CAPACITY MANAGEMENT

1) Stewart Company produces two brands of salad dressings: Paul’s and Newman’s. Each is
available in bottles and single-serving plastic bags. Management would like to determine yearly
equipment and labor requirements for its packing operation for the next five years. The details
related to the exact weekly and monthly scheduling of the operations are done at different
levels in the planning process.

The demand for the two flavors and for each packaging options is given in the following table.

Year
Brand
1 2 3 4 5
Paul’s
Bottles (1000s) 60 100 150 200 250
Plastic bags (1000s) 100 200 300 400 500
Newman’s
Bottles (1000s) 75 85 95 97 98
Plastic bags (1000s) 200 400 600 650 680

The company has three machines that can each package 150,000 bottles each year (each
machine has two operators). It also has five machines that can each package 250,000 plastic
bags per year (each of these machines has three operators). These capacity numbers have been
adjusted for expected downtime and quality problems. Will the company have enough yearly
packaging capacity to meet future demand?

2) The owner of Hackers Computer Store is considering what to do with his business over the next
five years. Sales growth over the past couple of years has been good, but sales could grow
substantially if a major proposed electronics firm is built in the area. The owner sees three
options. The first is to enlarge the existing store, the second is to locate at a new sit, and the
third is to simply wait and do nothing. The process of expanding or moving would take little
time, and, and therefore, the store would not lose revenue. If nothing were done the first year
and strong growth occurred, then the decision to expand could be reconsidered. Waiting longer
than one year would allow competition to move in and would make expansion no longer
feasible.

The assumptions and condition are as follows.

a) Strong growth as a result of increased population of computer fanatics from the new
electronics firm has a 55% probability.
b) Strong growth with new site would give annual returns of $195,000 per year. Weak
growth with a new site would mean annual returns of $115,000.
c) Strong growth with an expansion would give annual returns of $190,000 per year. Weak
growth with an expansion would mean annual returns of $100,000.
d) At the existing store with no changes, there would be returns of $170,000 per year if
there is strong growth and $105,000 if growth is weak.
e) Expansion at the current site would cost $87,000.
f) The move to the new site would cost $210,000.
g) If the growth is strong and the existing site is enlarged during the second year, the cost
would still be $87,000.
h) Operating costs of all options are equal.