Management 313 Operations Strategy Case Study

Topics: Supply and demand, Economics of production, Future Pages: 5 (1791 words) Published: May 21, 2012
Capacity and Process Technology Strategy Advice for Bonkers Chocolate Factory: A central aspect of the dynamic problem facing a business in an evolving and competitive industry is the decision about additions to productive capacity. The purpose of this report is to provide strategic advice for the CEO of Bonkers Chocolate Factory (BCF), the U.S division of a multi-national candy company operating in the highly competitive chocolate products market. In late 2001, the main issue facing BCF management involves determining and agreeing on an appropriate strategy for the purchase of extra conching capacity, through the implementation of either new in-house developed conching technology or existing conventional conching technology. Other issues that need to be addressed by BCF management include decisions about the timing of capacity change, the scale of capacity increase, and evaluating the feasibility, acceptability and vulnerability factors associated with the proposed process technology options. In addition, another issue requiring BCF consideration includes the effects of competitor behaviour. It is understood Nestle and Mars are investing heavily in new technology in order to further develop and increase their resource capabilities with new product development and operations efficiency competitiveness. In order to assist BCF management in determining the most appropriate strategy for their operations, an analysis of the relevant factors that influence and affect the capacity and process technology decision areas will be applied; to provide BCF management a greater understanding of the various risks and opportunities facing the company in their choice of capacity and process technology decisions. For BCF, conching technology is a critical element in their primary production process, transforming fatty cocoa powders (input) into liquid chocolate with increasingly controllable physical properties that are used in secondary processes for the production of a variety of finished chocolate products (output). This tangible operations resource represents one element of the total BCF resource base, that, when combined with other tangible and intangible resource capabilities, provides BCF its competitive advantage and ability to reconcile operations resources with market requirements, and their ability to meet market performance objectives such as: quality, speed, flexibility, cost and dependability, as well as maintaining and growing operations profitability. Analysis of Factors Influencing BCF Capacity and Process Technology Decision Areas: BCF have forecast demand growth occurring in period 2 of 2002, and as a result must reconcile and deploy operations resources to meet market demand requirements and performance objectives. If BCF fail to add capacity at the appropriate time, it risks not only losing market share/volume and immediate sales, but may also erode its long run competitive position. Because of the forecast demand growth, the level of future demand will be a major determinant on the timing of capacity change. There are three generic strategies that can be applied for timing capacity change: * Capacity Leads Demand – timing the introduction of capacity in such a way that there is always sufficient capacity to meet forecast demand. * Capacity Lags Demand – timing the introduction of capacity so that demand is always equal to or greater than capacity. * Smoothing with Inventories – timing the introduction of capacity so that current capacity plus accumulated inventory can always supply demand (SEE APPENDIX< DIAGRAM 1)

The timing of capacity change decisions is broadly guided by these generic strategies.

Also affecting the BCF capacity decision area issue involving the timing of capacity change, is the amount of lead time required for implementing either the new or conventional conching technology. The conventional conching technology option is able to be installed in approximately six months, providing...
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