| Date | May 2017 | Marks available | 4 | Reference code | 17M.1.HL.TZ0.4 |
| Level | Higher level | Paper | Paper 1 | Time zone | Time zone 0 |
| Command term | Explain | Question number | 4 | Adapted from | N/A |
Question
Paul’s idea for 3D printing takes Utopia into a secondary sector activity that contrasts with its usual tertiary sector activities. In order to produce a sufficient number of souvenirs, Utopia would need to buy ten 3D printers at $1000 each. There would be material costs and significant operating costs, as well as time and additional labour. Paul has produced a net cash flow forecast for the project (Table 1) assuming a five year life for the printers. He likes the idea that each souvenir produced could be of a unique design and personalized. Some of the materials would be from recycled plastics obtained from waste at the resort. This example of lean production would be good for the resort’s environment and for Utopia’s caring image. The cost of recycling is uncertain.
Liza does not like the idea of 3D printing. She is concerned that the souvenirs may damage Utopia’s exclusive brand. She can see difficulties with recruiting someone with both the necessary IT skills and the ability to make decisions about which types of souvenirs to produce. She is particularly concerned about the impact on Utopia’s current suppliers of souvenirs. She thinks that 3D printing is more suited to larger organizations.
John believes that the 3D printing technology will bring other benefits to his businesses. He can imagine decorations and other useful items being produced for the resort and its offices.
Describe one method of lean production other than recycling.
With reference to Utopia, explain two benefits of having a strong brand.
Using information from Table 1 and Table 2, calculate the net present value (NPV) for the 3D printing project.
Using information from the case study, additional information above and your results from part (c), discuss whether Utopia should proceed with the 3D printing project.
Markscheme
Lean production can include JIT inventory control, JIT production, capacity management, TQM, improved efficiency to improve capacity utilization, involving workers in internal markets, supply chains, flexible systems. Kanban, Kaizen, Andon. Allow quality assurance., Cradle to Cradle, ‘right first time’
‘Decreasing waste’ can only reach one mark since it is a definition of lean production rather than a method.
Award [1] for a description that shows partial understanding. Award [2] for a description that shows full understanding.
Brand: an identifying name, symbol, image or trademark that distinguishes a product/service from its competitors.
The nature of Utopia is an upmarket expensive tourist destination. There are lots of alternatives, so Utopia has to market its uniqueness. Utopia’s marketing relies on word of mouth and social media. In order for these to be successful, the name (which is the brand) has to have an impact on potential customers. John believes that the beautiful location, the local craftsmen and materials, and the local food and coffee, together form the basis for the Utopia brand. So these each need to be strong for the brand to work.
Benefits could include: emphasizing the uniqueness of service; reinforcing word of mouth; strengthening name; creating and maintain a strong image; easier to introduce new products through family branding; competitive edge.
Accept any other relevant benefits
Award [1] for each reason identified, and [1] for the development of each of these reasons in the context of Utopia.
Total NPV = $2510 (12,510 – 10,000)
Lots of possibilities of rounding differences – allow especially if DCFs calculated with calculator rather than using given ones.
Award [4] for correct answer, correct units or no units (e.g. just 2510) (including different answers due to rounding).
Award [3] for correct answer, but wrong units or for simple arithmetic error.
Award [2] for right approach but significant errors e.g. omitting capital cost or not totalling the NPVs.
Award [1] for attempt that shows limited understanding.
In favour:
• Positive NPV (but allow OFR)
• Paul likes the idea
• Unique souvenirs
• Cost reductions
• $10k is not large in the scale of the operation
• Use of recycled materials fits in with Utopia’s ethos and image
Against:
• Does this market really do souvenirs?
• Liza does not like
• Recruitment difficulties
• Impact on local people – may damage part of the ethos
• Costs of recycling unclear
• Not suited to niche market?
According to Ansoff this might be diversification or new product depending on your point of view, but it does carry risks whichever.
Decision depends on John and whether other option(s) are better. John believes the technology will bring other benefits, which may swing him that way, however the impact on local craftsman would weigh heavily.
Accept any other relevant discussion of the issues
Marks should be allocated according to the Paper 1 markbands for May 2016 forward, section B.
Award a maximum of [4] for a purely theoretical answer or with no effective use of case material.
Award a maximum of [5] if only one side of argument is considered in context.
Award a maximum of [6] if both sides are considered but there is limited use of data (e.g. no use of NPV). However, if limited statement(s) are made about NPV/Cash Flow could achieve [7]
Award a maximum of [8] if both sides considered, there is good use of data, but an unsupported recommendation.
For full marks two sides of the argument should be considered, data used effectively, and the recommendation supported.
Note – a recommendation that a decision cannot be made due to lack of information (eg market research) can be regarded as a decision provided the arguments are supported.
Examiners report
Most candidates described a lean production method which was usually just-in-time (JIT) but sometimes kaizen and other possible methods.
Most candidates knew the meaning of ‘brand’. Many candidates could describe Utopia’s brand. The best answers explained that the brand helped differentiate the business and how it built up consumer awareness and loyalty.
Many candidates got the correct answer. Some candidates forgot to deduct the initial investment.
The best answers used the results of the NPV calculation (and some candidates also calculated ARR and Payback) and then linked these in with other information from the case, examining pros and cons. Questioning of assumptions also helped the best answers. To gain full marks candidates had to produce a justified/supported conclusion/recommendation. Weaker answers tended to focus either on the numerical aspects or the qualitative information without synthesis.
