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Class 3-Planning Capacity
Class 3-Planning Capacity
Discussion 2:
Type of consideration to recommend this company offers for it to estimates its capacity
requirements in the long run is based on its utilization rate of current product and capacity,
capacity timing and strategies (capacity cushion) for Memotec to absorb any sudden
volume spike in the demand and capacity requirements for motherboard demand from
projected volume. Utilization rate consideration has the purpose to determine how much
degree of current capacity is being used to produce motherboard whether underutilize or
fully utilize. Cushion capacity is the margin or reserve capacity to absorb sudden hike in
the demand or production capacity or losses. Capacity requirement has the purpose to
determine how much new capacity is needed to meet demand forecast compared to
current capacity. The company need to take account of new capacity needed to meet
demand of forecasted volume, identify the gap, and developing options to react to the
gap identified. Qualitative and quantitative consideration must be in the option selection
especially for quantitative consideration related to cashflow. After proper assessment,
then the decision can be made to proceed for long term capacity upgrade (selection
between alternative options) or fill the gap by short term activity such as overtime or
outsourcing to other suppliers.
Problem 4:
The plant has the adequate capacity for pessimistic forecast demand. For Expected
demand, the plant to do short term counter measure such as overtime or outsourcing. For
Optimistic demand, the plant need to add one more machine to cater with the demand
due to lack of one machine capacity.
Problem 14:
b)
Projected Projected Calculation of Incremental Cash Cash
Year Demand Capacity Flows Compared to Base Case inflow
(Customer/year) (Customer/Year) (500,000) (outflow)
Year 0 500,000 500,000 No incremental compare No flow
Year 1 560,000 500,000 No incremental compare No flow
Year 2 600,000 500,000 Increase capacity to 700,000 $(240,000)
Year 3 685,000 700,000 685k-500k=185k ($1.12) -144k $63,200
Year 4 700,000 700,000 700k-500k=200k ($1.2) - 144k $96,000
Year 5 715,000 700,000 700k-500k=200k ($1.2) - 144k $96,000
Problem 20:
a) Expected pay-off
i. Water Saver 1000
Low demand
0.25
$1,000
Medium demand
0.5
$2,000
High demand
0.25
$3,000
Water Saver 1000
Low demand
0.25
$700
Medium demand
0.5
$1,000
High demand
0.25
$2,000
Low demand
0.25
$2,500
Medium demand
0.5
$3,000
High demand
0.25
$5,000
Greener Grass 5000
Low demand
0.25
$1,000
Medium demand
0.5
$2,000
High demand
0.25
$3,000
b) Denise should produce Greener Gras 5000 with expansion. Medium demand
with probability of 0.5 is $3,00 that higher than any medium demand in other
options. So that is the best choice to produce a product.