Snow Wonderful manufactures snowboards. John Gallagher, the CEO, is trying to decide whether to adopt a lean production model. He expects that in present-value terms, adopting lean production would save $95,000 in warehousing expenses and $48,500 in spoilage costs. However, adopting lean production will require several one-time up-front expenditures: (1) $12,500 for an employee training program, (2) $36,000 to streamline the plant’s production process, and (3) $8,750 to identify suppliers that will guarantee zero defects and on-time delivery.
Requirements
1. What are the total costs of adopting lean production?
2. What are the total benefits of adopting lean production?
3. Should Snow Wonderful adopt lean production? Why or why not?