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    Frey Biomedical Inc: Process Line Configuration

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    Prateek Dhar Sharma
    1) Frey Biomedical produces a food preservative called FBXX that accounts for 25% of their $100 million in annual sales. They need to replace one of their aging production lines. 2) There are two options for a replacement line: a new line from their existing supplier Brayford or a line called Bi-line 8 from a new supplier. The Bi-line 8 has a higher capital cost but lower operating costs and can produce higher quality product. 3) The vice presidents for marketing, technology, operations, and finance each provide their perspectives in the decision. Marketing and technology support the higher quality Bi-line 8 while operations and finance prefer the lower risk option of another Brayford line

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    Frey Biomedical Inc: Process Line Configuration

    Uploaded by

    Prateek Dhar Sharma
    51 views3 pages
    1) Frey Biomedical produces a food preservative called FBXX that accounts for 25% of their $100 million in annual sales. They need to replace one of their aging production lines. 2) There are two options for a replacement line: a new line from their existing supplier Brayford or a line called Bi-line 8 from a new supplier. The Bi-line 8 has a higher capital cost but lower operating costs and can produce higher quality product. 3) The vice presidents for marketing, technology, operations, and finance each provide their perspectives in the decision. Marketing and technology support the higher quality Bi-line 8 while operations and finance prefer the lower risk option of another Brayford line

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    CAse study operations

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    Frey Biomedical

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    1) Frey Biomedical produces a food preservative called FBXX that accounts for 25% of their $100 million in annual sales. They need to replace one of their aging production lines. 2) There are two options for a replacement line: a new line from their existing supplier Brayford or a line called Bi-line 8 from a new supplier. The Bi-line 8 has a higher capital cost but lower operating costs and can produce higher quality product. 3) The vice presidents for marketing, technology, operations, and finance each provide their perspectives in the decision. Marketing and technology support the higher quality Bi-line 8 while operations and finance prefer the lower risk option of another Brayford line

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
    51 views3 pages

    Frey Biomedical Inc: Process Line Configuration

    Uploaded by

    Prateek Dhar Sharma
    1) Frey Biomedical produces a food preservative called FBXX that accounts for 25% of their $100 million in annual sales. They need to replace one of their aging production lines. 2) There are two options for a replacement line: a new line from their existing supplier Brayford or a line called Bi-line 8 from a new supplier. The Bi-line 8 has a higher capital cost but lower operating costs and can produce higher quality product. 3) The vice presidents for marketing, technology, operations, and finance each provide their perspectives in the decision. Marketing and technology support the higher quality Bi-line 8 while operations and finance prefer the lower risk option of another Brayford line

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    FREY BIOMEDICAL INC

    Frey Biomedical was one of the largest independent companies supplying the foodprocessing industry. Its initial success had come with a food preservative, used mainly for
    meat-based products, and marketed under the name of FBXX. Other products were
    subsequently developed in the food colouring and food container coating fields, so that now
    FBXX accounted for only 25 per cent of total company sales, which now were slightly over
    $100 million.
    Process Line Configuration

    BRAYFORD

    BI-LINE 8

    Capital cost

    $5,900,000

    $8,800,000

    Processing costs

    Fixed: $150,000/mth

    Fixed:$400,000/mth

    Variable: $750/kg

    Variable: $600/kg

    Design

    1,050 kg/mth

    1,400 kg/mth

    capacity

    98%0.7% purity

    99.5%0.2% purity

    Quality

    Manual testing

    Automatic testing

    Maintenance

    Adequate but needs

    Not known probably good

    servicing
    After-sales services

    Very good

    Not known unlikely to be good

    Delivery

    Three months

    Immediate

    Table: A comparison of the two alternative process line configurations

    The decision
    The problem over which there was such controversy related to the replacement of one of the
    process lines used to manufacture FBXX. Currently two such process lines were used, both had
    been designed and installed by Brayford Corp., a process equipment manufacturer. It was the
    older of the two Brayford lines which was giving trouble. High breakdown figures, with erratic
    quality levels, meant that output level requirements were only just being reached. The problem
    was: should the company replace the ageing Brayford line with a new Brayford line, or should it
    commission another process line, the Bi-line 8 line, which would be manufactured by a

    relatively new company, Bi-Line Inc. V.P. for Technology had drawn up a comparison of the
    two units, shown in the table.
    The body considering the problem was the newly formed Management Committee. The
    committee consisted of the V.P. for Technology and the Marketing V.P., who had been with the
    firm since its beginning, together with the V.P.s for Operations and Finance, both of whom had
    joined the company only six months before.
    What follows is a condensed version of the information presented by each manager to the
    committee, together with their attitudes to the decision.

    The Marketing Vice President


    Currently the market for this type of preservative had reached a size of some $50 million, of
    which Frey Biomedical supplied approximately 48 per cent. There had, of late, been
    significant changes in the market in particular many of the users of preservatives were now
    able to buy products similar to FBXX. The result had been the evolution of a much more
    price-sensitive market than had previously been the case. Further market projections were
    somewhat uncertain. It was clear that the total market would not shrink (in volume
    terms) and best estimates suggested a market of perhaps $60 million within the next three or
    four years (at current prices).
    Although the food preservative market had advanced by a series of technical innovations, real
    changes in the basic product were now few and far between. FBXX was sold in either solid
    powder or liquid form, depending on the particular needs of the customer. Prices tended to be
    related to the weight of chemical used, however. Thus, for example, currently the average
    market price was approximately $1,050 per kg. There were, of course, wide variations
    depending on order size, etc.

    At the moment I am mainly interested in getting the right quantity and quality of FBXX each
    month. Im worried that unless we get a reliable new process line quickly, we will have
    problems. The Bi-line 8 line could be working in a few weeks, giving better quality too.
    Furthermore, if demand does increase, the Bi-line 8 will give us the extra capacity.

    The Vice President for Technology


    The major part of the V.P. for Technologys budget was devoted to modifying basic FBXX so
    that it could be used for more acidic food products such as fruit. This was not proving easy and
    as yet nothing had come of the research, although the Chief Chemist remained optimistic.
    If we succeed in modifying FBXX the market opportunities will be doubled overnight and we
    will need the extra capacity. I know we would be taking a risk by going for the Bi-line 8
    machine, but our company has grown by gambling on our research findings, and we must
    continue to show faith. Also, the Bi-line 8 technology uses principles which will be in all similar
    technologies in the future. We have to start learning how to exploit them sooner or later.

    The Operations Vice President


    The FBXX Division was self-contained as a production unit, located at the smaller of the
    companys two sites. Production requirements for FBXX were currently at a steady rate of
    around 1,900 kg per month. The technicians who staffed the FBXX lines were the only
    technicians in Frey Biomedical who did all their own minor repairs and full quality control.
    The reason for this was largely historical, since when the firm started, the product was
    experimental and qualified technicians were needed to operate the plant. Four of the six had
    been with the firm almost from its beginning.

    Its all right for some of my colleagues to talk about a big expansion of FBXX sales; they dont
    have to cope with all the problems if it doesnt happen. The fixed costs of the Bi-line 8 unit are
    nearly three times those of the Brayford. Just think what that will do to my budget at low
    volumes of output. As I understand it, there is absolutely no evidence to show a large upswing
    in FBXX. No, the whole idea (of the Bi-line 8 plant) is just too risky. Not only is there the risk. I
    dont think it is generally understood what the consequences of the Bi-line 8 would mean. We
    would need twice the variety of spares for a start. But what really worries me is the staffs
    reaction. As fully qualified technicians they regard themselves as the elite of the firm; so they
    should, they are paid practically the same as I am! If we get the Bi-line 8 plant all their most
    interesting work, like the testing and the maintenance, will disappear or be greatly reduced.
    They will finish up as highly paid process workers.

    The Finance Vice President


    The company had financed nearly all its recent capital investment from its own retained profits,
    but would be taking out short-term loans next year for the first time for several years.
    At the moment, I dont think it wise to invest extra capital we cant afford in an attempt to give
    us extra capacity we dont need at the moment. This year will be an expensive one for the
    company. We are already committed to considerably increased expenditure on promotion of our
    other products and capital investment in other parts of the firm. I accept that there might
    eventually be an upsurge in FBXX demand but, if it does come, it probably wont be this year
    and it will be far bigger than the Bi-line 8 can cope with anyway, so we might as well have three
    Brayford plants at that time.

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