Case Study Chapter $14$

Muesli AG

Introduction

The management team has reviewed and approved the budget you created earlier. If all goes as

planned, there will be a cash surplus at the end of the quarter that can be used to pay down the loan

and line of credit, invest in productivity improvements, or perhaps both.

Recall the following from your interview with the production manager, Mr$.$ Jack. $$I understand that one

of the mandates you have been given is to evaluate our installed machinery and equipment$$ says Mr$.$

Jack. $$We can purchase extra processing units, or upgrade existing ones to increase our throughput. The

machines are very expensive though. We can also hire consultants to evaluate our workflow and factory

layout. They can make recommendations for our work practices and machine placement that can

improve our efficiency, reducing the number of hours it takes to change over production runs. Before

that however, you should consider the length of our production runs. If we don$$t make too many

products, and run the production lines for several days each time we produce a product, then we will

only do changeovers once or twice a week. I$$ve been trying to get the sales team to understand this, but

they fear losing sales if we don$$t have the right products available for sale at any given moment.$1$

Figure $1$: Manufacturing at Muesli AG

Thus, the two choices to invest in improving production throughput are to $1)$ purchase or upgrade

manufacturing equipment at a cost of $1$ million or $2)$ hire a consultant to help reduce setup time.

Purchasing or upgrading the equipment will result in an additional $1$ million in fixed assets on the

balance sheet and an increase in depreciation expense. It will also increase production capacity by $1,000$

boxes of muesli per day. The equipment is expected to last $10$ years with no salvage value at the end of

the $10$ years. On the other hand, the cost of the consultant will be an expense on the financial

statements and implementation of the consultant$$s recommendations will reduce the setup time

required between production campaigns $($batches$)$ therefore providing the flexibility to switch flavors

more quickly.

$1$ L$$ger et al$.(2019)$ ERPsim Lab, HEC Montr$$al$.$ PARTICIPANT$$S GUIDE: MANUFACTURING GAME