Omni Graphics is a small manufacturer of electronic products for use in graphics computers. The company has succeeded by being very innovative in product design. As a spin-off of a large electronics manufacturer (ElecTech), Omni management has a lot of experience in both marketing and manufacturing in the electronics industry. A long list of equity investors is betting that the firm will really "take off" due to the growth of specialized graphics software and the increased demand for computers with enhanced graphics capability. However, a number of market analysts say the market for the firm's products is somewhat risky--as it is for many high-tech start-ups--since there are a number of new competitors entering the market, and the technology is not yet proven.
Omni's main product is a circuit board (CB3668) that is used in the manufacture of graphics computers. While prices vary depending on the terms of sale and the size of the purchase, the average price for the CB3668 is $100.
The expected sales for the coming year is 150,000 units, with growth expected to increase dramatically in the following years. While the future for Omni looks very bright indeed, the firm is new and has not as yet developed a strong financial base. Cash flow management is a critical feature of the firm's financial management, and cash flow numbers are watched closely by top management.
At present, Omni is manufacturing the CB3668 in a plant leased from ElecTech. The plant also includes some equipment purchased from ElecTech. About 70 percent of the parts in the product are manufactured by Omni.
Omni management is considering a significant reengineering project in which the plant and manufacturing process would be significantly changed. The objective of the project would be to increase the amount of purchased parts (in the new plan,