CRU Computer Rentals

Sanjay Jharkharia

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Sanjay Jharkharia, IIMK 1
 A Review of Case Facts

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Sanjay Jharkharia, IIMK 2
 Case: CRU Computer Rentals
Flow Chart
Status 40
30%
Ship Receiving Repairs
70%

Status 24 15%
Parts
places
Status 41
order
Customer Pre-Config
Receives
from
Supplier
Status 32

Ship Config Repairs

Status 20 Status 42
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Sanjay Jharkharia, IIMK 3
 Case: Process Flow Diagram (1996 Situation)
Status 40
30%
Ship Receiving Repairs
500 1000
70%

Status 24 15% 500 Parts

1500 places
Parts order
Demand:
Status 41
Customer 1000 / week Pre-Config
T: 8 weeks T=1 week Receives
from
Supplier Supplier

Status 32

Ship Config Repairs

2000 500
Status 20 Status 42
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Sanjay Jharkharia, IIMK 4
 Decision Options
Continue with reduce demand of 600 units per week and dispose off
the extra units
Have a sales drive to increase the demand to 1400 units per week

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Sanjay Jharkharia, IIMK 5
 CRU Situation in 1996
Customer term 8Wk, Demand 1000 Units/Wk

Customer Receiving Status Status Status Status Status

24 40 41 42 20

Throughput 1,000 1,000 700 300+10 405 405 1,000

(units/week) 5=405

Inventory 8,000 500 1,500 1,000 500+40 500 2,000

(units) 5=905

Flow time 8.0 0.5 2.14 2.47 2.23 1.23 2

(weeks)

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Sanjay Jharkharia, IIMK 6
 CRU Situation in 1996:
Financial Performance
Number of units on rent = 8,000
Total number of units = 14,405
Utilization = 0.56 (56%)
Revenue rate = 8,000 x 30 = $240,000/wk
Variable Cost rate = 25 x 1,000 (R) + 25 x 1,000 (S)
+ 4x700x.85 + 150 x 405 = $113,130/wk
Contribution Margin (Revenue-Cost) = $126,870/wk
Depreciation = 14,405 x ($1000/156wks) =
$92,340/wk
Profit = $34,530/wk
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Sanjay Jharkharia, IIMK 7
 CRU Situation in 1997
Buffer sizes Unchanged, Demand =1400 Units/Wk

Custom Receivi Status Status Status Status Status

er ng 24 40 41 42 20

Throughput 1,400 1,400 980 567 567 567 1,400

(units/week)

Inventory 8,000 500 1,500 1,000 905 500 2,800

(units)

Flow time 5.7 0.36 1.53 1.76 1.60 0.88 2

(weeks)

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Sanjay Jharkharia, IIMK 8
 CRU Situation in 1997: Financials
Buffer Sizes Unchanged, Demand = 1400 Units/Wk

Number of units on rent = 8,000

Total number of units = 15,205
Utilization = 0.53 (53%)
Revenue = 4,800 x 30 + 3,200 x 35 = $256,000/wk
Cost = 25 x 1,400 (R) + 25 x 1,400 (S) + 4x980 x .85
+ 150 x 567 = $158,382/wk
Contribution Margin = $97,618/wk
Depreciation = 15,205 x (1000/156) = $97,468/wk
Profit = $150/wk

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Sanjay Jharkharia, IIMK 9
 CRU Situation in 1997
Flow times Unchanged, Demand =1400 Units/Wk

Customer Receiving Status Status Status Status Status

24 40 41 42 20

Throughput 1,400 1,400 980 567 567 567 1,400

(units/week)

Inventory 8,000 700 2,100 1,400 1,267 700 2,800

(units)

Flow time 5.7 0.5 2.14 2.47 2.23 1.23 2

(weeks)

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Sanjay Jharkharia, IIMK 10
 CRU Situation in 1997:
Flow Times Unchanged, Demand = 1400 Units/Wk

Number of units on rent = 8,000

Total number of units = 16,967
Utilization = 0.47 (47%)
Revenue = 4,800 x 30 + 3,200 x 35 = $256,000/wk
Cost = 25 x 1,400 (R) + 25 x 1,400 (S) + 4 x 980x .85
+ 150 x 567 = $158,382/wk
Contribution Margin= $97,618/wk
Depreciation = 16,967 x (1000/156) = $108,763/wk
Profit = -($11,145/wk) i.e. loss

Sanjay Jharkharia 11

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Sanjay Jharkharia, IIMK 11
 CRU Potential Situation in 1997
Without sales drive and flow times unchanged, Demand of
600 Units/Wk

Customer Receiving Status Status Status Status Status

24 40 41 42 20

Throughput
(units/week)

Inventory
(units)

Flow time
(weeks)

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Sanjay Jharkharia, IIMK 12
 CRU Potential situation in 1997: Complete it

Without sales drive, Demand = 600 Units/Wk.

Number of units on rent =
Total number of units =
Utilization =
Revenue =
Cost
Contribution Margin =
Depreciation =
Profit =

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Sanjay Jharkharia, IIMK 13
 What to do now?
Continue with the reduced demand of 600 units per week and
dispose off the extra units
Have a sales drive to increase the demand to 1400 units per week

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Sanjay Jharkharia, IIMK 14
 Assignment

Solve the questions as given at the end of the case

especially Q. # 6.

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Sanjay Jharkharia, IIMK 15