Business Case

Case Study #2 Arctic, Inc.

Arctic Inc. produces large glass-door refrigeration units for supermarkets and convenience stores. The company has been experiencing a steady rise in demand for its products over the last ten years. Much of this growth stems from the increase in the number of convenience stores over the period. Arctic sees no decrease upcoming in the convenience store business and is concerned about its capacity to keep up with demand. The company currently manufactures only some of the parts used for assembly, purchasing the balance. Arctic is particularly concerned about its capacity to manufacture the compressors that are assembled into the refrigeration units.

Arctic has been producing compressors itself since it began operating. Now, with compressor capacity stretched to its limit, Arctic is considering expansion plans. There is a great deal of concern about what projects should be selected and what resources should be acquired for these projects. Company officials and employees are optimists, but Arctic faces a great deal of uncertainty, both with the type of compressor to be used in the future and with the amount of demand for the refrigeration units.

Arctic has several major options with regard to compressor capacity, some of which could be combined into a single plan. The options under consideration follow: (1) Expand the current plant capacity; (2) Build a new plant; (3) Subcontract among several vendors; (4) Subcontract with one vendor to provide the needed compressors ("sole sourcing"); (5) Purchase a company that provides the needed compressors; (6) Employ some combination of expansion and manufacturing.

Each plan has advantages and disadvantages tied to costs and other factors.

The first two plans maintain production control within Arctic, while Plans 3 and 4 relinquish control to other companies. Plan 5 is a compromise with respect to control, because compressor manufacturing would occur in a different strategic business unit...