MAPLELEAF: DESIGNING OPTIMAL

CAPACITY PLANNING STRATEGY

Group 1:
Amritansh Ahuja (PGP/20/131)
Bavirisetty Durga Chandra Sekhar (PGP/20/141)
Kartikeya Mehra (PGP/20/151)
Nikhil Sikaria (PGP/20/161)
Raj Sagar (PGP/20/171)
Shashank Shekhar (PGP/20/181)
Vivek Muraleedharan Nair (PGP/20/191)
Case Description

Mapleleaf Corporation is a midsized manufacturer and distributor of paper products

Firm has four production facilities located throughout North America
Products are shipped to seven distribution centers
Forecasts suggest that the demand for goods in the next 5 and 10 years, it has been
found that the demand would outstrip the current capacity of 10,000 cartons per
day
Hence, a new capacity expansion plan was designed.
 Plan is to develop a new production plant adjacent to the current distribution centre,
Guadalajara, Mexico because demand has increased in Mexico
Estimated initial investment = $30 million
Production costs = $10 per carton
Proposed capacity = 4000 average daily cartons
Construction Time = 2 years
Depreciation Method: Straight line method with 10 year useful life and no salvage value
Operating Schedule: 300 day/year operating schedule
Discount rate = 10% for NPV calculations
Tax rate = 40% for Cash flow calculations

Assumptions made:
Selling price of one carton = $20
All the goods that are produced are also sold
Production facility Denver is the same as K.C. in exhibits
Demand and Capacity Forecasts
Demand forecasts are projected
Linearly from year 1 to year 5 based on 5th year forecast
Linearly from year 6 to year 10 based on 5th and 10th year forecast
Forecast
Year Demand Capcity 16000
1 8000 10000 14000
2 8500 10000 12000
3 9000 10000 10000
4 9500 10000 8000
5 10000 12000 6000
6 10600 14000 4000
7 11200 14000 2000
8 11800 14000
0
9 12400 14000 1 2 3 4 5 6 7 8 9 10
10 13000 14000 Demand Capcity
Steps to be followed

Estimating the production quantity in each of the production centres from year 1 to
year 10 using Linear programming such that the production costs are minimized
Based on data obtained in Step 2, production costs are calculated for all the 10
years
An assumption is made on the selling price per carton and revenues are forecasted
for the entire 10 years.
Discounted cash flows are estimated for all the 10 years and NPV and Break-even
period are calculated.
 Table of demand forecast and product distribution costs for 5 year and 10 year

5-yr 10-yr
Centre/Production
Toronto K.C L.A Seattle Guadalajara Daily Daily
facility
cartons cartons
Toronto 0.75 2.5 4.5 4.75 5.25 1000 1000
K.C 2.5 1 2.5 2.75 3.25 750 1000
L.A 4.5 2.5 0.5 2.25 1.75 2500 3000
Seattle 4.75 2.75 2.25 0.75 2.5 1500 2000
Chicago 1.5 1.5 3.75 2.5 3.75 1500 2000
Atlanta 3 2.25 3 3.5 3.5 750 1000
Guadalajara 5.25 3.25 1.75 3.75 0.5 2000 3000
Total 10000 13000
Projected Demand Forecast from Year 1 to 10

Total Capacity during Year 1 to Year 4 is 10000 daily cartons and during Year 5 is
12000 units and Year 6 to 10 is 14000 units
Yearwise Projected Demand per Distribution Centre
Year 1 2 3 4 5 6 7 8 9 10
Toronto 1000 1000 1000 1000 1000 1000 1000 1000 1000 1000
K.C. 600 650 675 700 750 800 850 900 950 1000
L.A. 2100 2200 2350 2400 2500 2600 2700 2800 2900 3000
Seattle 1200 1275 1350 1450 1500 1600 1700 1800 1900 2000
Chicago 1200 1275 1350 1450 1500 1600 1700 1800 1900 2000
Atlanta 600 650 675 700 750 800 850 900 950 1000
Guadalajara 1300 1450 1600 1800 2000 2200 2400 2600 2800 3000
Total
8000 8500 9000 9500 10000 10600 11200 11800 12400 13000
Demand
Cost Analysis

Table in the next slide shows cost associated

Guadalajara comes in 5th year in the model
Total Cost in one year = Production cost + Distribution costs
Production Cost = No. of units produced * Cost per unit (in each production facility)
Distribution costs = No. of units to be distributed from one facility to one distribution
centre * Costs associated in that particular route
Calculation of Cost (for 10th year)
Production Cost

Production Cost/Carton 14 19 13 17 10

Unit cost* No of Units 35000 28500 45500 42500 30000

Total Production
181500
Cost
Distribution Cost

Toronto K.C. L.A. Seattle Guadalajara

toronto 750 0 0 0 0
K.C. 0 1000 0 0 0
L.A. 0 0 1500 0 0
Seattle 0 0 0 1500 0
Chicago 2250 0 0 1250 0
Atlanta 0 1125 1500 0 0
Guadalajara 0 0 0 0 1500

Distribution Cost 12375

TOTAL COST 193875

Cost Analysis

Distribution costs is different for different years, depending on the forecast for that
year
Total distribution costs are calculated using the Linear programming model using
forecasts from different distribution centers
The following table gives the total cost per day incurred every year from year 1 to 10

Year 1 2 3 4 5 6 7 8 9 10

Daily Cost
128425 136418.75 145656.25 143137.5 150312.5 158600 166887.5 175175 184312.5 193875
(In $/year)
Refer the Excel File for Calculations

Microsof t Excel
Worksheet
 Utilization
Before 5th year new plant is not present
Utilization from 5th year shows new plant presence
In the 5th year, the new plant runs at half (2000 units) of its capacity

Year 1 2 3 4 5 6 7 8 9 10
Total Capacity 10000 10000 10000 10000 12000 14000 14000 14000 14000 14000
Cushion 2000 1500 1000 500 2000 3400 2800 2200 1600 1000
Utilization 80.00% 85.00% 90.00% 95.00% 83.33% 75.71% 80.00% 84.29% 88.57% 92.86%
 NPV Analysis
NPV Analysis

Assuming Selling Price per Carton = $20

Year 0 1 2 3 4 5 6 7 8 9 10
Capital Expenditure 3,00,00,000
Revenue 160000 170000 180000 190000 200000 212000 224000 236000 248000 260000
Cost 128425 136418.75 145656.25 143137.5 150312.5 158600 166887.5 175175 184312.5 193875

Gross Margin 31575 33581.25 34343.75 46862.5 49687.5 53400 57112.5 60825 63687.5 66125

Gross Margin yearly

9472500 10074375 10303125 14058750 14906250 16020000 17133750 18247500 19106250 19837500
(300 days)
Depreciation 3000000 3000000 3000000 3000000 3000000 3000000 3000000 3000000 3000000 3000000
PBIT 6472500 7074375 7303125 11058750 11906250 13020000 14133750 15247500 16106250 16837500
PAT 3883500 4244625 4381875 6635250 7143750 7812000 8480250 9148500 9663750 10102500
3530454.54 3292167.54 4435706.70 4409670.34 4351709.13
Discounted CFs 3507954.545 4531965.03 4267842.768 4098373.36 3894951.081
5 3 2 2 2
NPV 1,03,20,795

Break Even will occur between 7th and 8th Year

 Concepts of Organisation Management
used in the case
Strategic Capacity Planning
Effective Capacity
Facility Utilization
Capacity Cushion
Conclusions

The company should build the plant at the end of 2 years in order to use it from 5th
year
Mapleleaf Corporation should start with new plant to meet the demand forecast
Profit continues to increase even after new plant is built
The breakeven is achieved between 7th and 8th year