stevenson.

i) A firm intends to increase capacity by overcoming a bottleneck operation by adding new equipment. Two vendors have presented proposals. The fixed costs for proposal A are $50,000, and for proposal B, $70,000. The variable cost for A is $12.00, and for B, $10.00. The revenue generated by each unit is $20.00.

a) What is the break-even point in units for proposal A?

b) What is the break-even point in units for proposal B?

c) What is the break-even point in dollars for proposal A if you add $10,000 installation to the fixed cost?

d) What is the break-even point in dollars for proposal B if you add $10,000 installation to the fixed cost?           

e) At what volume (units) of output would the two alternatives yield the same profit?

ii) Sunshine Market’s main distribution center in Phoenix, AZ. Fresh produce travels to the seven store locations several times a day making site selection critical for efficient distribution. Using the data in the following table, determine the map coordinates for the proposed new distribution center.

2) Read the case “Freeman Biotest Inc” (the case pertains to chapter 4, Slack & Lewis). The provision of capacity cannot be always separated from the characteristics of the technology which provides that capacity. So, it is in the Freeman Biotest case. The company has two facilities (known as Brayford lines) one of which is starting to prove unreliable. In any event, the total capacity of the two Brayford lines is only a little greater than current volumes. Given that volume is forecast to increase by around 20 per cent in the next few years, there will be a need to invest in extra capacity if demand is to be fulfilled.

Question

In the short-term, the question is whether to invest in a Brayford or a Bi-line 8 facility. New capacity is required both, because one of the current Brayford facilities in failing and because demand is almost filling current capacity. In the long-term, the decision concerns not only the type of facilities which will provide the company’s capacity, but also must take into account the uncertainties in the marketplace. Broadly speaking, demand is likely to grow slowly if no product technology breakthrough is achieved, but could grow very quickly indeed if the product modifications are developed successfully. Any short-term capacity solutions will need to take into account possible future capacity requirements.

Hints

This case seems to be about a choice between purchasing two types of technology, and of course it is. However, in making these decisions the company is shaping the configuration of its capacity for the next few years.

Think about two scenarios. The first assumes just a modest increase in demand for FBXX. The second assumes that the technical breakthrough has occurred and demand is substantially (3 or 4 times) higher. 

Now think about the consequences of increasing capacity through purchasing Brayford machines or Bi-line 8 machines.

Analyze the case, try to identify the options that you believe the company could adopt, and then assess the advantages and disadvantages of each.

Note

Please see the “guidelines for case write-up” (and also the “assessment rubric for cases”) and try to follow the same to the extent possible (these are just suggested guidelines so if you are familiar/ comfortable with using a different format, that is fine).

As a general guideline, please try to limit your answer to a page for the case.

Upload the completed assignment using the file extension format Lastname_Firstname_Week3.

Refer to the “Submissions” section in the “Annexure to Syllabus” document and the “Assessment Rubrics” document for more information/instructions regarding assignment submissions.

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