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    Nishant Dehury
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    23 views1 page

    Capacity Change Framework

    Uploaded by

    Nishant Dehury

    Copyright:

    © All Rights Reserved
    Download as PDF or read online from Scribd
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    CAPACITY CHANGE FRAMEWORK ‘ABC Company is considering adding capacity (e.g, building a new factory), reducing capacity or acquiring a DIRECT competitor. ‘This is a good framework when understanding industry capacity Is the ONLY factor. If there are "fit" issues, use the Mergers & Acquisitions “Fit Framework" instead. ‘Supply ermine growin overall market (How sustainable?) termine Growth in firm's market share (How sustamabie?) ment sources of demand Determine each segments share of total demand Identity trends in demand by segment 1s on the largest sources of demand and the Jargest growth rates... use these few “leverage” nts hep you understand where the majorty of etermine industry supply Segment industry supply by market / market segment [dently eect of increases in supply on prices Possible Benefits [introduce technology innovations with capacity fexpansion [rerease productivity > Lower marginal costs reading eal costs (can the fm afford) pportunty cost payback period + break even point iternatives outsource lease femand is heading ‘¢ For many if not most capacity related cases, figure out if this a conceptual case or a numerical case. I conceptual (20% of time), use this framework. If numerical (€.g, Company A can produce 20 million units at $4, Company B 10 million units at $3.50), then you ‘should graph out supply curves and overiay them with demand curves. (Tip: practice drawing demand curves from data quickly) ‘¢ The typea! issue is if we ada/reduce capacity, what will happen tothe market clearing price... once we know the market Gearing price what Impact does that have on profitability... and given that impact should the cient acd/reduce capacty. (0. Mior cneng, wien

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