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How to structure a capacity expansion questions?

Tobias asked on Sep 18, 2018 - 1 answer

Hi all,

Recently saw a case question along the lines of:

Your client, the CEO of Company D has decided that he/she needs to expand Company D’s
manufacturing capacity and is considering either building a new plant in Kuala Lumpur, Malaysia, or increasing the scale of its current plant in Singapore. Which would you recommend that they do?

Would the following structure be good enough? I'm not sure it's the most logical, MECE way...

Company

  • Current production and capacity
  • Reason for expanision
  • Market size and growth (to estimate expected revenue from capacity expansion)
  • Client expertise / core competencies (e.g. if it is flexibility of manufacturing, this might impact the answer)
  • Customer analysis (to identify who/where their customers are and why they buy from Client)
  • Any specific criteria the Client has for expansion (i.e. must be within 1 day shipping of suppliers)

Comparison / benchmarking

Compare each of 3 options along the following critieria:

  • New expansion capacity
  • Cost to build this new capacity
  • Cost to run at new capacity
  • Distrance from supplies/distributors
  • Time to scale

Risks and alternatives

  • Consider competitive response
  • Risks of expanding into new, unknown regions (e.g. unfamiliar with legal/regulatory aspects, currency fluctuations, potential for shipping delays over long distances)
  • Alternatives
    • Increase efficiency at current plant
    • Outsourcing
    • Leasing
    • Acquiring another plant

Conclusion

Based on findings

Anyone have anything to add/comment on?

Many thanks in advance.

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Elias
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replied on Sep 18, 2018
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Hi Tobias,

great structure. I especially like the last part on "Alternatives" - that's really thoughtful and good.

I would maybe flesh out the cost/benefit analysis for the options a little bit further, particularly the benefits (benefits like geographic redundancy, access to more labour pools, ...).

Otherwise the structure you present is very thorough and encompassing. So the interviewer may ask you to speed things up. So be prepared to cut some less essential things.

Examples:

  • Market size and growth: Just assume that the market is large enough and growing. It's not a market analysis case, so this is not essential. Same with customer analysis (except maybe geographically, see the following point)
  • Distance to suppliers: Kuala Lumpur and Singapore are only about 300 km apart, so unless they are sourcing very locally, this should be pretty irrelevant.

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