Muhammad Salim Martak Peter Ronald Reonard Chandra Effendy.

Freeman Biotest CaseMuhammad Salim Martak

Peter RonaldReonard Chandra Effendy

LayoutPlanning and ControlCapacity ManagementCompany’s ProfileProblem and SolutionsQ and A

Planning ControlPlanning and Control is concerned with the

activities that attempt to reconcile the demands of the market and the ability of the operation recources to deliver

Long, medium, short term planning controlLong termDemand forecastObjectives: Financial

termsMedium Term

Partially disaggregated demand forecast

Objectives: Financial and Operations terms

Short termActual demandObjectives: Operations

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PLANNING

Control

Significance of Planning Control

Capacity ManagementDefinition:Maximum level of value added activity over a period of time that the process can achieve under normal operating conditions

Objectives of Capacity ManagementCosts,

demand under utilization of capacity, high unit costRevenues,

ensure all demand satisfied, no revenue lostWorking capital,

inventory funding to meet demandQuality

large fluctuation in capacity level affect the quality (temporary staff)Speed

Surplus capacity to avoid queuingDependability

Ability to cope unexpected disruptionFlexibility

Ability to respond unexpected increase in demand

Steps of Capacity ManagementStep 1 Measure

Aggregate demand and capacity

Step 2 Identify the alternative capacity

plans

Step 3 Choose the most appropriate

capacity plans

Company’s Profile of The Case Freeman Biotest was one of the largest

companies supplying the food-processing industries.

Its success came with a food preservative usually used for meat called FBXX

Later on Freeman Biotest developed other products, causing FBXX only contribute 25% revenue to Freeman Biotest.

Q1. Calculate Annual Sales Volume

Market Size 50.000.000

Market Share 48%

FBXX Sales 24.000.000

Selling Price 1050

Units Sold (KG) 22.857

Q2. What is the problem of Freeman Biotest?The problem for Freeman Biotest is the

controversy whether Freeman Biotest should replace one of the process lines with the same product lines (Brayford) or a new product lines (Bi-line 8)

The V.P of Marketing and Technology want to use the Bi-Line 8 when V.P of Finance and Operations still want to use the Brayford.

Q2. What is the problem of Freeman Biotest?V.P Marketing:

Higher demand in the futureV.P Technology:

By using Bi-Line 8, V.P Technology predicts an increase in market share for FBXX

V.P Operations:High fixed costNo evidence in increase for demandStaff Reactions

V.P Finance:Freeman Biotest had financed all its recent capital investment

in other parts of the firmIf there is a significant increase in demand, 3 lines of Brayford

will be better than using Bi-Line 8

Q3 Should Freeman Biotest invest in a Brayford or a Bi-line 8 facility?

Step 1 Measure Aggregate demand and

capacity

Step 2 Identify the alternative capacity

plans

Step 3 Choose the most appropriate

capacity plans

Measure Aggregate demand and capacityDemand

Market Size $50.000.000

Market Share 48%

FBXX Sales $24.000.000

Selling Price $1050/kg

Annual Units Sold (KG) 22.857 kg

Units sold (KG/Months) 1.904 kg per month

Measure Aggregate demand and capacity

Process line configuration Brayford Bi line 8

Capacity (KG/Month) 1,050 1,400

Annual Capacity (KG) 12,600 16,800

CAPACITY

Identify the alternative capacity plansProcess line config   Brayford Bi-line 8

Capital cost   $5,900,000 $8,800,000

Processing cost Fixed $150,000

$400,000

  Variable $750

$600

Design   1,050 kg/months

1,400 kg/months

Capacity   98% +- 0.7 99.5% +- 0.2

Quality   Manual testing Automatic testing

Maintenance   Adequate but needs servicing

Not known probably good

After sales services   Very good Not known unlikely good

Delivery   Three months Immediate

Capacity Scenario per-month

  Scenario 1 Scenario 2

  Brayford Brayford Brayford Bi line 8

Capacity (Kg/Month) 1,050 1,050 1,050 1,400

Total 2,100 2,450

Profit Margin per UnitPricing  Scenario 1 Scenario 2

  Brayford Brayford Brayford Bi-line 8

Variable $787,500 $787,500 $787,500 $840,000

Fixed $150,000 $150,000 $150,000 $400,000

Total cost $1,875,000 $2,177,500

Total capacity 2,100 kg/months 2,450 kg/months

Cost per Unit $893/kg $889/kg

Selling Price $1050/kg $1050/kg

Profit Margin $157/kg $161/kg

Recommendations

Scenario 1 Scenario 2

Brayford Brayford Brayford Bi line 8

Capacity (Kg/Month) 1,050 1,050 1,050 1,400

Total 2,100 2,450 Actual Demand 1,905

Forecasting Demand 2,286

We recommend that Freeman Biotest should buy the Bi-Line8, because:• Profit margin higher, hence Freeman Biotest can lower the

price of the FBXX• Lowering price of FBXX, resulting in higher demand• To cope up with demand, which forecasted by the V.P

Marketing• Bi-Line 8 delivery is right away, when Brayford need to wait 3

months to deliver.

Q4 What are the other options?  Scenario 3  Brayford Bi-line 8

Variable cost $840,000 $840,000

Fixed $400,000 $400,000

Total cost $2,480,000

Total capacity $2,800

Cost per unit $886

Margin per unit $164

The 3rd Scenario (Change both Brayford with Bi-Line 8):• Positive Impact

• Higher Margin• Ability to decrease sales

price, which will increase the demand of FBXX

• Negative Impact• Need a huge sum of money to

invest• Have to throw away a good

condition Brayford machine

QuestionAnd

AnswerSession

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