Exercise 3: Recommending Production Capacity Needed at Toyota Motor Manufacturing of Canada (TMMC) Decision trees are another important if challenging world - class operations management method which operations managers should understand and with which other managers should be familiar. This exercise illustrates how through using a decision tree, determination of an "optimal" production capacity option can be made from among several possible capacity options based on the provided probable market demand and expected costs/payoff s of events that influence the options. Your team must recommend the production capacity needed at TMMC, after being presented with a decision tree - based solution prepared by the operations analysts (hypothetical) who are supporting the team. It is spring 2000 , and TMMC has indeed just been chosen to produce the new Lexus RX 330 line, with the first units deliverable in 2003. Toyota must now determine the amount of annual production capacity it should build at TMMC. Toyota's goal is to maximize the profit from the RX 330 line over the five years from 2003-2007. These vehicles will sell for an average of $37,000 and incur a mean unit production cost of $28,000 (here, $ = the Canadian dollar).10,000 units of annual production capacity can be built for $50M (M=million) with additional blocks of 5,000 units of annual capacity each costing $15M. Each block of 5,000 units of capacity will also cost $5M per year to maintain, even if the capacity is unused.Assume that the number of units actually sold each year will be the lesser of the demand and the production capacity.Marketing has provided three vehicle estimated demand scenarios with associated probabilities as follows:Demand20032004200520062007ProbabilityLow10,00010,50011,00011,50012,0000.25Moderate15,00016,00017,00018,00019,0000.50High20,00024,00026,00028,00030,0000.25Here is the decision tree-based solution that the Acme North Carolina operations analysts (hypothetical) who are supporting the team have prepared:1) To maximize profit earned during this period, which annual production capacity will you recommend that TMMC in 2000 decides to build-10,000,15,000, 20,000, 25,000, or 30,000 cars? Jb. What are the weaknesses or limitations in this analysis? How might they be corrected or reduced?c.It is now 2016. How well has the RX-330/350 actually done in the North American market? Is its quality rated as high as a Lexus made in Japan? Support your views.d.Include an executive summaryAMBA 640 / AMBA 640 HYBRID COURSE
MATERIALS
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Acme Mexico City
and
Application of World-Class Operations and Information
Systems Management Techniques
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Production Planning and Strategy for Toyota North
America
(Version 12/29/15)
Background Information for Acme Mexico City
Acme Home Improvements, Inc. was founded in 1982 in Raleigh, North Carolina,
USA. By late 2015, the company had 125 stores along the US East Coast from
Florida to Maine. Its annual sales are currently ~$5,400,000,000 with
$280,000,000 net income. The average store is about 100,000 square feet with
an additional 10,000 square feet of outside garden center. The stores typically
carry 40,000 different products from 5,000 vendors worldwide. Major US
competitors include Ace, Home Depot, Lowe's, and TruValue. All four operate
already in Mexico.
This question was answered on: Sep 21, 2023
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