Operations Managment MGMT640 Individual Project

Individual Project, 1000 – 1500 wordsScenario: Smitheford Pharmaceuticals is facing other
issues. The company had not kept up with modern manufacturing
technology and was in the process of modernizing the injectable
manufacturing facilities in Pueblo and Colorado Springs. There were
several modernizing scenarios under analysis. Perform cost-benefit
analysis calculations for 2 equipment scenarios. The data are provided
below.Scheduling the various manufacturing operations has become more
complicated. In the 1990s, the Pueblo plant expanded tremendously, based
on forecasts for the growth of a promising osteoporosis medication,
Osto54. The facility doubled in size, mostly with tanks and processing
equipment. Osto54, however, caused heightened enzyme levels in the liver
and led to seven deaths in the elderly because of drug interactions.
Smitheford faced the loss of millions of dollars in liability suits and
had excess intermediate manufacturing capacity in Pueblo.Two years ago, a new immune system treatment, Ultamyacin, was
discovered by a Smitheford researcher. The drug could be manufactured at
the Pueblo facility for the bulk manufacturing, but the final
manufacturing steps could be made in Puerto Rico for final purification
and then sent to Fort Collins for final manufacturing into sterile
bottles for injection.Smitheford leadership has narrowed the decision making down to 2
options. The first is a higher technology option in one location, and
the other is a lower technology option in several locations.

High TechnologyCentralized Location
Low TechnologyDecentralized

Annual Fixed Cost
$620,000
$110,000

Variable Cost/Product
16.31
18.89

Estimated Annual Production

(in number of products) Year 1
100,000
100,000

Year 5
170,000
170,000

Year 10
225,000
225,000Use applicable business formulas to determine costs for both options.Consider the following questions:Which is the lead cost alternative in Years 1, 5, and 10?
How much would the variable cost per unit have to be in Year 5
for the automated alternative to justify the additional annual fixed
cost of the automated alternative over the manual alternative?
Determine what other factors should be considered when deciding the following:
When to centralize manufacturing
When to opt for higher technology options
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Scenario: Smitheford Pharmaceuticals is facing other issues. The company had not kept up with
modern manufacturing technology and was in the process of modernizing the injectable
manufacturing facilities in Pueblo and Colorado Springs. There were several modernizing
scenarios under analysis. Perform cost-benefit analysis calculations for 2 equipment scenarios.
The data are provided below.
Scheduling the various manufacturing operations has become more complicated. In the 1990s,
the Pueblo plant expanded tremendously, based on forecasts for the growth of a promising
osteoporosis medication, Osto54. The facility doubled in size, mostly with tanks and processing
equipment. Osto54, however, caused heightened enzyme levels in the liver and led to seven
deaths in the elderly because of drug interactions. Smitheford faced the loss of millions of dollars
in liability suits and had excess intermediate manufacturing capacity in Pueblo.
Two years ago, a new immune system treatment, Ultamyacin, was discovered by a Smitheford
researcher. The drug could be manufactured at the Pueblo facility for the bulk manufacturing, but
the final manufacturing steps could be made in Puerto Rico for final purification and then sent to
Fort Collins for final manufacturing into sterile bottles for injection.
Smitheford leadership has narrowed the decision making down to 2 options. The first is a higher
technology option in one location, and the other is a lower technology option in several
locations.
High Technology Low Technology
Centralized Location Decentralized
Annual Fixed Cost
$620,000
$110,000
Variable Cost/Product
16.31
18.89
Estimated Annual Production
(in number of products) Year 1
100,000
100,000
Year 5
170,000
170,000
Year 10
225,000
225,000
Use applicable business formulas to determine costs for both options.
Consider the following questions:
?
?
?
Which is the lead cost alternative in Years 1, 5, and 10?
How much would the variable cost per unit have to be in Year 5 for the automated
alternative to justify the additional annual fixed cost of the automated alternative over the
manual alternative?
Determine what other factors should be considered when deciding the following:
o When to centralize manufacturing
o When to opt for higher technology options
…
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