GreenWave Boards (GWB) manufactures premium surfboards made from recycled materials. GWB sells mainly through specialist retailers in coastal regions and promotes its environmental values. Its foam cores are currently imported from a low-cost supplier overseas using a just-in-time (JIT) system. The supplier’s quality is generally good, but recent port congestion has increased the lead time from 3 weeks to 7 weeks. Twice in the last six months, GWB stopped production for several days because the foam cores did not arrive on time. A local supplier has offered to supply foam cores at a 12% higher unit price, with a lead time of 5 days and smaller minimum order quantities. GWB’s operations manager proposes moving to a local supply chain for foam cores and keeping just-in-case (JIC) buffer stock before the summer peak season. The finance director is concerned that this will increase costs and reduce GWB’s price competitiveness.

OrbitPlay Drones (OPD) manufactures educational drone kits used by schools. OPD currently makes a flight-control board in its own factory. The board contains OPD’s proprietary software and is critical to product safety. A specialist overseas supplier has offered to produce the board for OPD at a lower unit price. The operations manager believes buying the board would free up internal capacity for final assembly, but the product development manager is concerned about quality, confidentiality and longer lead times. OPD expects demand to rise during the next academic year.

Table 1 shows selected information for OPD’s make-or-buy decision.

KotoMed Instruments (KMI) manufactures precision metal tools used in dental surgery. Demand from hospitals has increased after KMI won a two-year contract with a national healthcare provider. KMI’s factory is currently producing 18 000 tools per month, compared with a maximum productive capacity of 20 000 tools per month. The defect rate has increased from 1.5% to 4% in three months, mainly because machines are being run for longer shifts and maintenance has been delayed. KMI is considering buying automated polishing equipment. The equipment would increase maximum productive capacity to 28 000 tools per month and is expected to reduce the defect rate to 1%. However, it would increase fixed costs significantly and may make 12 skilled polishing workers redundant. The operations director believes automation is necessary to protect quality and meet future demand. The HR manager is worried about employee morale and the risk of high operating leverage if the contract is not renewed.

UrbanNest Pods (UNP) manufactures modular sleep pods for airports and railway stations. Each pod contains a smart locking unit designed by UNP’s engineers. UNP currently makes the smart locking unit in-house. Monthly demand is expected to rise from 900 units to 1 400 units after UNP signs a contract with an airport operator. The current in-house variable cost is €46 per locking unit and monthly fixed costs specifically linked to producing the unit are €18 000. Assume that these fixed costs are fully avoidable if UNP buys all locking units externally. A specialist electronics supplier has offered to sell the locking unit to UNP for €58 per unit. The supplier has advanced testing equipment and claims a defect rate of 0.8%, compared with UNP’s current defect rate of 3%. However, the supplier is located overseas, has a lead time of 6 weeks and requires a minimum order of 2 000 units per delivery; unused units can be held for later use. UNP’s operations director wants to buy the locking unit to free capacity for pod assembly. The founder is concerned about losing control over a component that differentiates UNP’s product.

PolarMed Kits (PMK) manufactures portable diagnostic test kits for clinics in remote areas. PMK currently uses a just-in-time (JIT) stock control system for a specialist reagent imported from a global supplier. Recent shipping disruptions have caused production stoppages and delayed orders to hospitals. PMK is considering switching to a local supplier and adopting a just-in-case (JIC) approach by holding higher buffer stock. The operations director is concerned about higher purchasing and storage costs, while the marketing director argues that reliability is essential for PMK’s reputation.

Table 1 shows selected production planning information for PMK’s current and proposed supply arrangements. For this question, calculate monthly storage costs using buffer stock only.

UrbanRoast Pods (URP) manufactures compostable coffee pods for hotels and offices. Demand has increased quickly after URP won several corporate contracts. URP’s current semi-automated production line has high labour requirements and frequent quality problems when operating near full capacity. The operations manager proposes purchasing a fully automated filling line. The new line would increase maximum capacity and reduce variable costs per pod, but it would also significantly increase fixed costs. The finance director is worried that higher operating leverage could make URP more vulnerable if demand falls.

Table 1 shows selected production and financial information for URP’s current semi-automated line and the proposed automated line. Demand in the table means demand for saleable pods per month. For the profit figures, variable cost is incurred on every pod produced, including defective pods, while defective pods cannot be sold. Thus, output can exceed saleable demand. Percentages and selected output and defect figures in Table 1 are rounded; therefore, calculations derived from these figures, including break-even points, are approximate.

GreenBlock Works (GBW) – a social enterprise

Read the resources and answer the questions that follow.

Resource 1 — Background of the social enterprise

GreenBlock Works (GBW) is a social enterprise that collects plastic waste from coastal communities and converts it into interlocking paving blocks for schools, health clinics and low-income housing projects. GBW’s mission is to reduce plastic pollution while creating stable employment for people who were previously unemployed. GBW currently uses a mostly local supply chain: community collection centres provide plastic waste, and a nearby recycling partner processes it into pellets. GBW uses semi-automated moulding machines and sells blocks to local governments and NGOs at below-market prices. Demand has increased after a national news report about GBW’s environmental impact.

Resource 2 — Selected operations data

GBW’s current maximum productive capacity is 12000 blocks per week. Actual output is 10800 blocks per week. Its local recycled-pellet supplier charges USD 2.80 per kg, has an average lead time of 3 days and has supplied inputs with a 2% defect rate. A global supplier has offered recycled pellets at USD 1.90 per kg, with an average lead time of 24 days and supplied inputs with a 5% defect rate. GBW uses 600 kg of pellets per day and currently keeps buffer stock of 2400 kg.

Resource 3 — New opportunity

A city authority has offered GBW a five-year contract to supply paving blocks for public walkways. For planning purposes, the contract would require approximately 35% more blocks per week than GBW’s current actual output. The city authority requires reliable delivery and proof that the blocks meet safety and durability standards.

Resource 4 — Comment from GBW’s operations manager

“Our local supply chain supports our mission and lets us respond quickly, but we are close to full capacity. The global supplier would reduce material costs, but longer lead times and higher defect rates could damage our reputation.”

Resource 5 — Social-media statistic

After the news report, GBW’s social-media page gained 18000 new followers in one month. The most shared comment was: “I want to support businesses that turn waste into safe products for local communities.”

HopeStep Prosthetics (HSP) – a social enterprise

Read the resources and answer the questions that follow.

Resource 1 — Background of the social enterprise

HopeStep Prosthetics (HSP) is a social enterprise that designs and produces low-cost prosthetic limbs for children in lower-income communities. HSP charges families according to ability to pay and receives donations from medical charities. Its mission is to improve mobility and independence while training local technicians in digital manufacturing skills. HSP uses 3D printers to produce most limb sockets and currently imports specialist joint components from a certified overseas supplier.

Resource 2 — Selected production data

Last year HSP produced 3600 prosthetic limb units using 18000 labour hours. Its current maximum productive capacity is 4200 units per year. The overall defect rate was 6%, mostly caused by inaccurate fitting and printing errors. HSP’s target defect rate is 3%. Imported joint components have a lead time of 30 days. HSP currently keeps enough joint components for 20 days of production.

Resource 3 — Proposed production changes

A grant-making foundation has offered HSP funding for one of two production changes. Option A is to buy additional 3D printers and technician training, increasing capacity and reducing printing errors. Option B is to develop a local workshop to produce some joint components internally, reducing dependence on imports but increasing fixed costs and requiring specialist quality testing.

Resource 4 — Comment from a hospital partner

“Children grow quickly. Delays in supply or poor fitting can mean a child waits months for mobility. We support HSP because it is affordable, but the prosthetics must also be reliable and safe.”

Resource 5 — Extract from donor feedback

Donors praise HSP’s social impact but are concerned that rising waiting lists and rework of defective units may reduce the number of children helped each year.

SunSprout Solar (SSS) – a social enterprise

Read the resources and answer the questions that follow.

Resource 1 — Background of the social enterprise

SunSprout Solar (SSS) is a social enterprise that assembles affordable solar-powered irrigation kits for smallholder farmers. Its mission is to increase crop yields while reducing dependence on diesel pumps. SSS sells kits through agricultural cooperatives and offers maintenance training to young people in rural areas. The solar panel and pump casing are assembled locally, but the electronic controller is currently bought from a global supplier.

Resource 2 — Make-or-buy information for the electronic controller

SSS expects to need 8000 electronic controllers next year. The global supplier’s purchase price is USD 42 per controller. Imported controllers have a lead time of 35 days and a defect rate of 4%. If SSS makes the controller internally, variable cost would be USD 30 per controller and additional fixed costs would be USD 120000 per year. Internal production would require new testing equipment and would have an expected defect rate of 2% after staff training.

Resource 3 — Demand and capacity information

Demand for irrigation kits is seasonal. Cooperatives place most orders before the planting season. SSS can currently assemble 900 kits per month, but pre-season demand may reach 1200 kits per month. If SSS makes controllers internally, management expects assembly planning to be easier, but fixed costs and operating leverage would increase.

Resource 4 — Statement from the finance manager

“Buying controllers is cheaper at lower volumes and avoids new fixed costs. However, stock-outs before the planting season damage farmers’ trust and reduce our social impact.”

Resource 5 — Quotation from a farmers’ cooperative

“The kits help us irrigate during dry periods. If delivery is late, the planting season is missed and the benefit is lost for the whole year.”