Introduction: It Was Another Sleepless Night For Bria 838025
Introductionit Was Another Sleepless Night For Brian French As a Newf
Introductionit Was Another Sleepless Night For Brian French As a Newf
Introduction: It was another sleepless night for Brian French. As a new father, French had grown accustomed to sleep deprivation, but on this night, it was his business—not his newborn daughter—that had him tossing and turning. French was the president and co-owner of Peregrine, a Vancouver-based manufacturer of custom retail displays used in stores, banks, and art galleries. Peregrine had been working on a display for Best Buy when one of the company’s two computer-numerical-control (CNC) machines broke down. When the machine went down, French watched progress on the Best Buy job slow to a halt.
Although French had been assured that the CNC machine would be back up and running within 24 hours, the breakdown revealed a deeper problem: the CNC machines represented a major bottleneck for Peregrine, and if this machine was down for more than the promised 24-hour period, the Best Buy job could not be completed on time, and workers would need to be sent home. French was frustrated by this predicament and was determined to make the changes necessary to ensure it would not happen again.
PEREGRINE: In 2012, French left PricewaterhouseCoopers to purchase Peregrine along with two co-investors. The investment team had been looking for an opportunity to purchase a company with a successful track record and a founder who was ready for retirement; Peregrine had fit the bill.
Founded in 1977, Peregrine had been operated profitably for 35 years in downtown Vancouver, British Columbia, Canada. When Peregrine was acquired in 2012, it employed 6 people and had $600,000 in sales. Under French’s management, the company had grown to more than 30 employees and over $6 million in sales by 2016.
THE CNC MACHINE DECISION: When the CNC machine broke down, it served as a wake-up call for French. The production line depended on both CNC machines working full-time—if they slowed down or needed repair, the business suffered. French believed increasing capacity was the key to relieving this bottleneck. This would prevent downtime and enable the company to take on new business. He estimated that increased capacity could generate at least $50,000 more in monthly sales due to unmet demand and efficiency gains, with an expected margin of 35% on the additional revenue.
French considered three options to increase capacity: 1. Purchase an additional CNC machine for cash, 2. Finance the purchase of a new CNC machine, or 3. Add a third (night) shift to better utilize existing CNC machines. French evaluated each option considering cost, operational impact, and long-term benefits. He planned to analyze their financial implications using a discount rate of 7% for long-term projects.
Paper For Above instruction
Introduction
The manufacturing sector often faces operational bottlenecks that can significantly impair an organization’s growth and productivity. Peregrine, a custom retail display manufacturer based in Vancouver, exemplifies such a case where machinery dependency led to critical production constraints. The breakdown of a CNC machine highlighted the company's reliance on limited equipment capacity and underlined the importance of strategic capacity planning. This paper explores the decision-making process faced by Peregrine’s management, focusing on evaluating three capacity expansion options: purchasing a new CNC machine with cash, financing the purchase via leasing, and adding a third shift. The analysis emphasizes financial feasibility, operational considerations, and strategic alignment to recommend optimal capacity expansion measures that support sustainable growth.
Background and Context
Founded in 1977, Peregrine had built a reputation for manufacturing high-quality custom plastic products for over four decades. Its growth trajectory from a small startup with six employees generating $600,000 in sales in 2012 to a company employing over 30 staff with $6 million in sales by 2016 illustrates significant expansion driven by strategic management and operational efficiency. The company’s reliance on CNC machines for production made its output highly dependent on equipment uptime and capacity utilization. The failure of one CNC machine not only caused delays but also exposed vulnerability in the company’s operational infrastructure, prompting a reevaluation of capacity strategies to prevent future disruptions.
Operational Bottleneck and Its Implications
The CNC machines in Peregrine's production line were critical assets. Both machines operated continuously to meet demand, and any downtime directly impacted delivery schedules. French recognized that this bottleneck limited the company's ability to grow and fulfill market demand effectively. Addressing this constraint was essential to maintain competitive advantage and customer satisfaction. Expanding capacity would help reduce production delays, enable onboarding of new clients, and increase revenues. French’s goal was to evaluate the cost-effective ways to augment production capacity through capital investment or process adjustments.
Options for Capacity Expansion
French considered three strategic options:
- Purchasing an Additional CNC Machine with Cash: This immediate capital expenditure would involve upfront costs of $142,000, along with estimated monthly operating expenses of $10,000. The machine would have a salvage value of $40,000 after five years. The benefit of this option was immediate capacity increase and operational stability, though it required significant cash outlay and financial planning.
- Leasing a New CNC Machine: Leasing involved a down payment of $50,000 and monthly payments of $2,200 over five years, with an option to purchase for $1 at the end. This option spread costs over time, preserving cash flow, and offered flexibility in equipment replacement or upgrade. The lease terms allowed the company to avoid large capital expenditure upfront, making it attractive for liquidity management.
- Adding a Third (Night) Shift: This operational approach would involve reallocating existing staff to cover a night shift and hiring additional employees. It would incur approximately $12,000 in additional monthly operating costs but would not require capital expenditure on machinery. However, French recognized potential complexities related to safety, supervision, and manageability of night operations that could impact implementation.
Financial and Strategic Analysis
A comprehensive analysis involved evaluating each option's net present value (NPV), payback period, operational flexibility, and strategic fit. Using a discount rate of 7%, French aimed to compare long-term financial benefits and risks associated with each approach. The cash purchase offered the lowest long-term variable costs but demanded significant initial capital. Leasing provided financial flexibility and preserved cash flow but might incur higher total payments over time. The third shift strategy, while low-cost in terms of capital, posed operational and safety challenges that could affect employee morale and safety compliance.
Conclusion and Recommendation
After thorough evaluation, the optimal choice depends on the company's financial position, growth objectives, and operational risk appetite. For Peregrine, purchasing the CNC machine outright might provide the most straightforward and stable capacity increase, especially if financing options or leasing terms are unfavorable or unaffordable. Conversely, if cash flow management is a priority, leasing presents flexibility and delayed expenditure benefits. The addition of a third shift could serve as a supplementary or interim measure but would require careful management of operational risks. Strategic investment in equipment, aligned with growth plans, ensures operational resilience and scalability.
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