Academic journal article Journal of the International Academy for Case Studies

Instructors' Note: Startup Production Planning under Funding Constraints

Academic journal article Journal of the International Academy for Case Studies

Instructors' Note: Startup Production Planning under Funding Constraints

Article excerpt

RECOMMENDATIONS FOR TEACHING APPROACHES

This finance/accounting case was written to be used in both undergraduate and graduate courses. The instructor may adjust the rigor and depth of material to reflect the skill and background of the student audience. However, the issues are meaningful and relevant to the learning experience of undergraduates and graduates. This case is primarily designed to be used in 1) a case course in Entrepreneurial Finance or 2) in a financial modeling course or 3) a case course in which the students have accounting knowledge. It is an experiential learning exercise based on the application of financial and accounting principles. The case is self-contained in that the material needed to understand the necessary concepts and calculations are contained in the case. The case can be taught using three approaches.

Approach 1 is a qualitative analysis of the case and has the students making decisions on the manufacturing space location and the component subcontracting versus inhouse manufacture. The sales and production forecasts, however, can be discussed in the context of how the subcontracting vs. in-house decisions (Table 1 in case) and manufacturing space location (Table 3 in case) will affect the forecasts, and more specifically, the cash available for production. By focusing on the process instead of making the actual forecasts, the students can explore the implications of the amount of cash brought into the venture at founding, the customer and vendor credit policies, the compensation of the founders, inventory policy, and the funding of R&D. The discussion questions at the end of this Instructors' Notes document allows for a rich in-class discussion. As a discussion-based exercise, the case can be completed in one 50- or 75minute class.

Approach 2 is the first quantitative approach. A financial decision model is available with this case and can be provided to students to allow them to make sales and production forecasts within the context of the initial funding constraint of $7 million. The decision model is comprised of three decision sub-models-the manufacturing space lease decision model, the component subcontracting decision model, and the production planning model-and a corporate tax calculation model. The decision sub-models are explained in detail below and are fully populated with the case assumptions and sample sales and production forecasts. This approach still requires the discussion elements of Approach 1 in order to understand the process embodied in the model.

Approach 2 will require two 50- or 75-minute classes. The first 50- or 75-minute class can be used to set up the case, identify the decisions that need to be made, and explain the objective of the financial model, and discuss the impact of cash flow on production planning (explained below). The students can then be assigned the task of using the model to make their decisions and their sales and production forecasts within the cash constraints of the case.

Approach 3 is another quantitative approach which combines Approaches 1 and 3 except that instead of providing the student with the financial model, the student's assignment as part of the case is to construct the financial model. If the objective is to have the model as complete as the one provided with this case, the task for the student will be formidable. In addition, the instructor will need to examine each model to verify that it is constructed correctly. This takes a significant amount of time. Students can be assigned to teams, easing the burden on students and reducing the number of models the instructor Approach 3 will require three 50- or 75-minute classes. The first 50- or 75-minute class can be used to set up the case, identify the decisions that need to be made, and explain the objective and structure of the financial model. The students can then be assigned the task of constructing the model during the time between classes. This should be a few days as it can be a time-consuming class for students not proficient in using Excel. …

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