a. Please discuss and solve problem 8 on page 126 of the textbook. (1 page)
8. Expando, Inc. is considering the possibility of building an additional factory that would produce a new addition to its product line. The company is cu
ently considering two options. The first is a small facility that it could build at a cost of $6 million. If demand for new products is low, the company expects to receive $10 million in discounted revenues (present value of future revenues) with the small facility. On the other hand, if demand is high, it expects $12 million in discounted revenues using the small facility. The second option is to build a large factory at a cost of $9 million. Were demand to be low, the company would expect $10 million in discounted revenues with the large plant. If demand is high, the company estimates that the discounted revenues would be $14 million. In either case, the probability of demand being high is .40, and the probability of it being low is .60. Not constructing a new factory would result in no additional revenue being generated because the cu
ent factories cannot produce these new products. Construct a decision tree to help Expando make the best decision.
Textbook of reference: OPERATIONS AND SUPPLY CHAIN MANAGEMENT, 15ed. Jacobs & Chase. McGraw-Hill Education.
a. Please discuss and solve problem 8 on page 126 of the textbook. (1 page)
. Read the Bloomberg Businessweek article and answer the two questions. (1 page)
Question 1: In strategic capacity planning, what other capital intensive resources should Robert Nardelli cut as well as reducing labor force?
Question 2: If you were Robert Nardelli, what would you do to maintain a stable relationship with suppliers and avoid the domino effect?
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Capacity Cutdown at Chrysle
Robert Nardelli, the former CEO of Chrysler on cutting 35,000 jobs in order to save his company during the financial crisis:
I signed on as Chrysler CEO in July 2007. The industry was robust, but the
and had lost its identity. The first six months were great. We rebuilt the
and, disentangled it from Daimler, pruned the product line. Then came the financial crisis. The first thing we lost was leasing; 20 percent of our business disappeared overnight. Then the fleet business went away, and financing for new car purchases dried up.
It soon became clear that we were in a battle to survive. We cut $5 billion in costs and
ought the capacity down by 1.4million units. It wasn’t enough.
The toughest decision I had to make was reducing the workforce by 35,000 people. We desperately needed to preserve cash to keep the supply chain intact. We could have sold assets or furloughed union employees, but because of contractual obligations neither of those options would have made us cash positive.
I had no choice but to cut staff. It was traumatic releasing them into an economy where it wouldn’t be easy to find another job. I had to lay off 5,000 salaried people the Wednesday before Thanksgiving. I remember going into a large staff meeting and seeing that the crowd in the auditorium was half what it had been when I started as CEO. It was such a haunting visual.
The union was on board. We all recognized that we were one step away from cataclysm. The UAW didn’t roll over, but it recognized that we were in it together. If we hadn’t made layoffs, we would not have gotten the first $4billion from the government. Every supplier would have felt the domino effect.
The 10 percent unemployment rate is misleading. The real figure is closer to 18 percent. Unless this country creates 150,000 new jobs every month for the next four years, we won’t get back to where we were in2007. We need specific programs built to create new jobs-real jobs, not census jobs, not seasonal jobs.
As gut-wrenching as my decision was, it was critical to saving the company. A lot of families made big sacrifices for Chrysler, and I will never forget that.
Question 1: In strategic capacity planning, what other capital intensive resources should Robert Nardelli cut as well as reducing labor force?
Question 2: If you were Robert Nardelli, what would you do to maintain a stable relationship with suppliers and avoid the domino effect?