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    The document discusses Eli Lilly and Company's manufacturing process technology strategy case study. It includes equations for calculating capital cost based on additional volume and yield. It also evaluates alternatives based on cost benefits, capabilities, and implementation issues. Finally, it presents a decision tree analysis for whether to invest early in a project's development based on calculating the necessary probability of success to justify additional investment costs.

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    The document discusses Eli Lilly and Company's manufacturing process technology strategy case study. It includes equations for calculating capital cost based on additional volume and yield. It also evaluates alternatives based on cost benefits, capabilities, and implementation issues. Finally, it presents a decision tree analysis for whether to invest early in a project's development based on calculating the necessary probability of success to justify additional investment costs.

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    © All Rights Reserved
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    28 views9 pages

    Class OMII 04 PDF

    Uploaded by

    Chander Lekha
    The document discusses Eli Lilly and Company's manufacturing process technology strategy case study. It includes equations for calculating capital cost based on additional volume and yield. It also evaluates alternatives based on cost benefits, capabilities, and implementation issues. Finally, it presents a decision tree analysis for whether to invest early in a project's development based on calculating the necessary probability of success to justify additional investment costs.

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    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
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    of 9

    Operations Management

    Dr. Gopal Kumar


    gopalkumar@iimraipur.ac.in

    IIM Raipur
    15 January 2020

    Dr. Gopal Kumar (IIM Raipur) Operations Management II 15 January 2020 1/9
    Eli Lilly and Company: Manufacturing Process Technology Strategy
    Case Study

    𝐴𝑑𝑑𝑖𝑡𝑖𝑜𝑛𝑎𝑙 𝑣𝑜𝑙𝑢𝑚𝑒 × 𝐶𝑎𝑝𝑖𝑡𝑎𝑙 𝑖𝑛𝑣𝑒𝑠𝑡𝑚𝑒𝑛𝑡


    𝐶𝑎𝑝𝑖𝑡𝑎𝑙 𝑐𝑜𝑠𝑡 =
    𝑦𝑖𝑒𝑙𝑑

    $40𝑚
    𝐴𝑑𝑑𝑖𝑡𝑖𝑜𝑛𝑎𝑙 𝑣𝑜𝑙𝑢𝑚𝑒 × ( 𝑟𝑖𝑔 )
    =
    𝑦𝑖𝑒𝑙𝑑

    Dr. Gopal Kumar (IIM Raipur) Operations Management II 15 January 2020 2/9
    Eli Lilly and Company: Manufacturing Process Technology Strategy
    Case Study

    Dr. Gopal Kumar (IIM Raipur) Operations Management II 15 January 2020 3/9
    Eli Lilly and Company: Manufacturing Process Technology Strategy
    Case Study

    Dr. Gopal Kumar (IIM Raipur) Operations Management II 15 January 2020 4/9
    Eli Lilly and Company: Manufacturing Process Technology Strategy
    Case Study

    Evaluation of alternatives
    Cost benefits
    Capabilities developed
    Implementation issues

    Dr. Gopal Kumar (IIM Raipur) Operations Management II 15 January 2020 5/9
    Eli Lilly and Company: Manufacturing Process Technology Strategy
    Case Study

    Dr. Gopal Kumar (IIM Raipur) Operations Management II 15 January 2020 6/9
    Eli Lilly and Company: Manufacturing Process Technology Strategy
    Case Study

    Whether to invest NPV from 1979=0


    $10.44m in the project No
    (1979-1990)

    Yes
    NPV from 1979=$124m
    (Plan 3) Yes
    Whether to
    invest $3.2m
    Early in
    development Yes NPV from 1979=$74m
    (1977-1978) No Plan 2

    No NPV from 1979=0

    124 − 74 = $50 𝑚𝑖𝑙𝑙𝑖𝑜𝑛 𝑎𝑑𝑑𝑖𝑡𝑖𝑜𝑛𝑎𝑙 𝑠𝑎𝑣𝑖𝑛𝑔𝑠 𝑓𝑟𝑜𝑚 𝑝𝑙𝑎𝑛 3

    Dr. Gopal Kumar (IIM Raipur) Operations Management II 15 January 2020 7/9
    Eli Lilly and Company: Manufacturing Process Technology Strategy
    Case Study

    124 − 74 = $50 𝑚𝑖𝑙𝑙𝑖𝑜𝑛 𝑎𝑑𝑑𝑖𝑡𝑖𝑜𝑛𝑎𝑙 𝑠𝑎𝑣𝑖𝑛𝑔𝑠 𝑓𝑟𝑜𝑚 𝑝𝑙𝑎𝑛 3

    Expected additional savings

    $50 𝑚𝑖𝑙𝑙𝑖𝑜𝑛 𝑎𝑑𝑑𝑖𝑡𝑖𝑜𝑛𝑎𝑙 𝑠𝑎𝑣𝑖𝑛𝑔𝑠 ∗ 𝑝𝑟𝑜𝑏𝑎𝑏𝑖𝑙𝑖𝑡𝑦 𝑜𝑓 𝑠𝑢𝑐𝑐𝑒𝑠𝑠 > $3.2 million cost

    3.2
    𝑝𝑟𝑜𝑏𝑎𝑏𝑖𝑙𝑖𝑡𝑦 𝑜𝑓 𝑠𝑢𝑐𝑐𝑒𝑠𝑠 > = 0.064
    50

    To justify additional $3.2 million investment, the probability


    of project success in year 1 must be greater than 6.4%

    Dr. Gopal Kumar (IIM Raipur) Operations Management II 15 January 2020 8/9
    .

    Thanks!

    Dr. Gopal Kumar (IIM Raipur) Operations Management II 15 January 2020 9/9

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