CASE STUDY ANALYSIS

Norwegian Salmon Processing

Facility, Trondheim

NorSal Trondheim operates a salmon processing

facility where fish are purchased from local sources
along the North Sea, processed at the facility, and
sold to customers for distribution. The plant
manager, Inger Hansen, is contemplating a plant
modernization to upgrade the technology in the
plant. While the plant performs well enough now,
modernizing equipment would allow the plant to
increase capacity per hour, which is particularly
advantageous because the factory has enough
demand to cover the additional capacity.

Currently, the plant operates five days a week, two

shifts of 30 workers per shift. The workers are paid
$10 per hour. Adding a third shift is not possible
because the plant is cleaned during the third shift.
The firm is contemplating a plant modernization
to

upgrade

existing

equipment,

which

should

increase the plants output while lowering energy

costs. Using the current equipment, around 1,500
pounds of salmon can be processed each hour,
while the new plant would be able to process 2,000
pounds per hour.

The updated equipment is made by the same

manufacturer as the existing equipment, and the
production personnel feel that they will be able to
learn to use the new equipment quickly. For this
reason, costs to train personnel are assumed to be
negligible.

The

production

manager,

Bjorn

Pedersen, is skeptical about undergoing the plant

modernization. The older equipment, he argues, is
already paid for, and new equipment would cost
$10,000 per week. This cost is comprised of both
principal and interest, and includes manufacturer
installation of the equipment.

The controller, Maret Karlsen, cautions that all

decisions related to costs should be included in
the

analysis

and

that

because

the

energy

consumption would be different, this must also be

accounted for in the decision. Energy costs are
presently $10 per unit, and the existing plant uses
1,000

units

of

energy

per

week.

With

the

modernized plant, the consumption of energy

would fall by 50%.

DISCUSSION QUESTIONS
1. What is the productivity of the processing
facility, with the equipment currently in use?
2. What would the productivity of the plant
become if the new system were purchased
and implemented?
3. What would be the amount of additional
expense on equipment that would make
productivity of the two systems equal?
4. What might happen if energy costs increase
in the future?

GIVEN/POINTS
Fix rate
o

The plant operates five days a week, two shifts of 30 workers per shift and
$10 per hour = Paid $600 per hour or $9600 per day or $48000 per week

Objective
Increase the plants output while lowering energy costs

Equipment
1) The older equipment is paid off
2) New equipment cost $10,000/week so if divided to 5 days,
divided by 16 hours = $125 per hour
Energy costs are presently $10 per unit
1) Existing plant uses 1000 units of energy per week/5 days/16
hours= 12.5 units
2) With the modernized plant, it would decrease by 50% = 500/5
days/16 hours = 6.25 units
Productivity
3) Old equipment produces 1500 pounds of salmon per hour
4) New equipment produces 2000 pounds per hour

QUESTION 1
What is the productivity of the
processing facility, with the
equipment currently in use?
=

1500 x 16 hours x 5 days

$24,000 labor cost + $10,000
energy cost
= 3.53 pounds per dollar

QUESTION 2
What would the productivity of the
plant become if the new system were
purchased and implemented?
=

2000 x 16 hours x 5 days

$24,000 labor cost + $5,000 energy cost +

$10,000 equipment

= 4.10 unit output (pounds) per

dollar

QUESTION 3
What would be the amount of
additional expense on equipment
that would make productivity of the
two systems equal?
$39,000 - $34,000 = $5,000
(4.10 unit 3.53 unit) x $5,000 =
$2,850

QUESTION 4
What might happen if energy costs increase in the
future?
Even though the upgrade costs $10,000 per
week, it compensates the expenditure by
reducing the energy consumption and
increasing the production.
Therefore, if the energy costs rise in future, the
upgrade is causing to save more money rather
than the old equipment
Also, it increases production from 1500 pounds
to 2000 pounds, so we can say it is more useful.