Smitherford Pharmaceuticals: Cost Benefit Analysis

Smitherford Pharmaceuticals: Cost Benefit Analysis

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Scenario: Smitheford Pharmaceuticals is facing other issues. The company had not kept up with modern manufacturing technology and was in the process of modernizing the injectable manufacturing facilities in Pueblo and Colorado Springs. There were several modernizing scenarios under analysis. Perform cost-benefit analysis calculations for 2 equipment scenarios. The data are provided below.

Scheduling the various manufacturing operations has become more complicated. In the 1990s, the Pueblo plant expanded tremendously, based on forecasts for the growth of a promising osteoporosis medication, Osto54. The facility doubled in size, mostly with tanks and processing equipment. Osto54, however, caused heightened enzyme levels in the liver and led to seven deaths in the elderly because of drug interactions. Smitheford faced the loss of millions of dollars in liability suits and had excess intermediate manufacturing capacity in Pueblo.

Two years ago, a new immune system treatment, Ultamyacin, was discovered by a Smitheford researcher. The drug could be manufactured at the Pueblo facility for the bulk manufacturing, but the final manufacturing steps could be made in Puerto Rico for final purification and then sent to Fort Collins for final manufacturing into sterile bottles for injection.

Smitheford leadership has narrowed the decision making down to 2 options. The first is a higher technology option in one location, and the other is a lower technology option in several locations.

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