Case Article—Suncrest AgriBusiness Company: Exploiting the Flexibility of Backup Capacity

Abstract

The primary objective of the case study is to help students understand, model, and solve capacity planning problems (i) when the production yield is uncertain and (ii) if the yield of first production is low, the product can be produced a second time. The dimension of random yield emphasizes supply chain management challenges beyond the traditional newsvendor problem, which has a nice closed-form solution. The dimension of operational flexibility underscores the importance of modeling skills, such as influence diagrams, that can be used to brainstorm, model, and solve new problems. Extensive use of the case in graduate supply chain management courses shows that in the absence of a mathematical model, students systematically deviate from optimal capacity usage. Usually, the presence of backup flexibility reduces first-period production. However, students’ responses often suggest cutting first production too much. When it is available, students consistently overuse the flexibility of second-period production. Overall, students believed the case was challenging and that it provides a valuable learning experience.