1. Describe the business and operational challenges facing Bergerac Systems.
2. Should Bergerac Systems integrate backwards into the manufacture of injection-molded parts for its cartridges?
   1. What are the (at least three) advantages and disadvantages of acquisition vs. developing in-house capabilities for this company?
   2. What quantitative evidence supports your recommendation?
      1. What is the current cartridge demand (the year 2010) assuming they work 250 days a year? What is demand in the year 2015 assuming a 15% increase in demand per year?
      2. How much are annual capacities at GenieTech versus In-house?
      3. Based on Exhibit 4 in the case, and also by comparing demand and capacity, what conclusions do you make?
3. What other advice would you offer Ian Wyckoff about his manufacturing operation?

Mitsubishi Heavy Industries (MHI) produces engines and electrical equipment for heavy machines. Model XE500 is the most popular model with an annual demand of 10,000 engines. However, the company has reached full capacity. MHI's forecasts show that with a probability of 80%, the demand for this type of engine will increase by 50% in the next year or stays at the current level with a probability of 20%. MHI collaborates with many suppliers, such as Komatsu and therefore, it can outsource the demand to Komatsu for production. MHI outsources only the demand that it cannot produce in-house because while the production cost in MHI is $9,000 per engine, Komatsu charges $12,000 per engine. The selling price per engine is $15,000. As another alternative, MHI also evaluates expanding its facility to add 5,000 units of capacity with an initial investment of $20 million.

Assuming MHI needs to repeat this analysis after three years, the life cycle of this project is three years. The demand remains constant for three years.

1. Develop a decision tree for this problem.
2. Calculate the payoff for each branch and determine the best alternative for MHI based on Expected Monetary Value (EMV). Show your calculations.

Answer rating: 100% (QA)

Business and Operational Challenges Facing Bergerac Systems Increased competition from rival companies in the ink cartridge industry Rising production costs due to factors such as raw material prices ... View the full answer