Summary: Stanford University Graduate School of Business rev. Jan. 1999
This note was written by Samuel C. Wood and Sunil Kumar, assistant professors at the Stanford University
Graduate School of Business
Capacity Management at Littlefield Technologies
In early January, Littlefield Technologies (LT) opened its first and only factory to produce
its newly developed Digital Satellite System (DSS) receivers. LT mainly sells to retailers
and small manufacturers using the DSS's in more complex products. LT charges a pre-
mium and competes by promising to ship a receiver within 24 hours of receiving the order,
or the customer will receive a rebate based on the delay.
The product lifetime of many high-tech electronic products is short, and the DSS receiver
is no exception. After 268 days of operation, the plant with cease producing the DSS
receiver, retool the factory, and sell any remaining inventories. In the initial months,
demand is expected to grow at a roughly linear rate, stabilizing after about 5 months. After
another month, demand should begin to decline at a roughly linear rate. Although orders
arrive randomly to LT, management expects that, on average, demand will follow the
trends outlined above.
Management's main concern is managing the capacity of the factory in response to the
complex demand pattern predicted. Delays resulting from insufficient capacity would
undermine LT's promised lead times and ultimately force LT to turn away orders.