OPERATIONS MANG SLP AND CASE 3

Module 3 - Background

Design of Goods and Services

Required

Product Design Powerpoint Slides 1

Apply Decision Tree to Product Design Powerpoint Slides 2

Sample Problem:

Michael's Engineering, Inc. manufactures components for the ever-changing notebook computer business. He is considering moving from a small custom design facility to an operation capable of much more rapid design of components. This means that Michael must consider upgrading his CAD equipment. Option 1 is to purchase two new desktop CAD systems at $100,000 each. Option 2 is to purchase an integrated system and the related server at $500,000. Michael's sales manager has estimated that if the market for notebook computers continues to expand, sales over the life of either system will be $1,000,000. He places the odds of this happening at 40%. He thinks the likelihood of the market having already peaked to be 60% and future sales to be only $700,000. What do you suggest Michael do and what is the EMV of this decision?

Sample Answer:

The EMV for the desktop systems is $620,000 vs. $320,000 for the integrated system. Therefore, Michael should purchase the desktop systems.

Optional

Heizer and Render's book provides a nice and comprehensive overview of Operations Management. It is highly recommended if you are serious in pursuing a concentration in Operations Management.

Heizer, J and Render B. (2001) Principles of Operations Management, ISBN 0-13-027147-0