Question 2

If you think that Genentech should move forward with CCP3, where should they build the new facility? Why? When should they start construction?

            It is recommended for the management of the company to build the production facility inside the United States and the most recommended location would be California. Since, the management of the company does not wants to build a third production capacity in Vacaville by leaving all the eggs in one basket, therefore, the management can locate the plant in South San Francisco where the original production capacity of the company is located. The main reason for this is that FDA will also have to certify this production plant.

            These all are the biological production facilities. These facilities need to meet all the standards which have been laid down by the FDA and they also need to keep these facilities clean in order to gain certification from FDA. The production process of the company is highly labor intensive and there is a very high number of the personnel required who are highly trained in order to operate these plants. High maintenance is also required by these plants and not all of the companies are able to provide this.

            Overall, it would be very much difficult for Genentech Company to have access to such specialized scientists and other resources if the production plant is located outside United States. Currently, the management has a high level of expertise at the original SSF site and it could also use of that expertise and build the new plant also in South San Francisco. All the employees would feel that they are team of a single workforce and as a result the workforce of the company would also not be expanded. One of the other advantages associated with this location is that the Vacaville location is just one and half hour away from this site so if any emergency arises then the repair crews can also visit the new site easily.

Question 3

Assume that a contract manufacturing firm has had an unexpected reduction in demand (e.g., another contract got canceled) and is “now” offering four 10,000 liter lines for production of Avastin at a price similar to Genentech’s current contract manufacturing contracts. Would you sign a contract with them? How would this change your answer to part (1), if at all?

            If the contract manufacturing firm decides to offer four 10,000 liter lines of production of Avastin, then the management of the company is highly recommended to opt for this option. The reason for this is clear. Currently, there is no clue about whether the results of the clinical trials would be favorable or not and if the management of the company decides to go ahead with CCP3 and the demand of the company is not significant in future years then the over capacity of the company is going to result in higher costs for the company, high inventory levels and higher administrative costs.

            These all costs combined together are going to have a significant impact upon the profitability of the company. Furthermore, the cost associated with the contruction of new plant was also significant with a cost of about $ 600 million. The company also had the option to reengineer the current production process of the company without adding any new plants but this would again have many other issues. For instance, if the management of the company decided to reengineer the current plants of the company then, the Food and Drug Administration in US will need to approve this added capacity and provide it with a license.

            There would also be huge variations in the capacity requirements of the company in future. Therefore, the current contract manufacturing offer for the company is feasible and the management of Genentech should go ahead with it. Although, contract manufacturing is new in the industry but it is gaining acceptance. Currently, the management of the company has established two successful contract manufacturing contracts also. Lastly, if this option is expected then the management of the company could decide to go ahead with CCP3 right now because the risk of loss and excess capacity would be minimized. If after this contract manufacturing, the demand is found to be lower then, the management of the company will still have enough plant capacity of its own to meet that demand and as a result it can avoid any excess capacity, holding costs, higher inventory levels and lower profits………………

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