Question

The annualized cost of acquiring capacity for the new barracuda drives at Seagate is calculated as $25 per unit and the contibution margin for the product is $45 per unit.

a.) what service level(percentile of demand met) should seagate target for in building capacity? how much capacity will it build? the demand forcast for the barracuda drives is uniform between 100 and 200.

b.) how does this service level change, if Seagate outsources manufacturing to china, to arrive at an annualized cost of capacity of $10 per unit? How much capacity will it build?

c.) How does this service level change if the inbound shipment cost per unit from China to US reduces the margin per unit to $35? How much capacity will it build?

d.) Conduct the capacity calculations in all 3 scenarios above when the forcast for the barracuda drives is expected to follow the following distributions.

demand will be less than	Probability	Cumulative Probability
100	0.1	0.1
120	0.2	0.3
140	0.3	0.6
160	0.1	0.7
180	0.15	0.85
200	0.15	1

Answer 1