STRATEGIC OPERATIONS AND SUPPLY MANAGEMENT

January 6, 2018AdminBusiness

STRATEGIC OPERATIONS AND SUPPLY MANAGEMENT

Task 2: Please select one case study and answer the questions

Case 1: Drink At Home, Inc.

Drink At Home, Inc. (DAH, Inc.), develops, processes, and markets mixes to be used in non-alcoholic cocktails and mixed drinks for home consumption. Mrs. Lee, who is in charge of research and development at DAH, Inc., notified the president, Mr. Dick Jones, this morning that exciting developments in the research and development section indicate that a new beverage, an instant Pina colada, should be possible because of a new way to process and preserve coconut. Mrs. Lee is recommending a major program to develop the Pina colada. She estimates that expenditure on the development may be as much as £100,000 and that a year’s work would be required. In the discussion with Mr. Jones, she indicated that she thought the possibility of her outstanding people successfully developing such a drink now that she’d done all the really important work was in around 90 percent. She also felt that the likelihood of a competing company developing a similar product in 12 months was 80 percent.

Mr. Jones is strictly a bottom line guy and is concerned about the sales volume of such a beverage. Consequently, Mr. Jones talked to Mr. Besnette, his market research manager, whose specialty is new product evaluation, and was advised that a market existed for an instant Pina colada, but was somewhat dependent on acceptance by both grocery stores and retail liquor stores. Mr. Besnette also indicated that the sales reports indicate that another firm was considering a line of tropical drinks. If the other firm should develop a competing beverage the market would, of course, be split equally among the firms. Mr. Jones pressed Mr. Besnette to make future sales estimates for various possibilities and to indicate the present values (discounted value of future profits). Mr. Besnette provided the following table.

Consumer Acceptance Present Values (Discounted

(Sales Potential) Probability Value of Future Profits)

Substantial 0.10 £800,000

Moderate 0.60 £600,000

Low 0.30 £500,000

Mr. Besnette’s figures did not include (1) cost of research and development, (2) cost of new production equipment, or (3) cost of introducing the Pina colada. The cost of the new production equipment is expected to be £50,000 because of the special way the coconut needs to be handled, and the cost of introducing the new product is expected to be another £50,000 because of the point-of purchase displays that would be necessary to introduce the new product.

Mrs. Lee has indicated that she does have two alternative development proposals, as follows:

A reduced research program for the first eight months (at a cost of £10,000 per month) to see if someone else comes out with a similar product first. If no competitor does, and the 8-month study indicated a success, DAH would then proceed with a crash program that would take place in months 9 through 12 at a cost of an additional £60,000. However, if a competitor does come out with a similar product first, or if the 8-month study indicated a failure, DAH would abandon its efforts. The likelihood of success under this reduced research program is the same as the more orderly development, and the likelihood of a competing company introducing a product in 8 months is 60 percent.

Use a reduced research program for 6 months (at a cost of £10,000 per month), and maintain an awareness of industry developments to see if someone else develops a product. If someone else has developed a product at the end of six months it would cost only an additional £30,000 to analyse their product and duplicate it. If no competitor has developed a product in 6 months, DAH could continue their reduced research program for 2 more months at which point, the previous alternative (8-month program) would apply.

Mr. Besnette, being the great marketer that he is, is of course reluctant to be second on the market with a new product. He says that the first product on the market will usually obtain a greater share of the market, and it will be difficult to win those customers back. Consequently, he indicates that only about 50 percent of the sales that he indicated in the table could be expected if DAH waited until competing brands were already on the market. Moreover, he suspects that there is only a 50-50 chance that the competitor will be out with a product within the next six months.

Questions:

What’s the decision problem in this case?
Discuss all possible decision alternatives available to Mr. Besnette.
Identify all possible future outcomes for each decision alternative.
What are the payoff for each possible combination of decision alternative and outcome?
What’s your advice to Mr. Besnette?

Case 2: Starting Right

After watching a movie about a young woman who quit a successful corporate career to start her own baby food company, Julia Day decided that she wanted to do the same. In the movie, the baby food company was very successful. Julia knew, however, that it is much easier to make a movie about a successful woman starting her own company than to actually do it. The product had to be of the highest quality, and Julia had to get the best people involved to launch the new company. Julia resigned from her job and launched her new company — Starting Right.

Julia decided to target the upper end of the baby food market by producing baby food that contained no preservatives but had a great taste. Although the price would be slightly higher than for existing baby food, Julia believed that parents would be willing to pay more for a high-quality baby food. Instead of putting baby food in jars, which would require preservatives to stabilize the food, Julia decided to try a new approach. The baby food would be frozen. This would allow for natural ingredients, no preservatives, and outstanding nutrition.

Getting good people to work for the new company was also important. Julia decided to find people with experience in finance, marketing, and production to get involved with Starting Right. With her enthusiasm and charisma, Julia was able to find such a group. Their first step was to develop prototypes of the new frozen baby food and to perform a small pilot test of the new product. The pilot test received rave reviews.

The final key to getting the young company off to a good start was to raise funds. Three options were considered: corporate bonds, preferred stock, and common stock. Julia decided that each investment should be in blocks of £30,000. Furthermore, each investor should have an annual income of at least £40,000 and a net worth of £100,000 to be eligible to invest in Starting Right. Corporate bonds would return 13% per year for the next five years. Julia furthermore guaranteed that investors in the corporate bonds would get at least £20,000 back at the end of five years. Investors in preferred stock should see their initial investment increase by a factor of 4 with a good market or have the investment worth only half of the initial investment with an unfavourable market. The common stock had the greatest potential. The initial investment was expected to increase by a factor of 8 with a good market, but investors would lose everything if the market was unfavourable. During the next five years, it was expected that inflation would increase by a factor of 4.5% each year.

Questions:

Sue Pansky, a retired grade-school teacher, is considering investing in Starting Right. However, she is very conservative (i.e., a risk avoider). What do you recommend she do?
Ray Cahn, who is currently a commodities broker, is also considering an investment. He believes that the realistic chance of success is only 11%. What do you recommend he do?
Lila Battle has decided that she will invest in Starting Right. However, like Sue Pansky, Lila too is very conservative. What is your advice to Lila?
George Yates believes that there is an equally likely chance for success. What is your advice to George?
Peter Metarko is extremely optimistic about the market for the new baby food. What is your advice to Peter?

Case 3: Toledo Leather Company

The Toledo Leather Company has been producing leather goods for more than 30 years. It purchases prepared hides from tanners and produces leather clothing accessories such as wallets, belts, and handbags. The firm has just developed a new leather product and has prepared a 1-year production and sales plan for it. The new product is best described as a combination billfold, key case, and credit card carrier. As company president Peggy Lane has noted, “It is a super carryall for small this-and-that.” Lane has placed her administrative assistant, Harold Hamilton, in charge of the project.

Hamilton has established that material and variable overhead for the carryall should be about £1.50 per unit over the next year, given a 5-day week and no overtime. Unit labour and machining costs, however, depend on the choice of machine that will be used for production. Hamilton has narrowed the choice down to two specialized pieces of equipment. Machine 1 is a semi-automated machine that will cut the material to the size needed for one unit and also will sew it, install the rings and snaps, and emboss it with two types of designs. This machine costs £250,000 and will add £2.50 per unit to the average variable cost for labour and other machine-related costs. This piece of equipment has a production capacity of 640 units per day. However, estimated downtime for maintenance and repairs is 12.5% (1/8^th of the total time).

Machine 2 is fully automated. It cuts, sews, installs rings and snaps, and is capable of embossing the case with three types of designs. This machine costs £350,000 and will add £1.75 per unit to the average variable cost for labour and other machine-related costs. Machine 2 has a higher production capacity (estimated at 800 units per day) than the semi-automated machine. However, estimated downtime is 25% (1/4^th of the total time), consistent with its great complexity.

Marketing estimates for the next year have been more difficult to project than production costs and capacity estimates. However, £6.00 seems the likeliest selling price for the carryall. The price brings it in line with somewhat comparable products on the market, but because the carryall offers more features than these other products, it has the potential to outsell them. Sales volume estimates centre on 140,000 units for the year, but analysis of the potential market has been difficult because this new product is so different from the products now being sold. Hamilton’s best estimates of sales at £6.00 per unit and the probabilities attached to these volumes are as follows:

Sales Volume Probability

120,000 units 0.15

130,000 units 0.25

140,000 units 0.40

150,000 units 0.15

160,000 units 0.05

Given these marketing estimates and the machine capacities, the company will have to decide either to modify the machines to increase capacity or work overtime if demand is at the higher levels. Management can make this decision based on the first week’s worth of sales, which are expected to be a good indicator of the annual sales level. Overtime premiums would raise the costs by £1.20 per unit on the semi-automated machine and by £0.90 on the fully automated machine. Modification of Machine 1, the semi-automated one, would cost £15,000 to meet the highest level of sales. Modifications of Machine 2 would cost £20,000.

Lane has directed Hamilton to make a decision based on first-year sales, since demand for a product such as this is uncertain after its initial popularity passes. Toledo operates on a fifty-week year because the company usually closes down for the winter holidays.

Questions:

What’s the decision problem in this case?
Discuss all possible decision alternatives available to Mr. Hamilton.
Which machine should Mr. Hamilton select?
Should overtime be scheduled? Or, should a machine be modified and if so, under what circumstances?
What’s your advice to Mr. Hamilton?

Word limit: 1000

NBS Coursework Submission and Return: Key Facts 2017/8

Referencing

Your coursework should clearly distinguish between your original words and ideas, and those of others. When referring to the work of others, from books, journals or any other source (including the internet), it is essential that you make this clear by acknowledging your source and referencing correctly. Failure to reference correctly will lose you marks and may constitute plagiarism or collusion. Unless specified otherwise by the module organiser, Norwich Business School uses the Harvard system of referencing.

You should also make sure that you are familiar with the Business School’s policy on Harvard referencing which is available in your student handbooks.

Individual study skills support and advice on referencing is also provided by the Learning Enhancement Service at the Dean of Students Office.

Where work has been submitted in word-processed format, you may be requested to provide a digital copy of your coursework (after an initial examination of the hard copy by the coursework assessors) for use with plagiarism detection software. Instances where plagiarism is suspected will be investigated by the NBS Plagiarism Officer. Students who are found to have plagiarised will be penalised.

In proven cases offenders will be punished and the punishment may extend to degree failure, temporary suspension or expulsion from further study if the case comes before a Discipline Committee of the University.

General Advice

Before you submit any coursework you should make sure that you are clear and up to date in your knowledge of university policy and practice.

The University’s policy on Submission of Work for Assessment (Taught Programmes): Submission of Anonymised Work for Assessment, Word Limits and Penalties, Extensions and Penalties for Unauthorised Late Submission, Provisional Marks and Feedback, and Retention of Coursework is published in the Calendar, and is available at:

A penalty will be imposed for exceeding the word limit, which will be clearly stated in the assignment. Students must include their word count on the coursework coversheet when they submit their work. The word count for coursework, written assignments, projects, reports and dissertations shall include: Footnotes and endnotes (irrespective of whether they have been used for the purpose of referencing or not, references (in the main text), tables and illustrations and if applicable the abstract, title page and contents page. Any appendicised material and the bibliography or reference list shall be excluded from the word count.

Word Count Penalties

Up to 10% over word limit	No Penalty
10% or more over the word limit	Deduction of 10 marks off original mark
Failure to provide an electronic copy when requested	Mark capped to the pass mark
Intentional misrepresentation of the word count on the coversheet	Mark capped to the pass mark

The deadline for submission of coursework is 15:00 (3pm) on the submission/due day. This is for both electronic submission and paper copy submissions.

Penalties for Late Submission

Work submitted	Marks deducted
After 15:00 on the due date and before 15:00 on the day following the due date	10 marks
After 15:00 on the second day after the due date and before 15:00 on the third day after the due date	20 marks
After 15:00 on the third day after the due date and before 15:00 on the 20th day after the due date.	All the marks the work merits if submitted on time (i.e. no marks awarded)
After 20 working days	work will not be marked and a mark of zero will be entered.

The majority of assignments will be submitted electronically via eVision. For identified modules, students will be able to submit coursework electronically from one week before the deadline, using a link from the eVision page. If your assignment is set up for electronic submission, you must submit electronically; there will not be an option to submit a hard copy instead of electronic submission. Even late assignments, or those that have extensions, should be submitted electronically rather than in paper format.