Alex Processing

Alex Processing produces a line of food products that are used as key ingredients in mass-produced
meals. The CEO, who recently hired you as his assistant, requested you to prepare an equipment
acquisition plan.

After consulting Sam English, the executive engineer, you are able to tabulate the equipment holding, the
last 10 years' annual aggregate demands, and the next 10 years' expected annual aggregate demands.

You can now

you start, you begin
recall work by estimating
the following advicethe equipment
given requirements
you by the CEO: for each equipment type. But before

● Past forecasts and acquisition plans were very crude, though they were adequate in the fast business
growth phase.
● Demand growth rate has slowed significantly, and from hereon such rough planning may lead to buying
equipment too early and even possible expensive over-purchase mistakes.
● Productivity will continue to improve, but its change rate will eventually approach saturation.

This exercise was written as a basis for class discussion. It illustrates neither the effective nor ineffective
management of the given situation. Data provided may be entirely hypothetical.

LeongTY 753780536.xlsx/Home
Alex Processing Copyright © Leong Thin Yin, 2004. All Rights Reserved.

Input
Unit Cost ($) 100,000 50,000 250,000 70,000 120,000 90,000
Order Leadtime (yrs) 1 1 3 1 1 2

Output
Aggregate Grader Sorting Bonding Packing
Year Demand Grinder Machine Machine Seive Machine Equipment Machine Machine
(yyyy) (ton) (qty) (qty) (qty) (qty) (qty) (qty)
1997 3.91 4 5 2 9 1 2
1998 5.06 4 5 2 10 1 3
1999 6.05 4 4 3 11 1 4
2000 7.77 5 7 3 13 2 5
2001 10.03 6 8 4 15 2 5
2002 12.01 7 11 4 16 3 7
2003 14.61 7 12 5 19 3 7
2004 17.39 8 15 6 20 3 8
2005 20.82 9 16 6 23 5 9
2006 23.92 10 19 7 24 5 10
2007 27.74 10 21 7 25 6 11
2008 31.90 10 23 8 26 7 12
2009 36.04 11 25 8 27 7 13
2010 40.73 11 28 9 28 8 14
2011 45.22 12 30 9 29 9 14
2012 50.19 12 32 9 29 10 15
2013 55.36 12 34 10 30 11 16
2014 62.02 12 36 10 31 13 16
2015 68.03 13 38 10 31 14 17
2016 73.29 13 40 11 31 15 17

Grinder Machine
(prod)
3.0000

2.5000
f(x) = 0.0651356325010811 x + 0.974317073101362
2.0000
Productivity

1.5000

1.0000

0.5000

0.0000
0.00 5.00 10.00 15.00 20.00 25.00 30.00
Aggregate demand

Linear regression X:
eqn = Y = aggregate
0.0651X + 0.9743 demand
Y:productivity
if X increases by 1, Y will increse by 0.0651
X = 27.74
Y = 0.0651*27.74 + 0.09743
2.780174

LeongTY 753780536.xlsx/Proto
hin Yin, 2004. All Rights Reserved.

110,000
2

Test
Equipment
(qty)
5
6
7
8
9
10
11
12
14
14
15
15
16
17
17
17
18
18
18
19

Productivity vs Demand
8.0000 80.00

7.0000 70.00

6.0000 60.00 Aggregate Demand

(ton)
Grinder Machine
(prod)
5.0000 50.00 Grader Machine
Aggregate Demand

(prod)
Seive Machine
Productivity

(prod)
4.0000 40.00
Sorting Equipment
(prod)
Bonding Machine
3.0000 30.00 (prod)
Packing Machine
(prod)
Test Equipment
2.0000 20.00 (prod)

1.0000 10.00

0.0000 0.00
500 1000 1500 2000

Axis Title

LeongTY 753780536.xlsx/Proto
 new machine = new demand/new productivity
small exercise, don’t consider lead time

Grader Sorting Bonding Packing

Year Grinder Machine Machine Seive Machine Equipment Machine Machine
(yyyy) (prod) (prod) (prod) (prod) (prod) (prod)
1997 0.9775 0.7820 1.9550 0.4344 3.9100 1.9550
1998 1.2650 1.0120 2.5300 0.5060 5.0600 1.6867
1999 1.5122 1.5122 2.0163 0.5499 6.0490 1.5122
2000 1.5548 1.1106 2.5913 0.5980 3.8870 1.5548
2001 1.6713 1.2535 2.5070 0.6685 5.0140 2.0056
2002 1.7151 1.0915 3.0015 0.7504 4.0020 1.7151
2003 2.0864 1.2171 2.9210 0.7687 4.8683 2.0864
2004 2.1735 1.1592 2.8980 0.8694 5.7960 2.1735
2005 2.3128 1.3009 3.4692 0.9050 4.1630 2.3128
2006 2.3920 1.2589 3.4171 0.9967 4.7840 2.3920
2007 2.7812 1.3367 3.7927 1.1183 4.7974 2.5243
2008 3.0522 1.3813 4.0763 1.2287 4.8092 2.6805
2009 3.3219 1.4256 4.3584 1.3386 4.8209 2.8359
2010 3.6275 1.4759 4.6781 1.4631 4.8342 3.0120
2011 3.9196 1.5239 4.9838 1.5821 4.8469 3.1803
2012 4.2432 1.5771 5.3223 1.7140 4.8609 3.3668
2013 4.5801 1.6325 5.6748 1.8512 4.8756 3.5609
2014 5.0141 1.7039 6.1289 2.0280 4.8944 3.8110
2015 5.4054 1.7682 6.5382 2.1875 4.9114 4.0364
2016 5.7480 1.8245 6.8968 2.3271 4.9263 4.2339

Productivity vs Demand
8.0000 80.00

7.0000 70.00

6.0000 60.00 Aggregate Demand

(ton)
Grinder Machine
(prod)
5.0000 50.00 Grader Machine
Aggregate Demand

(prod)
Seive Machine
Productivity

(prod)
4.0000 40.00
Sorting Equipment
(prod)
Bonding Machine
3.0000 30.00 (prod)
Packing Machine
(prod)
Test Equipment
2.0000 20.00 (prod)

1.0000 10.00

0.0000 0.00
500 1000 1500 2000

Axis Title

LeongTY 753780536.xlsx/Proto
 Test
Equipment
(prod) Documentation
0.7820
0.8433 unit cost of equipmemt D4:J4 <input>
Past productivity

0.8641 equipment order leadtime D5:J5 <input>

0.9717
1.1142 actual aggregate demand C9:C18 <input>
1.2006 equipment holding D9:J18 <input>
1.3277 projected aggreagate demand C19:C28 <input>
1.4490
1.4868 actual productivity N9:T18 =$C9/D9
1.7086 projected productivity N19:T28 =TREND(O$9:O$18,$C$9:$C$18,$C19)
1.8804 projected machine requirements D19:D28 =$C19/O19
Forecasted Productivity

2.0688
2.2562
2.4686
2.6717
2.8966
3.1308
3.4324
3.7044
3.9426

LeongTY 753780536.xlsx/Proto
,$C$9:$C$18,$C19)

LeongTY 753780536.xlsx/Proto
Alex Processing Copyright © Leong Thin Yin, 2004. All Rights Reserved.

Input
Unit Cost ($) 100,000 50,000 250,000 70,000 120,000 90,000
Order Leadtime (yrs) 1 1 3 1 1 2

Output
Aggregate Grinder Grader Seive Sorting Bonding Packing
Year Demand Machine Machine Machine Equipment Machine Machine
(yyyy) (ton) (qty) (qty) (qty) (qty) (qty) (qty)
1997 3.91 4 5 2 9 1 2
1998 5.06 4 5 2 10 1 3
1999 6.05 4 4 3 11 1 4
2000 7.77 5 7 3 13 2 5
2001 10.03 6 8 4 15 2 5
2002 12.01 7 11 4 16 3 7
2003 14.61 7 12 5 19 3 7
2004 17.39 8 15 6 20 3 8
2005 20.82 9 16 6 23 5 9
2006 23.92 10 19 7 24 5 10
2007 27.74 10 21 7 25 6 11
2008 31.90 10 23 8 26 7 12
2009 36.04 11 25 8 27 7 13
2010 40.73 11 28 9 28 8 14
2011 45.22 12 30 9 29 9 14
2012 50.19 12 32 9 29 10 15
2013 55.36 12 34 10 30 11 16
2014 62.02 12 36 10 31 13 16
2015 68.03 13 38 10 31 14 17
2016 73.29 13 40 11 31 15 17

Grinder machine
Grinder Machine
(prod) y = 0.0651 x + 0.9743
3
When x = 27.74
2.5
f(x) = 0.0651356325010811 x + 0.974317073101362
2 Then
Productivity

1.5 y= 2.780174
1
TREND() is used for linear prediction
0.5
Const TRUE or omitted
0
0 5 10 15 20 25 30 FALSE
Aggregated Demand
y=ax+b
Yin, 2004. All Rights Reserved.
Step 1: Calculate the past productivity = Aggregated demand in the past / # of m
Step 2: Estimate the productivity of machine = TREND()
110,000 Step 3: Determine # of machines needed = Forecasted demand / Forecasted prod
2

Test Grinder Grader Seive Sorting Bonding Packing Test

Equipment Machine Machine Machine Equipment Machine Machine Equipment
(qty) (prod) (prod) (prod) (prod) (prod) (prod) (prod)
5 0.9775 0.7820 1.9550 0.4344 3.9100 1.9550 0.7820
6 1.2650 1.0120 2.5300 0.5060 5.0600 1.6867 0.8433
7 1.5122 1.5122 2.0163 0.5499 6.0490 1.5122 0.8641
8 1.5548 1.1106 2.5913 0.5980 3.8870 1.5548 0.9717
9 1.6713 1.2535 2.5070 0.6685 5.0140 2.0056 1.1142
10 1.7151 1.0915 3.0015 0.7504 4.0020 1.7151 1.2006
11 2.0864 1.2171 2.9210 0.7687 4.8683 2.0864 1.3277
12 2.1735 1.1592 2.8980 0.8694 5.7960 2.1735 1.4490
14 2.3128 1.3009 3.4692 0.9050 4.1630 2.3128 1.4868
14 2.3920 1.2589 3.4171 0.9967 4.7840 2.3920 1.7086
15 2.7812 1.3367 3.7927 1.1183 4.7974 2.5243 1.8804
15 3.0522 1.3813 4.0763 1.2287 4.8092 2.6805 2.0688
16 3.3219 1.4256 4.3584 1.3386 4.8209 2.8359 2.2562
17 3.6275 1.4759 4.6781 1.4631 4.8342 3.0120 2.4686
17 3.9196 1.5239 4.9838 1.5821 4.8469 3.1803 2.6717
17 4.2432 1.5771 5.3223 1.7140 4.8609 3.3668 2.8966
18 4.5801 1.6325 5.6748 1.8512 4.8756 3.5609 3.1308
18 5.0141 1.7039 6.1289 2.0280 4.8944 3.8110 3.4324
18 5.4054 1.7682 6.5382 2.1875 4.9114 4.0364 3.7044
19 5.7480 1.8245 6.8968 2.3271 4.9263 4.2339 3.9426

Productivity vs Demand Aggregate

0.06513563 Demand
8 80 (ton)
0.97431707
Grinder
7 70 Machine
(prod)
6 60
Productivity (tons/macine)

Grader
Machine
Demand (ton)

5 50 (prod)
Seive Mac
ed for linear prediction 4 40 (prod)
Sorting
3 30 Equipmen
RUE or omitted (prod)
Bonding
2 20 Machine
(prod)
1 10 Packing
Machine
0 0 (prod)
500 1000 1500 2000
Test
Year Equipmen
(prod)
d demand in the past / # of machines

demand / Forecasted productivity

Documentation

Unit cost of equipment D4:J4 <input>

Past Productivity

Equipment order leadtime D5:J5 <input>

Actual: Aggregated demand C9:C18 <input>

Projected: Aggregated demand C19:C28 <input>
Equipment holding D9:J18 <input>

Actual: Productivity N9:T18 =$C9/D9

Projected: Productivity N19:T28 =TREND(N$9:N$18,$C$9:$C$18,$C19)
Projected: Machine requirement D19:J28 =$C19/N19
Forecasted Productivity

Aggregate
Demand
80 (ton)
Grinder
70 Machine
(prod)
60 Grader
Machine
Demand (ton)

50 (prod)
Seive Machine
40 (prod)
Sorting
30 Equipment
(prod)
Bonding
20 Machine
(prod)
10 Packing
Machine
0 (prod)
Test
Equipment
(prod)
Alex Processing Copyright © Leong Thin Yin, 2004. All Rights Reserved.

Input
Unit Cost ($) 100,000 50,000 250,000 70,000 120,000 90,000 110,000
Order Leadtime (yrs) 1 1 3 1 1 2 2

Holding & Requirement

Aggregate Grinder Grader Sieve Sorting Bonding Packing Test
Year Demand Machine Machine Machine Equipment Machine Machine Equipment
(yyyy) (ton) (qty) (qty) (qty) (qty) (qty) (qty) (qty)
1997 3.91 4 5 2 9 1 2 5
1998 5.06 4 5 2 10 1 3 6
1999 6.05 4 4 3 11 1 4 7
2000 7.77 5 7 3 13 2 5 8
2001 10.03 6 8 4 15 2 5 9
2002 12.01 7 11 4 16 3 7 10
2003 14.61 7 12 5 19 3 7 11
2004 17.39 8 15 6 20 3 8 12
2005 20.82 9 16 6 23 5 9 14
2006 23.92 10 19 7 24 5 10 14
2007 27.74 10 21 7 25 6 11 15
2008 31.90 10 23 8 26 7 12 15
2009 36.04 11 25 8 27 7 13 16
2010 40.73 11 28 9 28 8 14 16
2011 45.22 12 30 9 29 9 14 17
2012 50.19 12 32 9 29 10 15 17
2013 55.36 12 34 10 30 11 16 18
2014 62.02 12 36 10 31 13 16 18
2015 68.03 13 38 10 31 14 17 18
2016 73.29 13 40 11 31 15 17 19

Performance Ratio
Aggregate Grinder Grader Sieve Sorting Bonding Packing Test
Year Demand Maching Machine Machine Equipment Machine Machine Equipment
(yyyy) (ton) (qty) (qty) (qty) (qty) (qty) (qty) (qty)
1997 3.91 0.978 0.782 1.955 0.434 3.910 1.955 0.782
1998 5.06 1.265 1.012 2.530 0.506 5.060 1.687 0.843
1999 6.05 1.512 1.512 2.016 0.550 6.049 1.512 0.864
2000 7.77 1.555 1.111 2.591 0.598 3.887 1.555 0.972
2001 10.03 1.671 1.254 2.507 0.669 5.014 2.006 1.114
2002 12.01 1.715 1.091 3.001 0.750 4.002 1.715 1.201
2003 14.61 2.086 1.217 2.921 0.769 4.868 2.086 1.328
2004 17.39 2.173 1.159 2.898 0.869 5.796 2.173 1.449
2005 20.82 2.313 1.301 3.469 0.905 4.163 2.313 1.487
2006 23.92 2.392 1.259 3.417 0.997 4.784 2.392 1.709
2007 27.74 2.780 1.340 3.790 1.120 4.800 2.520 1.880
2008 31.90 3.050 1.380 4.080 1.230 4.810 2.680 2.070
2009 36.04 3.320 1.430 4.360 1.340 4.820 2.840 2.260
2010 40.73 3.630 1.480 4.680 1.460 4.830 3.010 2.470
2011 45.22 3.920 1.520 4.980 1.580 4.850 3.180 2.670
2012 50.19 4.240 1.580 5.320 1.710 4.860 3.370 2.900
2013 55.36 4.580 1.630 5.670 1.850 4.880 3.560 3.130
2014 62.02 5.010 1.700 6.130 2.030 4.890 3.810 3.430
2015 68.03 5.410 1.770 6.540 2.190 4.910 4.040 3.700
2016 73.29 5.750 1.820 6.900 2.330 4.930 4.230 3.940
Performance ratios projection may be set by performance targeting.

LeongTY 753780536.xlsx/Model
Trends
2007 2.781 1.337 3.793 1.118 4.797 2.524 1.880
2008 3.052 1.381 4.076 1.229 4.809 2.681 2.069
2009 3.322 1.426 4.358 1.339 4.821 2.836 2.256
2010 3.627 1.476 4.678 1.463 4.834 3.012 2.469
2011 3.920 1.524 4.984 1.582 4.847 3.180 2.672
2012 4.243 1.577 5.322 1.714 4.861 3.367 2.897
2013 4.580 1.632 5.675 1.851 4.876 3.561 3.131
2014 5.014 1.704 6.129 2.028 4.894 3.811 3.432
2015 5.405 1.768 6.538 2.187 4.911 4.036 3.704
2016 5.748 1.825 6.897 2.327 4.926 4.234 3.943
Performance ratios projection thus derived may not be acceptable.

LeongTY 753780536.xlsx/Model
Documentation
Unit Cost of Equipment D4:J4 <Input>
Equipment Order Leadtime D5:J5 <Input>

Actual: Aggregate Demand C9:C18 <Input>

Equipment Holding D9:J18 <Input>
Projected: Aggregate Demand C19:C28 <Input>

Grinder Machine | Projected: Requirement D19 =$C19/D42

Actual: Performance ratio D32 =$C9/D9
Projected: Performance ratio D42:J51 <Input>, values copied from D55:J64 and then adjusted.

Projected (time-based): Performance ratio D55 =TREND(D$32:D$41,$B$32:$B$41,$B42)

Projected (vol-based): Performance ratio D55 =TREND(D$32:D$41,$C$32:$C$41,$C42)

Notes
Performance ratio projection may be assumed to be function of time or volume.
FORECAST may be used in place of TREND.
The values from TREND are then adjusted in a negotiated process and recorded as planned performance targets.

80 RefLine 16
Aggre-
75 This Year 15 gate
70 2007 0 14
Demand

2007 1E+10 Column

65 13 O
60 12 Grinder
Maching
Aggregate Demand (ton)

55 11
Productivity (ton/qty)

(qty)
50 10 Grader
Machine
45 9 (qty)

40 8 Sieve
Machine
35 7 (qty)

30 6 Bonding
Machine
25 5 (qty)

20 4 Packing
Machine
15 3 (qty)

10 2 Test
Equip
5 1 ment
(qty)
0 0
1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

LeongTY 753780536.xlsx/Model