Operations and Supply Chain Management The Core

104 OPERATIONS AND SUPPLY CHAIN MANAGEMENT
exhibit 4.5
Decision Tree Analysis Using Net Present Value Calculations
Move
Strong growth
0.550
$310,613
Weak growth
0.450
Revenue-Move_Cost = $428,487
Revenue-Move_Cost = $166,544
Hackers Computer
Store
Expand
Strong growth
0.550
$402,507
Weak growth
0.450
Revenue-Expansion_Cost = $535,116
Revenue-Expansion_Cost = $240,429
NPV Analysis
Rate = 16%
Do nothing
Strong growth
0.550
$460,857
Weak growth
0.450
Expand
Revenue-Expansion_Cost = $529,874
Do nothing; $556,630
Do nothing
Revenue = $556,630
Revenue = $343,801
discounts the first-year revenue to the present. The next part (190,000 × 2.798180638) discounts
the next four years to the start of year 2. We then discount this four-year stream to the present value.
ALTERNATIVE REVENUE COST VALUE
Move to new location, strong growth $195,000 × 3.274293654 $210,000 $428,487
Move to new location, weak growth $115,000 × 3.274293654 $210,000 $166,544
Expand store, strong growth $190,000 × 3.274293654 $87,000 $535,116
Expand store, weak growth $100,000 × 3.274293654 $87,000 $240,429
Do nothing now, strong growth,
expand next year
$170,000 × 0.862068966 +
$190,000 × 2.798180638 ×
0.862068966
$87,000 ×
0.862068966
$529,874
Do nothing now, strong growth, $170,000 × 3.274293654 $0 $556,630
do not expand next year
Do nothing now, weak growth $105,000 × 3.274293654 $0 $343,801•
PLANNING SERVICE CAPACITY
LO4–4 Compare
capacity planning
in services to
capacity planning in
manufacturing.
Capacity Planning in Services versus Manufacturing
Although capacity planning in services is subject to many of the same issues as manufacturing
capacity planning, and facility sizing can be done in much the same way, there are
several important differences. Service capacity is more time- and location-dependent, it is
subject to more volatile demand fluctuations, and utilization directly impacts service quality.
Time Unlike goods, services cannot be stored for later use. As such, in the services realm,
managers must consider time as one of their supplies. The capacity must be available to produce
a service when it is needed. For example, a customer cannot be given a seat that went
unoccupied on a previous airline flight if the current flight is full. Nor can the customer
purchase a seat on a particular day’s flight and take it home to be used at some later date.
Location In face-to-face settings, the service capacity must be located near the customer.
In manufacturing, production takes place, and then the goods are distributed to the