(a) What capacity plans do you think ESCOM should make for next year? Why? (6) What longer-term capacity plans should ESCOM make? Why? dWhat are the implications of these plans for marketing, distribution, and production?
(a) What capacity plans do you think ESCOM should make for next year? Why? (6) What longer-term capacity plans should ESCOM make? Why? dWhat are the implications of these plans for marketing, distribution, and production?
Purchasing and Supply Chain Management
6th Edition
ISBN:9781285869681
Author:Robert M. Monczka, Robert B. Handfield, Larry C. Giunipero, James L. Patterson
Publisher:Robert M. Monczka, Robert B. Handfield, Larry C. Giunipero, James L. Patterson
ChapterC: Cases
Section: Chapter Questions
Problem 5.3SD: Scenario 4 Sharon Gillespie, a new buyer at Visionex, Inc., was reviewing quotations for a tooling...
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![Chapter 5 -
Production Planning and Control
CASELET:
ESCOM-COPING WITH RUNWAY CAPACITY NEEDS
ESCOM is a producer of electronic home appliances, including VHS (Video Home
System) television recorders, located in northern California. The packaged product
weighs about 75 kg. ESCOM was not the innovator of the system. Rather, its managers
sat back and let RCA and others develop the market, and ESCOM is currently producing
under license agreements. ESCOM has a conscious strategy of being a follower with new
product innovations. It does not have the financial resources to be a leader in research
and development. ESCOM's present opportunity is indicated by the fact that industry
sales of VHS recorders have increased 30 per cent per year for the past two years, and
forecasts for the next year and the two following are even more enticing. ESCOM has
established a 10 per cent market share position and feels that it can at least maintain
this position if it has the needed capacity; it could possibly improve its market share if
competitors fail to provide capacity at the time it is needed. Year 0 1 2 3 4 5 Forecast,
1000 Units 100 140 195 270 350 450 Capacity (gap), or slack 5 (35) (90) (165) (245)
(345) 1000 units. The forecasts and capacity gaps are indicated in Table. ESCOM
regards the first year forecast as being quite solid, based on its present market share
and a compilation of several industry forecasts from different sources. It is less sure
about the forecasts for future years, but it is basing these forecasts on patterns for both
black and white and color TV sales during their product life cycles. ESCOM's VHS model
has a factory price of Rs 600. Variable costs are 70 percent of the price. Inventory
carrying costs are 20 per cent of inventory value, 15 percentage points of which
represents the cost of capital. ESCOM's facility planners estimate that a 40,000 unit
plant can be built for Rs. 5 million and a 200,00 unit plant, for Rs. 10 million. Land and
labour are available in the area, and either size plant can be built within a year.
(a) What capacity plans do you think ESCOM should make for next year? Why?
(6) What longer-tem capacity plans shoald ESCOM make? Wby?
a What are the implications of these plans for marketing. distribution, and
production?
[Source: Modern Production/Operations Management by Elwood S.Buffa & Rakesh K.Sarin]](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2Fe59072b4-8573-4ef7-95bb-6faa2a6775cd%2F101275d7-e95d-4f4c-aa82-e246a26e990b%2F2z0uey_processed.jpeg&w=3840&q=75)
Transcribed Image Text:Chapter 5 -
Production Planning and Control
CASELET:
ESCOM-COPING WITH RUNWAY CAPACITY NEEDS
ESCOM is a producer of electronic home appliances, including VHS (Video Home
System) television recorders, located in northern California. The packaged product
weighs about 75 kg. ESCOM was not the innovator of the system. Rather, its managers
sat back and let RCA and others develop the market, and ESCOM is currently producing
under license agreements. ESCOM has a conscious strategy of being a follower with new
product innovations. It does not have the financial resources to be a leader in research
and development. ESCOM's present opportunity is indicated by the fact that industry
sales of VHS recorders have increased 30 per cent per year for the past two years, and
forecasts for the next year and the two following are even more enticing. ESCOM has
established a 10 per cent market share position and feels that it can at least maintain
this position if it has the needed capacity; it could possibly improve its market share if
competitors fail to provide capacity at the time it is needed. Year 0 1 2 3 4 5 Forecast,
1000 Units 100 140 195 270 350 450 Capacity (gap), or slack 5 (35) (90) (165) (245)
(345) 1000 units. The forecasts and capacity gaps are indicated in Table. ESCOM
regards the first year forecast as being quite solid, based on its present market share
and a compilation of several industry forecasts from different sources. It is less sure
about the forecasts for future years, but it is basing these forecasts on patterns for both
black and white and color TV sales during their product life cycles. ESCOM's VHS model
has a factory price of Rs 600. Variable costs are 70 percent of the price. Inventory
carrying costs are 20 per cent of inventory value, 15 percentage points of which
represents the cost of capital. ESCOM's facility planners estimate that a 40,000 unit
plant can be built for Rs. 5 million and a 200,00 unit plant, for Rs. 10 million. Land and
labour are available in the area, and either size plant can be built within a year.
(a) What capacity plans do you think ESCOM should make for next year? Why?
(6) What longer-tem capacity plans shoald ESCOM make? Wby?
a What are the implications of these plans for marketing. distribution, and
production?
[Source: Modern Production/Operations Management by Elwood S.Buffa & Rakesh K.Sarin]
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