Sun Dish Inc.’s Data Collection and Planning Report

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Introduction

Sun Dish, Inc is a well-established company in the business of cable and dish TV. They are headquartered in Indianapolis IN, and serve households in Michigan, Ohio, Indiana, Wisconsin and Kentucky, they are planning on extending business to Illinois, Minnesota, Kansas, and Colorado over the next few years, but first they want to implement a project to see how well a possible expansion this large will work. They decided to start with a small area as a deciding factor for their expansion. Below are the criteria to use for this work.

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Media selection

The marketing departments plan for the advertisement campaign has a budget of $100,000. Previous experience has shown that the exposure to potential customers as a result of the advertising effort will be, as follows:

  • For every newspaper insert, 30 additional customers will sign up for the service.
  • For every hundred weekend flyers in the supermarkets, 10 additional customers will sign up for the service.
  • For every sign placed by the roadside, 10 additional customers will sign up for the service.
  • For every hundred personal mailings to potential customers, 40 additional customers will sign up for the service.
  • For every TV advertisement placed daily in the last month before the service is launched, 490 additional customers will sign up for the service.

The costs for each of these advertising measures, along with the practical minimum and maximum number that should e planned for each are shown in the following table.

Advertising deviceCost in dollarsMinimumMaximum
Roadside sign25100500
Newspaper insert6050200
Weekend flyers3040100
Personal mailings82500800
Daily TV ads1000312
  • The data presented here is only for the month preceding the launch of the service.
  • The initial analysis needs to focus only on this month.

Investment options

The company has traditionally hedged its investments across a variety of investment options. The options available to the company with their expected annual returns are shown in the following table. The table also shows levels of liquidity and risk for each of the six types of investments.

Investment typeExpected annual rate of return (%)Liquidity levelRisk level
Money market funds12.25HighHigh
Stocks11.50HighHigh
School bonds4.00LowLow
Certificates of deposit3.00LowLow
Tax-free municipal bonds6.50LowLow
Treasury bills7.50HighLow

In addition are company investment principles.

  1. The company will not invest more than 30 percent of the money in either of the first two investments because these are too risky.
  2. For the same reason, not more than 50 percent of the total money will be put in the first two investments together.
  3. The company will need the money whenever required for the satellite dish venture. Therefore, not more than 30 percent of the total money will be invested in investments with low liquidity. That is, school bonds, certificates of deposit, and tax-free municipal bonds.
  4. The company considers treasury bills issued by the Federal Reserve as less risky and having high liquidity. Therefore, the company wants at least 15 percent of the total money to be invested in treasury bills.
  5. To diversify across the investment types, there is a corporate policy limit on each of the six types of investment. The list is in the table below.
  6. For the same reason of diversification, a minimum of 10 percent of the total money will be invested in each of the funds.
Investment TypeMaximum % of total money that can be invested
Money market funds30
Stocks30
School bonds20
Certificates of deposit25
Tax-free municipal bonds40
Treasury bills25

Aggregate production planning

The Sun Dish satellite system requires manufacture of three products: a High definition receiver, a digital receiver, and a satellite dish. The initial production plan is for the first six months after launch of service. The production capacity cannot be changed quickly. Consequently, the production plan would be a level plan in which the production levels for the first six months stay the same. The company wishes to make at least as many units of each of the three products as the number of customers who can be reached, as predicted by the media selection analysis. In other words, the company y wishes to produce at least 50,000 units of each of the three products if they media selection analysis shows that a total of 50,000 customers will be reached through the various media outlets. In addition because of fewer customers will need HD receivers compared to digital receivers, the company has to ensure that the number of HD receivers produced is not more than 50 percent of the number of digital receivers produced.

The other details related to each of the products are listed in the table below

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Fabrication time (hours)Assembly time (hours)Inspection and testing time (hours)Packing time (hours)
HD receivers0.10.150.100.05
Digital receivers0.150.120.120.05
Satellite dishes0.20.180.150.05
FabricationAssemblyInspection and testingPacking
Workforce cost/ hours ($)7.009.008.57.25
Available time (hours)30,00030,00030,00010,000

Capacity planning data

The company needs to plan for the capacity required to produce the new equipment for the satellite dish venture because the existing capacity is insufficient. There are several options to add capacity; however, the selection depends on the market for the new service.

The basic decision is to do one of the following to increase capacity;

  1. Build a new plant in Wisconsin
  2. Buy an existing plant in Indiana from available vendors.
  3. Subcontract the required capacity from available vendors.
  4. Buy new equipment to boost the capacity of existing plants.

If the company undertakes the second option, it can engage the services of a survey company to narrow the search for a potential plant that can be bought. This all depends on how the market for the new service turns out in the future. The company managers think the market can be predicted to turn in one of three ways: Favorable, average, or unfavorable. The data related to the four options available for increasing capacity and the expected payoffs with the market events are shown in the following table.

OptionsCost of the option ($)Payoffs with market conditions ($)
FavorableAverageUnfavorable
Build a new plant in Wisconsin300,0001,100,000750,000400,000
Buy an existing plant in Indiana from a smaller company100,000With the survey company option600,000300,000100,000
Without the survey company option800,000400,000200,000
Subcontract the required capacity from available vendors10,000800,000400,000200,000
Buy new equipment to boost capacity in existing plants30,000300,000200,000150,000
  • The cost of the services form the survey company is $15,000.
  • The payoff values are different for each option because of the different capacity available for each option
  • The probabilities for the market conditions are
  • Favorable = 20%
  • Average = 50%
  • Unfavorable = 30%

Demand forecasting

Monthly demand (number of new customer sign-ups)Percentage of time a demand level occurs
1,0005
2,00015
3,50020
5,00030
7,00025
9,0005

In addition to the historical demand, the company knows that the selling price per customer is a random value between $50 and $80. The selling price is the monthly bill for a customer, and the variability in the selling price is due to the different packages ordered by different customers. The random value of the selling price has been traditionally determined within Sun Dish by a discrete uniform distribution.

  • The monthly demand data shown is an average of the demand from the first six months after the new service is introduced.
  • The data about the percentage of time a specific demand level occurs is based on historical data over a number of observations.
  • The simulated monthly demand multiplied by the simulated selling price gives the monthly revenue.
  • Normally, the company runs 200 replications in simulation models such as this one. The 200 replications are used to determine the average revenue and the standard deviation of revenue that is expected from a new service offering.

References

Balakrishnan, N., Render, B., Stair Jr., R. M. (2007). Managerial Decision Modeling with Spreadsheets (second ed.). Upper Saddle River, NJ: Pearson Education, Inc.

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IvyPanda. (2021, October 20). Sun Dish Inc.'s Data Collection and Planning. https://ivypanda.com/essays/sun-dish-incs-data-collection-and-planning/

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"Sun Dish Inc.'s Data Collection and Planning." IvyPanda, 20 Oct. 2021, ivypanda.com/essays/sun-dish-incs-data-collection-and-planning/.

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IvyPanda. (2021) 'Sun Dish Inc.'s Data Collection and Planning'. 20 October.

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IvyPanda. 2021. "Sun Dish Inc.'s Data Collection and Planning." October 20, 2021. https://ivypanda.com/essays/sun-dish-incs-data-collection-and-planning/.

1. IvyPanda. "Sun Dish Inc.'s Data Collection and Planning." October 20, 2021. https://ivypanda.com/essays/sun-dish-incs-data-collection-and-planning/.


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IvyPanda. "Sun Dish Inc.'s Data Collection and Planning." October 20, 2021. https://ivypanda.com/essays/sun-dish-incs-data-collection-and-planning/.

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