Consider the following design proposals and financial performance measures for M

Question

Consider the following design proposals and financial performance measures for Mighty Manufacturing given in Table 5.19. Both sets of numbers are for 2012 with all possible markets open and plants open in both Denver and Covington. Scenario A has DCs in Denver, Chicago, Pittsburgh, and Atlanta. Scenario B has DCs in Denver, Los Angeles, Portland, Dallas, Chicago, Boston, Pittsburgh, and Atlanta. (a) Which scenario offers better customer service? Why? (b) Which scenario would you suspect has higher transportation costs? Why? (c) Under which scenario is Mighty Manufacturing in a better position if forecasts for new markets are too high? Why? (d) Under which scenario is Mighty Manufacturing in a better position if forecasts for new markets are too low? Why?

Table 5.19

data for mighty manufacturing

scenario A scenario B Total sales ($000) $76,537 $75,092 Return on assets 62.03% 57.93% Average time through supply chain (days) 42.68 40.03 Order cycle time to customer (days) 4.38 3.42 Achieved fill rate 98.95% 97.08% Average production capacity utilization 89.22% 82.47%

Explanation / Answer

FIrst we see the cost and see A is better as costs are lower:

We first see which parameter is better at which scenario.

And then try to answer each question, based on whic factor is better in which scenario.

scenario A scenario B Better Total sales ($000) 76,537 75,092 A Return on assets 62.03% 57.93% A Cost ($000)= Sales/(1+ROA)                                    47,236                                      47,548 A Average time through supply chain (days) 42.68 40.03 B Order cycle time to customer (days) 4.38 3.42 B Achieved fill rate 98.95% 97.08% A Average production capacity utilization 89.22% 82.47% A

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