New Equipment Purchasing

Generic Situation:

One of the more difficult decisions that a manager encounters is choosing new equipment to replace existing technology.

Example:

Jack Powell, owner of Powell Plastics LLC., has been thinking about replacing his main plastics extruding machine and has three models to choose from, each from a different manufacturer. Jack's dilemma is that although the three models are all about the same price, they are quite different in terms of specs, but not different enough to point to an obvious choice. Jack's great fear is that although it seems a toss-up, there might actually be an optimal choice to make. The most important descriptive specs are:


Machine SpecsModel 1Model 2Model 3
Regular Capacity(units)/week374044
Overtime Capacity (units)/week15129
Regular Time Cost/unit$1,200$1,100$1,150
Overtime Cost/unit$1,450$1,600$1,350
Overhead cost/week$11,500$15,000$12,000
MODEL SPECIFICATIONS


Profit Maximizing Solution:

Based upon a Monte Carlo simulation of weekly demand projections for the near future, Model 2 returns the greatest average profit for Powell Plastics LLC in terms of minimal overall operating costs.