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Pages:
2 pages/≈550 words
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Style:
APA
Subject:
Management
Type:
Case Study
Language:
English (U.S.)
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Date:
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Topic:

Capacity Portfolio and Why It Provides Optimal Risk Mitigation

Case Study Instructions:


Case: Seagate Technology: Operational Hedging (Chapter 13 in textbook)
Case preparation questions (slightly modified from the questions in the case in Chapter 13):
The objective of this case is to analyze and optimize the impact of each asset’s capacity on the overall profitability of the processing network. Specifically, we investigate whether Ron should approve the current capacity proposal or whether he should adjust it. Based on that analysis, recommend a “capacity portfolio” and discuss why it provides optimal risk mitigation. (Note: you must invest in capacity before knowing the actual demand scenario.)
1) Describe and evaluate Seagate’s operations strategy (using the framework from Chapter 1).
2) What is the expected profit of the proposed capacity CAR? (Given the short product life, assume the firm is making its decisions for a single time period of one year, at the end of which manufacturing capacity will have zero salvage value.)
3) Can we improve upon the proposed capacity CAR (so we can increase the expected profit)? What is your recommendation for capacity investment?
4) In broad conceptual terms, what are the advantages of “sales-plan driven capacity planning”? What is “wrong” with that practice and how would you improve it?

Case Study Sample Content Preview:

Case
Student Name
Institutional Affiliation
Date
Case
1) Describe and evaluate Seagate’s operations strategy (using the framework from Chapter 1).
Seagate’s corporate strategy is to remain ahead of its competitors in introducing new products into the market. Specifically, the company seeks to introduce Barracuda 9LP and Cheetah 9LP to address the needs of the workstation and multiuser systems markets. The strategy is meant to meet the needs of consumers, which is more cost-effective in providing high-quality storage. In order to achieve the strategy, the company plans to spend $103 million on assembly facilities. The new facility will enable the business to produce in high volume and at low cost. At the same time, it will enable the manufacturer to come up with diverse products. Further, innovation is part of the business operation strategy. Maintaining key vendor relationships facilitates working with them to design new products. The company will tap into the vendors' innovations and use it to identify new products that clients want.
2) What is the expected profit of the proposed capacity CAR? (Given the short product life, assume the firm is making its decisions for a single time period of one year, at the end of which manufacturing capacity will have zero salvage value.)
Average margins: $400 and $300 for Cheetah and Barracuda respectively.
Demands
a) Cheetah: 150,000 (Pessimistic (25%)), 300,000 (Expected (50%)) and 450,000 (Optimistic (25%))
b) Barracuda: 350,000 (Pessimistic (25%)), 300,000 (Expected (50%)) and 250,000 (Optimistic (25%))
Barracuda in Optimistic Case of 25%
Profit= (Price-to-sales -Cost)*(25%)
Price-to-sales = $300*250000 – ($20000*(250) +$80000*(250)) = 50000000
Cost= $30000*(150) =4500
Profit = (50000000 – 4500000)*25%
=11375000
Barracuda in Expected Case of 50%
Profit= (Price-to-sales)*(50%)
Price-to-sales = $300*300000 – ($20000*(300) +$80000*(300)) =60000000
Profit = 30000000
Barracuda in Pessimistic case of 25%
Profit= (Price-to-sales)*(25%)
Price-to-sales = $300*350000 – ($20000*(300) +$80000*(300)) =60000000
Profit = 15000000
Total Profit for Barracuda = 11375000 + 30000000 +15000000
=56375000
Cheetah (Pessimistic Case of 25%)
Profit= (Price-to-sales-Cost)*(25%)
Price...
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