Technology and Operation Management
WAC
ERP ID 07852
ERP ID: 07852 Name: Nida Musheer Written Analysis of Case: FoldRite Furniture Co.: Planning to Meet a Surge in Demand Course: Technology and Operation Management Submission Date: May 03, 2014
1
Technology and Operation Management
WAC
ERP ID 07852
INTRODUCTION “FoldRite Furnitures Co.” operates in a highly competitive business environment wherein making one error will lead to loss of business to competitors. FoldRite was established in 1987 with the initial product of folding banquet tables for school and church functions. The company grew progressively in 1990s while catering the needs of business and government offices, hotels, convention centers, schools and colleges by selling three product lines. It registered an average annual growth rate of 3.5% for the period 1999-2006 that was above average for the industry. However, year 2006 brought a financial turmoil that resulted in an increased lead time from 4 weeks to 6-8 weeks and on time delivery of 90% to 30%-40% caused by loss of productivity and yield via high factory worker turnover and an increasing proportion of inexperience workers. In 2007, FoldRite was taken over by private investors and new management was recruited. The new CEO, Marshal Epstein hired a manufacturing VP, Jose Ramos in view that the manufacturing department needed a re-tooling. He also outlined 4 point strategic goals for the company that was to be achieved by reducing the number of products and consolidating manufacturing. (Exhibit 1). The outcome of this was reflected by $60M revenue in 2009, lead time reduced to 2 weeks and two day shipping policy ensured lean inventory for distributors and possibility of last minute purchasing decision by customer. Revenue of FoldRites was segmented into 3 markets (Exhibit 2) and demand of their products was seasonal with peak demands in summers. Recession had reduced the business events by 20% in 2008. However, start of 2010 was forecasting a growing business market and sales demand was expected to pick up. The forecast also highlighted the importance of “Green Products” for companies placing order at FoldRites and Epstein expected this segment to grow by 20% or more for next five years. In view to capitalize on the opportunity of “Green Products” demand, FoldRite replaced foam and plastic materials with recyclable materials and used waster based and low or non-volatile organic compound paints and coating. With regards to operation, FoldRite maintained a strategic inventory of fully assembled products and partially assembled parts setup along with unpainted frames to achieve short lead times. Partial assembled inventory consisted of products with most popular colors. To eliminate inventory carrying cost, Purchasing contracts were established with suppliers. Forecast of production planning triggered the raw material purchase. Production activity confined to 10 hour shift 4 days a week. However, focus on increase production using overtime or additional labor only on Friday.
2
Technology and Operation Management
WAC
ERP ID 07852
FoldRite labor force consists of both skilled and unskilled workers. Both performed variety of task. Wage Rate for both varied as well. Good Labor relations were established with incentive plans and training programs for converting unskilled worker to skilled worker. Similar materials used in products resulted in improved quality and reduction in procurement overhead. Multiple assembly lines used for final assembly of tables and chairs. With an average yield of 95%, focus was on improved quality control process with focus on each product. FoldRite was foreseeing an unexpectedly high market demand for the company’s product in summer due to launch of new stylish, innovative and environmentally friendly products and was up with following challenges: - Production Issues: Need for optimized production planning to meet the spur in demand & also meet the quality standards and delivery schedules. To achieve this, company can either ask its workers to do overtime i.e. 10 hour shifts on Fridays or temporarily increase its workforce to fully utilize the production capacity and or can subcontract the workforce to meet the unexpected rise in demand. -Financial Issues: Tight credit facilities ensured the company needed to meet the demands from internal cash flows. R&D and Product development budgets can take a hit -Human Resource Issues: Hiring new staff results in additional cash outflows i.e. $1500 along with 2 supervisors interviewing unskilled worker earned$25 an hour with 33% for benefits.
Newly hired
workers productivity was 80% for first four weeks. Also training unskilled to skilled worker required 4 weeks fully paid training. -Design Change: Change of Cloud Chair design would require one minute less in assembly but would require a one-time cost of $15,000 and one month for implantation.
3
Technology and Operation Management
WAC
ERP ID 07852
ANALYSIS: As per Kelsey requirement, given data has been analyzed in line with Aggregate Production Planning. Under this, four plans have been prepared that are as follows: -Exact Production: Vary Work Force This strategy is also called the chase strategy wherein production rate is matched to order rate by hiring and laying off employees as the order varies. Assumptions:
Demand Forecast=Production
Each product has been dealt separately.
Laying Off Skilled Worker: $1000
Laying Off Unskilled Worker: $800
Production hours ( Time taken to produce 1 unit by skilled worker (2/60)* Production per month
Production hours ( Time taken to produce 1 unit by unskilled worker (9/60)* Production per month
Hours per month per worker (workdays in a month* working hours per day)
Skilled Workers Required (Production Hours/Hours per month per worker)
unskilled Workers Required (Production Hours/Hours per month per worker)
Outcomes: By using this strategy, FoldRite will have a total Cost of $ 7,201,947/-. This includes cost of hiring and laying off workers along with straight time cost. (All calculations in Exhibit 3)
4
Technology and Operation Management
WAC
ERP ID 07852
-Constant Workforce: Vary Inventory and Stock out This strategy is also called the level strategy wherein stable workforce is maintained at a varying output rate. Shortages and Surpluses are absorbed by fluctuating inventory levels. Assumptions:
Skilled Worker: Production Hours Available (Working Days per month*Working Hours per Day*Constant Workers)
unskilled Worker: Production Hours Available (Working Days per month*Working Hours per Day*Constant Workers)
Skilled Worker: Actual Production (production hours available/(2/60))
Unskilled Worker: Actual Production (production hours available/(9/60))
Ending Inventory (Beginning Inventory +Actual Production-Demand Forecast)
Safety Stock (25% of month demand) Units Excess (Ending Inventory-Safety Stock) only if positive amount Straight Time Cost (production hours available * Labor cost)unskilled Worker Straight Time Cost (production hours available * Labor cost)Skilled Worker Beginning Inventory: Assumed for first year. For remaining months, ending inventory of previous month=Beginning inventory for current month
Constant Skilled Workers=Average number of workers required each day over the Horizon
Constant unskilled Workers=Average number of workers required each day over the Horizon
Inventory Holding Cost $0.10/unit (assumed)
Outcomes: By using this strategy, FoldRite will have a total Cost of $7,833,858/-. This includes cost of holding excess inventory and straight time cost.
5
Technology and Operation Management
WAC
ERP ID 07852
-Sub Contracting Similar to Chase Strategy, but FoldRite can decide to subcontract part of its workers. Here, analysis is based on either subcontracting skilled workers or unskilled workers. (Calculations in Exhibit 5) Assumptions:
Skilled Worker: Production hours available (working days*10 hours per day*Minimum Workers Required*
unskilled Worker: Production hours available (working days*10 hours per day*Minimum Workers Required
Skilled Worker: Actual Production (Production hours available/Labor time)
unskilled Worker: Actual Production (Production hours available/Labor time)
Total Actual Production
Shortfall (Demand-Actual)
Skilled Worker--Units Subcontracted Cost*** (# of units subcontracted*labor time per unit*Labor cost)
unskilled Worker-Units Subcontracted
Minimum Skilled Worker Required: (Minimum Order Month*Labor time)/(Total Work Days for the month/10 hours per day)
Minimum unskilled Worker Required: (Minimum Order Month*Labor time)/(Total Work Days for the month/10 hours per day)
Subcontracted Skilled Worker:25.57*120%
Subcontracted unskilled Worker:9.9*120%
Outcomes: By using this strategy, FoldRite will have a total Cost of $4,950,289 by subcontracting skilled worker inclusive of Straight time cost and $5,259,460 by subcontracting unskilled worker inclusive of straight time cost. It has been assumed under subcontracting that only shortfall production is subcontracted.
6
Technology and Operation Management
WAC
ERP ID 07852
-Over Time FoldRite can also utilize Friday to meet production plans and make workers do overtime. However, under overtime, labor cost is 1.5 times more of normal labor cost. Also, they can decide to either make skilled workers do overtime or the unskilled workers. (Calculations in Exhibit 6) Assumptions:
Skilled Worker--Production hours available (Working Days*Labor hour per unit*Constant Number of Workers)
unskilled Worker--Production hours available (Working Days*Labor hour per unit*Constant Number of Workers)
Skilled Worker--Regular Shifts Production (production hours available/Labor per unit)
unskilled Worker--Regular Shifts Production (production hours available/Labor per unit)
Units available before overtime(Beginning Inventory+ Regular Shift Production-Demand Forecast)
Overtime hours in Month (# of Fridays in a month*10)
Skilled Worker--Overtime Cost (Units overtime*Labor cost per unit*Overtime Labor hours)
unskilled Worker---Overtime Cost (Units overtime*Labor cost per unit*Overtime Labor hours)
Safety Stock (.25 of month demand)
Units Excess (units available before overtime-safety stock)
Skilled worker--Straight Time cost (Production Hours Available *25.27)
unskilled worker--Straight Time cost (Production Hours Available *9.9)
Beginning Inventory: Assumed for first year. For remaining months, ending inventory of previous month=Beginning inventory for current month
Constant Skilled Workers=Average number of workers required each day over the Horizon:
Constant unskilled Workers=Average number of workers required each day over the Horizon:
Inventory Holding Cost $0.10/unit (assumed)
Overtime Cost Skilled Worker: 1.5(25.27)=$38
Overtime Cost unskilled Worker: 1.5 (9.9)=15
Outcomes: By using this strategy, FoldRite will have a total Cost of $5,213,645 by overtime of skilled workers on Fridays of every month and $5,278,228 by the overtime of unskilled workers. These costs are inclusive of straight time cost and only shortfall inventory is produced in overtime.
7
Technology and Operation Management
WAC
ERP ID 07852
Recommendations Based on the four production strategies (summary of strategies-Exhibit 7), following is advisable to Kelsey and his team: Going through the summary table, I suggest that the FoldRite should opt for the Subcontracting strategy or Chase Strategy for production.
Company can subcontract skilled and non-skilled workers for only shortfall in production requirement. Not only it will help the company save but it will also allow it to grow. Other advantages of using subcontracting includes company’s focus on core activities, reduction in overhead cost, human resource is flexible and company is better able to control its operational cost. However, subcontracting also comes with some cons that includes loss of managerial control, threat to company’s security and confidential information and non-uniformity in quality. The chase strategy is also profitable. From the forecasted income statement 2010, the cost of labor is estimated to be $7,345,000. By using this strategy the labor cost would be around $7,201,947. Hence the net decrease in labor cost by $143,053. However, the main concern with Chase strategy is the negative impact on labor morale as labor are hired and laid off as per the production requirement. Level Strategy is not advisable to FoldRite as it will lead to higher cost than the estimated cost of 2010. The cost of carrying inventory is the major concern for using this strategy. Whereas the overtime strategy requires the workers to work full time on Fridays too. Quantitatively and Qualitatively both, overtime does not seem profitable as it requires High cost: overtime wages were 1.5 times the normal fully loaded rates, decline in quality and yield: overtime may lead to labors’ fatigue, potential risk: may not able to meet the demand if the demand continues to increase and negative effect on potential labors: the longlasting overtime may discourage other labor join in the company.
8
Technology and Operation Management
WAC
ERP ID 07852
Exhibit 1-Four Major Goal
Continued Innovation in both products and Services
Customer Responsivenesss: producing high quality products that fulfilled market needs, and providing quick service
Lean Manufacturing
Retention of a well-trained,stable, workforce, with redcued turnover.
and
productive
Exhibit 2- Segment wise Revenue
Actual Sales 2009
Folding Chairs (old folding chairs) 20%
Stockable Chairs(Gree n Comfort) 36%
Folding Tables (AlStrong) 44%
Estimated Sales 2010
Folding Chairs (CloudChair ) 24%
Folding Tables (AlStrong) 42%
Stockable Chairs(Gree n Comfort) 34%
9
Technology and Operation Management
WAC
ERP ID 07852
Exhibit 3- Exact Production & Vary Workforce Cloud Chair 2010 Jan
2010, Forecast
Feb
Mar
Apr
May
Total
Jun
Jul
Aug
Sept
Oct
Nov
Dec.
Demand Forecast per day Production per month
280
1000
2500
4100
4350
4400
4800
3950
2000
1500
900
900
4480
15000
45000
73800
65250
79200
86400
67150
34000
27000
14400
12600
524,28 0
Production days
16
15
18
18
15
18
18
17
17
18
16
14
200
149
500
1500
2460
2175
2640
2880
2238
1133
900
480
420
672
2250
6750
11070
9788
11880
12960
10073
5100
4050
2160
1890
160
150
180
180
150
180
180
170
170
180
160
140
1
3
8
14
15
15
16
13
7
5
3
3
4
15
38
62
65
66
72
59
30
23
14
14
2
5
6
1
Production hours Production hours Hours per month per worker Skilled Workers Required unskilled Workers Required Hired Skilled labor Laid off Skilled Worker Hired unskilled Worker Laid off Unskilled Worker
-
-
-
0
11
0
-
23
-
-
1
-
39
-
-
-
-
3
-
3
1
-
-
6
6
-
-
2
-
13
-
2 -
29
7
9
-
15
-
13
-
83
-
58
Al Strong 2010
2010, Forecast
Total
Jan
Feb
Mar
Apr
May
Jun
Jul
Aug
1176
1190
1500
1650
1900
2000
1800
1750
18816
17850
27000
29700
28500
36000
32400
16
15
18
18
15
18
Production hours
4014
3808
5760
6336
6080
Production hours
8781
8330
12600
13860
Hours per month per worker
160
150
180
Skilled Workers Required
25
25
55
56
Demand Forecast per day Production per month Production days
unskilled Workers Required Hired Skilled labor
-
-
Oct
Nov
Dec
1500
1400
1300
1100
29750
25500
25200
20800
15400
18
17
17
18
16
14
7680
6912
6347
5440
5376
4437
3285
13300
16800
15120
13883
11900
11760
9707
7187
180
150
180
180
170
170
180
160
140
32
35
41
43
38
37
32
30
28
23
70
77
89
93
84
82
70
65
61
51
7
3
6
2
-
-
Sept
-
-
-
-
306,916
200
18
10
Technology and Operation Management Laid off Skilled Worker Hired unskilled Worker Laid off Unskilled Worker
-
-
-
-
-
1
-
-
-
14
-
WAC
7
-
ERP ID 07852
-
5
12
-
4
-
1 -
-
5 -
9
2
2 -
2 -
12
5 -
5
20 38
4
10
42
Green Comfort 2010 Jan
2010, Forecast
Feb
Mar
Apr
May
Total
Jun
Jul
Aug
Sept
Oct
Nov
Dec.
Demand Forecast per day Production per month
1060
1102
1260
1400
1500
1550
1400
1250
1250
1250
1100
1000
16960
16530
22680
25200
22500
27900
25200
21250
21250
22500
17600
14000
Production days
16
15
18
18
15
18
18
17
17
18
16
14
Production hours
3675
3582
4914
5460
4875
6045
5460
4604
4604
4875
3813
3033
Production hours
8763
8541
11718
13020
11625
14415
13020
10979
10979
11625
9093
7233
160
150
180
180
150
180
180
170
170
180
160
140
23
24
27
30
33
34
30
27
27
27
24
22
55
57
65
72
78
80
72
65
65
65
57
52
1
3
3
3
1
Hours per month per worker Skilled Workers Required unskilled Workers Required Hired Skilled Worker Laid off Skilled Worker Hired unskilled Worker Laid off Unskilled Worker
-
-
-
-
2
-
8
-
7
-
6
-
4
2
-
3 -
-
8
15 83 13 58 $1,500 $66.50* 1000** 800**
AlStrong 18 38 20 42 $66,000 $ 9,709 $ 45,000 $103,200 $ 223,909
Cloud Chair Hired Skilled Labor Hired unskilled Labor Laid off Skilled Worker Laid off Unskilled Worker Cost of Hiring Skilled Worker Cost of Hiring Unskilled Worker Cost of Laying off Skilled Worker Cost of Laying off Unskilled Worker Total Cost
-
7
-
-
-
-
-
-
-
-
Green Comfort 11 25 12 29
-
3
-
200
11 2
-
9
253,570
12 25
5
Total 44 146 45 129
*Two Supervisor interviewing skilled worker cost $ 66.50 ** Lay off cost is assumption.
11
29
Technology and Operation Management
WAC
ERP ID 07852
Exhibit 4 – Constant Workforce: Vary Inventory and Stock out Cloud Chair 2010 Jan Demand Forecast per day Production per month Beginning Inventory* Production days per month Skilled Worker: Production Hours Available** unskilled Worker: Production Hours Available)*** Skilled Worker: Actual Production unskilled Worker: Actual Production Total Actual Production Ending Inventory Safety Stock (25% of month demand) Units Excess (Ending Inventory-Safety Stock) only if positive amount Inventory Cost ****
2010, Forecast
Feb
Mar
Apr
May
Jun
Jul
Total
Aug
280
1000
2500
4100
4350
4400
4800
4480
15000
45000
73800
65250
79200
86400
1000
87187
152687
204287
227087
242337
16
15
18
18
15
1440
1350
1620
1620
6400
6000
7200
48000
40500
42667
Sept
Oct
Nov
Dec.
2000
1500
900
900
34000 29402 0
27000 35125 3
14400
12600
259737
3950 6715 0 2699 37
420853
492320
18
18
17
17
18
16
14
1350
1620
1620
1530
1530
1620
1440
1260
7200
6000
7200
7200
6800
6800
7200
6400
5600
48600
48600
40500
48600
48600
4590 0
45900
48600
43200
37800
40000
48000
48000
40000
48000
48000
45333
48000
42667
37333
90667
80500
96600
96600
80500
96600
96600
4533 3 9123 3
91233
96600
85867
75133
87187
152687
204287
227087
242337
259737
269937
2940 20
35125 4
42085 4
492320
554854
1120
3750
11250
18450
16313
19800
21600
1678 8
8500
6750
3600
3150
86067
148937
193037
208637
226025
239937
248337
2772 33 $ 27,7 23
34275 4 $ 34,27 5
41410 4 $ 41,41 0
488720
551704
$ 8,607
$14,89 4
$19,304
$20,86 4
$ 22,602
$23,994
$ 24,834
$ 48,872
Straight Time : 3866 Skilled Labor 36389 34115 40937 40937 34115 40937 40937 3 38663 40937 36389 Straight Time Cost unskilled 673 6732 7128 Worker 63360 59400 71280 71280 59400 71280 71280 20 0 0 63360 *Assumed for first year. For remaining months, ending inventory of previous month=Beginning inventory for current month ** Constant Skilled Workers=Average number of workers required each day over the Horizon: 524280*2/60/(200*10)=9 ***Constant unskilled Workers=Average number of workers required each day over the Horizon: 524280*9/60/(200*10)=40 ****Inventory Holding Cost $0.10/unit (assumed)
$ 55,170
524,2 80
200
$ 342,5 49
31840
$ 454,8 60
55440
$ 792,0 00
12
Technology and Operation Management
WAC
ERP ID 07852
Cloud Chair 2010 Straight Time Cost Production Hours Skilled Worker
Skilled Worker* Production Hours unskilled Worker
Jan
2010, Forecast Feb
1440
Mar
1350
Apr
1620
May
1620
Jun
1350
Jul
1620
Total
Aug
1620
1530
36389
34115
40937
40937
34115
40937
40937
3866 3
6400
6000
7200
7200
6000
7200
7200
6800
71280
6732 0
unskilled Worker**
63360
*$19+33% **$9+10%
25.27 9.9
59400
71280
71280
59400
71280
Sept
1530
Oct
Nov
Dec.
1620
1440
38663
40937
3638 9
31840
6800
7200
6400
5600
71280
6336 0
67320
1260
55440 $
$ 454,8 60
$ 792,0 00
1,246,860
Al Strong 2010 Jan Al Strong Daily Production Al Strong Monthly Production Beginning Inventory* Production days per month Skilled Worker: Production Hours Available ** unskilled Worker: Production Hours Available *** Total Production hours Skilled Worker: Actual Production (production hours available/(12.8/6 0)) unskilled Worker: Actual Production (production hours available/(28/60 ))
2010, Forecast
Feb
Mar
Apr
May
Total Jun
Jul
Aug 1750
1500
1400
Nov 130 0
207675
2975 0 2308 90
2550 0 2536 65
25200 28069 1
208 00 311 106
339741
18
18
17
17
18
16
14
4950
5940
5940
5610
5610
5940
528 0
4620
12960
10800
12960
12960
18900
18900
15750
18900
18900
1224 0 1785 0
1224 0 1785 0
23203
27844
27844
23203
27844
27844
2629 7
23143
27771
27771
23143
27771
27771
2622 9
1176
1190
1500
1650
1900
2000
1800
18816
17850
27000
28500
87187
115683
170213
36000 18805 9
32400
1000
29700 14429 8
16
15
18
18
15
5280
4950
5940
5940
11520
10800
12960
16800
15750
24750
24686
Sept
Oct
Dec. 1100
15400
18900
115 20 168 00
2629 7
27844
247 50
21656
2622 9
27771
246 86
21600
12960
10080 14700
13
30691 6
200
Technology and Operation Management
Ending Inventory)
31620
11568 3
144298
17021 3
WAC
188059
20767 5
ERP ID 07852
230890
2536 65
2806 91
31110 6
339 741
Shortage Cost Safety Stock (25% of month 520 demand) 4704 4462.5 6750 7425 7125 9000 8100 7438 6375 6300 0 Units Excess (Ending Inventory-Safety Stock) only if 11122 16278 19867 2462 2743 30480 334 positive amount 26916 0 137548 8 180934 5 222790 28 16 6 541 Inventory Cost (Units Excess *Inventory $ $ $ Holding Cost $ $ $ $ $ $ $ 24,62 27,43 $ 33, per Unit)**** 2,692 11,122 13,755 16,279 18,093 19,867 22,279 3 2 30,481 454 Straight Time Cost (production hours available $ * Labor $ $ $ 133 cost)Skilled $133,4 125,08 $ 150,10 $ $150,1 $ 141,7 $141, $150,1 ,42 Worker 26 7 150,104 4 125,087 04 150,104 65 765 04 6 Straight Time Cost (production hours available $ * Labor $ $ $ 114 cost)unskilled $114,0 106,92 $ 128,30 $ $128,3 $ 121,1 $121, $128,3 ,04 Worker 48 0 128,304 4 106,920 04 128,304 76 176 04 8 *Assumed for first year. For remaining months, ending inventory of previous month=Beginning inventory for current month ** Constant Skilled Workers=Average number of workers required each day over the Horizon: 306916*12.8/60/(200*10)=33 ***Constant unskilled Workers=Average number of workers required each day over the Horizon: 306916*28/60/(200*10)=72 ****Inventory Holding Cost $0.10/unit (assumed)
367598 -
3850
363748
$ 36,375
$ 256,4 51
$ 116,747
$ 1,667, 820
$ 99,792
$ 1,425, 600
Al Strong 2010 Straight Time Cost (production hours required * per hour labor cost) Production Hours Skilled Worker
Skilled Worker* Production Hours unskilled Worker unskilled Worker**
*$19+33%
Jan
Tota l
2010, Forecast
Feb
5280
4950
Mar
Apr
5940
5940
133426
12508 7
11520
10800
114048
10692 0
May
Jun
Jul
Aug
Sept
5940
5610
5610
Oct
Nov
Dec.
5940
528 0
1417 65
150104
133 426
116747
1224 0
1224 0
12960
115 20
10080
1211 76
1211 76
128304
114 048
4950
5940
150104
15010 4
125087
15010 4
150104
1417 65
12960
12960
10800
12960
12960
128304
12830 4
106920
12830 4
128304
4620
99792
25.27
14
$ 1,667 ,820
$ 1,425 ,600 $ 3,093 ,420
Technology and Operation Management **$9+10%
WAC
ERP ID 07852
9.9 Green Comfort 2010 Jan
Green Comfort Daily Production Green Comfort Monthly Production Beginning Inventory* Production days per month Skilled Worker: Production Hours Available** unskilled Worker: Production Hours Available *** Total Production hours Skilled Worker: Actual Production (production hours available/(13/60 )) unskilled Worker: Actual Production (production hours available/(31/60 )) Ending Inventory (Beginning Inventory +Actual ProductionDemand Forecast) Shortage Cost Safety Stock (25% of month demand) Units Excess (Ending Inventory-Safety Stock) only if positive amount
2010, Forecast
Feb
Mar
Apr
May
Jun
Jul
Total
Aug
Sept
Oct
Nov
Dec.
1060
1102
1260
1400
1500
1550
1400
1250
1250
1250
1100
1000
16960
16530
22680
25200
22500
27900
87187
109203
13277
153833
169879
21250 20928 9
2125 0 2317 24
22500 25415 9
17600 27791 4
14000
1000
25200 18823 4
301430
16
15
18
18
15
18
18
17
17
18
16
14
4480
4200
5040
5040
4200
5040
5040
4760
4760
5040
4480
3920
10560
9900
11880
11880
9900
11880
11880
11220
11880
10560
9240
15040
14100
16920
16920
14100
16920
16920
15980
1122 0 1598 0
16920
15040
13160
20677
19385
23262
23262
19385
23262
23262
21969
2196 9
23262
20677
18092
20439
19161
22994
22994
19161
22994
22994
21716
2171 6
22994
20439
17884
25156
109203
132778
15383 3
169879
188234
20928 9
23172 5
2541 60
27791 5
30143 1
323407
-
-
-
-
-
-
-
-
-
-
-
-
4240
4132.5
5670
6300
5625
6975
6300
5313
5312. 5
5625
4400
3500
20916
105070
127108
14753 3
164254
181259
20298 9
22641 2
2488 47
27229 0
29703 1
319907
15
253,5 70
200
Technology and Operation Management
WAC
ERP ID 07852
Inventory Cost (Units Excess *Inventory $ $ Holding Cost $ $ $ $ $ $ $ 22,64 24,88 $ $ per Unit)**** 2,092 10,507 12,711 14,753 16,425 18,126 20,299 1 5 27,229 29,703 Straight Time Cost (production hours available * Labor $ $ $ cost)Skilled $113,2 $ $ 137,97 $ $152,75 137,97 116,3 $116, $123,1 $ Worker 10 90,505 124,177 4 123,191 7 4 47 347 91 96,363 Straight Time Cost (production hours available * Labor $ $ $ $ $ cost)unskilled $104,5 104,54 $ 104,54 $ $104,54 104,54 104,5 $104, $104,5 104,54 Worker 44 4 104,544 4 104,544 4 4 44 544 44 4 *Assumed for first year. For remaining months, ending inventory of previous month=Beginning inventory for current month
$ 31,991
$ 231,3 62
$ 76,652
$ 1,408 ,689
$ 104,54 4
$ 1,254 ,528
** Constant Skilled Workers=Average number of workers required each day over the Horizon: 253570*13/60/(200*10)=28 ***Constant unskilled Workers=Average number of workers required each day over the Horizon: 253570*31/60/(200*10)=66 ****Inventory Holding Cost $0.10/unit Green Comfort 2010, Forecas t
2010 Straight Time Cost (production hours required * per hour labor cost) Production Hours Skilled Worker
Skilled Worker* Production Hours unskilled Worker
Jan
4480
Feb
4200
Mar
Apr
5040
5040
11321 0
90505
124177
13797 4
10560
10560
10560
10560
104544
10454 4
unskilled Worker**
10454 4
*$19+33% **$9+10%
25.27 9.9
104544
May
4200
Jun
Jul
Aug
Sept
Oct
4480
Dec.
5040
5040
4760
4760
123191
152757
13797 4
11634 7
1163 47
123191
96363
76652
10560
10560
10560
10560
1056 0
10560
10560
10560
104544
10454 4
10454 4
1045 44
104544
10454 4
104544
5040
Nov
3920
104544
16
$ 1,408 ,689
$ 1,254 ,528 $ 2,663 ,217
Technology and Operation Management
WAC
ERP ID 07852
Exhibit 5-Subcontracting Cloud Chair 2010 Jan
2010, Forecast
Feb
Mar
Apr
May
Demand Forecast per day Production per month
280 448 0
1000 1500 0
2500
4100
45000
Production days
16
15
160 800 480 0
Skilled Worker: Production hours available * unskilled Worker: Production hours Skilled Worker: Actual Production unskilled Worker: Actual Production Total Actual Production Shortfall (DemandActual) Skilled Worker-Units Subcontracted Cost*** unskilled WorkerUnits Subcontracted
533 3 101 33 565 3
-
Total
Jun
Jul
Aug
Sept
Oct
Nov
Dec.
4400
4800
3950
2000
1500
900
900
73800
4350 6525 0
79200
86400
67150
34000
27000
14400
12600
524,280
18
18
15
18
18
17
17
18
16
14
200
150
180
180
150
180
180
170
170
180
160
140
750
900
900
750
900
900
850
850
900
800
700
4500
5400
5400
4500
5400
5400
5100
5100
5400
4800
4200
5000
6000
6000
5000
6000
6000
5667
5667
6000
5333
4667
9500
11400
11400
9500
11400
11400
10767
10767
11400
10133
8867
5500
33600
62400
5575 0
67800
75000
56383
23233
15600
4267
3733
$ 5,683
$ 34,720
$ 64,48 0 $ 112,3 20
$ 57,60 8 $ 100,3 50
$ 70,06 0 $ 122,0 40
$ 77,50 0 $ 135,0 00
$ 58,26 3 $ 101,4 90
$ 24,00 8 $ 41,82 0
$ 16,12 0 $ 28,08 0
$ $ 9,900 60,480 $ Straight Time Cost 4,04 $ $ $ $ $ $ $ $ $ Skilled Worker 3 3,791 4,549 4,549 3,791 4,549 4,549 4,296 4,296 4,549 $ Straight Time Cost 7,92 $ $ $ $ $ $ $ $ $ unskilled Worker 0 7,425 8,910 8,910 7,425 8,910 8,910 8,415 8,415 8,910 *Minimum Skilled Worker Required: (Minimum Order Month*Labor time)/(Total Work Days for the month/10 hours per day)=1 *Minimum unskilled Worker Required: (Minimum Order Month*Labor time)/(Total Work Days for the month/10 hours per day)=5 *** Subcontracted Skilled Worker:25.57*120%=31 ****Subcontracted unskilled Worker:9.9*120%=12
$ 4,409
$3,858
$416,709
$ 7,680
$ 6,720
$ 725,880
$ 4,043
$ 3,538
$ 50,540
$ 7,920
$ 6,930
$ 99,000
Cloud Chair 2010 Straight Time Cost
Jan
2010, Forecast Feb
Mar
Apr
Total May
Jun
Jul
Aug
Sept
Oct
Nov
Dec.
17
Technology and Operation Management Production Hours Skilled Worker
WAC
ERP ID 07852
160
150
180
180
150
180
180
170
170
180
160
140
Skilled Worker* Production Hours unskilled Worker unskilled Worker**
4043
3791
4549
4549
3791
4549
4549
4296
4296
4549
4043
3538
800
750
900
900
750
900
900
850
850
900
800
700
7920
7425
8910
8910
7425
8910
8910
8415
8415
8910
7920
6930
*$19+33% **$9+10%
25.27 9.9
$ 50,540
$ 99,000 $ 149,540
Al Strong 2010 Demand Forecast per day Production per month Production days Skilled Worker: Production hours available unskilled Worker: Production hours available Skilled Worker: Actual Production unskilled Worker: Actual Production Total Actual Production Shortfall (DemandActual)
2010, Forecast
Total
Jan
Feb
Mar
Apr
May
Jun
Jul
Aug
Sept
Oct
Nov
Dec
1176
1500
1650
1800
1750
1500
1400
29700
36000
32400
29750
25500
25200
1300 2080 0
1100 1540 0
306,916
27000
1900 2850 0
2000
18816
1190 1785 0
16
15
18
18
15
18
18
17
17
18
16
14
200
3840
3600
4320
4320
3600
4320
4320
4080
4080
4320
3840
3360
8320
7800
9360
9360
7800
9360
9360
8840
8840
9360
8320
7280
18000
1687 5
20250
20250
1687 5
20250
20250
19125
19125
20250
1800 0
1575 0
20057
20057
20057
20057
18943
18943
20057
40307
40307
1671 4 3358 9
40307
40307
38068
38068
40307
-13307
10607
-5089
-4307
-7907
-8318
12568
15107
1782 9 3582 9 1502 9
1560 0 3135 0 1595 0
-
-
-
$
-
$ 109,1 66 $ 92,66 4
$ 97,03 7 $ 82,36 8
$ 84,90 7 $ 72,07 2
$
-
17829 35829
-17013
1671 4 3358 9 1573 9
Skilled Worker-Units Subcontracted Cost unskilled Worker-Units Subcontracted Straight Time $ $ $ $ $ $ $ $ Cost Skilled $ 90,97 109,16 109,1 90,97 109,1 109,1 103,1 103,1 Worker 97,037 2 6 66 2 66 66 02 02 Straight Time $ $ $ $ $ $ $ Cost unskilled $ 77,22 $ 92,66 77,22 92,66 92,66 87,51 87,51 Worker 82,368 0 92,664 4 0 4 4 6 6 *Minimum Skilled Worker Required: (Minimum Order Month*Labor time)/(Total Work Days for the month/10 hours per day)=24 *Minimum unskilled Worker Required: (Minimum Order Month*Labor time)/(Total Work Days for
$ 1,212,960 $ 1,029,600
18
Technology and Operation Management
WAC
ERP ID 07852
the month/10 hours per day)=52 *** Subcontracted Skilled Worker:25.57*120%=31 ****Subcontracted unskilled Worker:9.9*120%=12 Al Strong 2010 Forecast
2010 Straight Time Cost (production hours required * per hour labor cost) Production Hours Skilled Worker
Jan
Feb
3840
Skilled Worker* Production Hours unskilled Worker unskilled Worker**
97037
*$19+33% **$9+10%
25.27 9.9
8320 82368
Mar
Apr
May
Total
Jun
Jul
Aug
Sept
Oct
Nov
3600 9097 2
4320 10916 6
4320 10916 6
3600 9097 2
4320 10916 6
4320 10916 6
4080 10310 2
4080 10310 2
4320 10916 6
3840 9703 7
7800 7722 0
9360
9360
9360
9360
8840
8840
9360
92664
92664
7800 7722 0
92664
92664
87516
87516
92664
8320 8236 8
Dec.
3360 84907
$ 1,212,960
7280 72072
$ 1,029,600 $ 2,242,560
Green Comfort 2010 Jan Green Comfort Green Comfort Monthly Production
2010 Forecast
Feb
Mar
Apr
May
Jun
Jul
Aug
Total Sept
Oct
Nov
Dec.
1060
1102
1260
1400
1500
1550
1400
1250
1250
1250
1100
1000
16960
1653 0
22680
25200
2250 0
27900
25200
21250
21250
22500
1760 0
14000
16
15
18
18
15
18
18
17
17
18
16
14
Skilled Worker: Production hours available *
3520
3300
3960
3960
3300
3960
3960
3740
3740
3960
3520
3080
unskilled Worker: Production hours available
8320
7800
9360
9360
7800
9360
9360
8840
8840
9360
8320
7280
Skilled Worker: Actual Production
16246
1523 1
18277
18277
1523 1
18277
18277
17262
17262
18277
1624 6
14215
18116
18116
18116
18116
17110
17110
18116
36393
36393
1509 7 3032 8
36393
36393
34371
34371
36393
-13713
11193
-7828
-8493
11193
13121
13121
13893
Production days
unskilled Worker: Actual Production Total Actual Production Shortfall/(Excess ) (DemandActual)
16103 32349
-15389
1509 7 3032 8 1379 8
1610 3 3234 9 1474 9
253,570
200
14090 28306
-14306
19
Technology and Operation Management
WAC
ERP ID 07852
Skilled Worker-Units Subcontracted Cost*** unskilled Worker-Units Subcontracted Straight Time $ $ $ $ $ $ $ $ Cost Skilled $ 83,39 100,06 100,0 83,39 100,0 100,0 94,51 94,51 Worker 88,950 1 9 69 1 69 69 0 0 Straight Time $ $ $ $ $ $ $ Cost unskilled $ 77,22 $ 92,66 77,22 92,66 92,66 87,51 87,51 Worker 82,368 0 92,664 4 0 4 4 6 6 *Minimum Skilled Worker Required: (Minimum Order Month*Labor time)/(Total Work Days for the month/10 hours per day)= 22 *Minimum unskilled Worker Required: (Minimum Order Month*Labor time)/(Total Work Days for the month/10 hours per day)=52 *** Subcontracted Skilled Worker:25.57*120%=31 ****Subcontracted unskilled Worker:9.9*120%=12
Jan
3520
Skilled Worker* Production Hours unskilled Worker unskilled Worker**
88950
*$19+33% **$9+10%
25.27 9.9
8320 82368
-
-
$ -
$ 100,0 69 $ 92,66 4
$ 88,95 0 $ 82,36 8
-
$ -
$ 77,832
$ 1,111,880
$ 72,072
$ 1,029,600
Green Comfort 2010, Forecast
2010 Straight Time Cost (production hours required * per hour labor cost) Production Hours Skilled Worker
-
Feb
Mar
Apr
May
Jun
Jul
Aug
Total
Sept
3300 8339 1
3960 10006 9
3960 10006 9
3300 8339 1
3960 10006 9
3960 10006 9
3740
3740
94510
7800 7722 0
9360
9360
9360
9360
92664
92664
7800 7722 0
92664
92664
Oct
Nov
Dec.
94510
3960 10006 9
3520 8895 0
3080 7783 2
8840
8840
9360
87516
87516
92664
8320 8236 8
7280 7207 2
$ 1,111,880
$ 1,029,600 $ 2,141,480
20
Technology and Operation Management
WAC
ERP ID 07852
Exhibit 6-Over Time Cloud Chair (overtime) 2010 Jan Feb Beginning Inventory Working Days per Month
Mar
Apr
May
2010, Forecast Jul Aug
Jun
Total Sept
Oct
Nov
Dec.
1000
0
0
0
0
0
0
0
0
0
0
0
16
15
18
18
15
18
18
17
17
18
16
14
Skilled Worker-Production hours available
5
5
5
5
5
5
5
5
5
5
5
4
unskilled Worker-Production hours available
96
90
108
108
90
108
108
102
102
108
96
84
144
135
162
162
135
162
162
153
153
162
144
126
640
600
720
720
600
720
720
680
680
720
640
560
784
735
882 4500 15000 0
882
735
882
882
833
833
73800
65250
79200 86400
67150
-72918
-64515
-78318 85518
66317
72918
64515
78318 85518
66317
50
40
Skilled Worker-Regular Shifts Production unskilled Worker-Regular Shifts Production Total Regular Production Demand Forecast Units available before overtime Units Overtime Overtime hours in Month (# of Fridays in a month*10) Skilled Worker-Overtime Cost
4480
-2696 2696
4411 -14265 8 4411 14265 8
50 $ 3,415
40 $ 18,069
40
$ 55,88 $ 3 92,363
$ 81,719
40 $ 99,203
$ 99,26 $ $ $ 6 164,066 145,159 176,216 1125 3750 0 18450 16312.5 19800
50
200
882 784 686 2700 34000 0 14400 12600 - 2611 33167 8 13616 11914 2611 33167 8 13616 11914
40
40
50
40
50
$ $ $ $ 108,32 $ $ 33,08 17,24 15,09 3 84,002 42,012 3 7 1 $ $ 192,41 149,21 $ 6 3 74,626 16787. 21600 5 8500
$ $ $ 58,76 30,63 26,80 6 6 7
$ 650,408
unskilled Worker-- $ -Overtime Cost 6,066 Safety Stock (.25 of month demand 1120 Units Excess (units available before overtime-safety stock) 1576 $ Inventory cost 158
$ 32,096
$ 1,052
3286 49529. 1936 8 54468 48202.5 58518 63918 5 24667 8 10016 8764 $ $ $ $ $ $ $ $ $ $ $ 3,287 5,447 4,820 5,852 6,392 4,953 2,467 1,937 1,002 876 38,241
Skilled worker-Straight Time cost
$ 114
$ 136
$ 121
10515
$ 136
$ 114
$ 136
$ 136
$ 129
$ 129
6750
$ 136
3600
$ 121
$1,155,3 30
3150
$ 106
unskilled worker-- $ $ $ $ $ $ $ $ $ $ $ $ Straight Time cost 950 891 1,069 1,069 891 1,069 1,069 1,010 1,010 1,069 950 832 *Assumed for first year. For remaining months, ending inventory of previous month=Beginning inventory for current month ** Constant Skilled Workers=Average number of workers required each day over the Horizon: 524280*2/60/(200*10)=9 ***Constant unskilled Workers=Average number of workers required each day over the Horizon: 524280*9/60/(200*10)=40
$ 1,516 $ 11,880
21
Technology and Operation Management
WAC
ERP ID 07852
****Inventory Holding Cost $0.10/unit (assumed) Overtime Cost Skilled Worker: 1.5(25.27)=$38 Overtime Cost unskilled Worker: 1.5 (9.9)=15
Beginning Inventory Working Days per Month
2010 Jan Feb Mar 1000 0
Al-Strong (Overtime) 2010, Forecast Total Apr May Jun Jul Aug Sept Oct Nov Dec. 0 0 0 0 0 0 0 0 0 0
16
15
18
18
15
Skilled Worker-Production hours available
113
106
127
127
unskilled Worker-Production hours available
538
90
108
Skilled Worker-Regular Shifts Production
528
495
1152 1680
unskilled Worker-Regular Shifts Production Total Regular Production Demand Forecast Units available before overtime Units Overtime Overtime hours in Month (# of Fridays in a month*10)
Skilled Worker-Overtime
unskilled Worker--Overtime Cost Safety Stock (.25 of month demand Units Excess (units available before overtime-safety stock)
Inventory cost Skilled worker-Straight Time cost (Production Hours Available *25.27
18
17
17
18
16
14
106
127 127
120
120
127
113
99
108
90
108 108
102
102
108
96
84
594
594
495
594 594
561
561
594
528
462
193
231
231
193
231 231
219
219
231
206
180
825
825
688
27000
29700
-26175
-28875
26175
28875
825 825 780 324 28500 36000 00 29750 - 315 -27812 35175 75 28970 315 27812 35175 75 28970
780
16136
688 1785 0 1716 2 1716 2
50
40
40
50
18816
-16136
40
18
40
$ $ $130,80 139,1 $ $ $ 285,14 9 28 212,189 234,077 225,464 9 $ $ $112,95 120,1 $ $ $ 246,22 2 35 183,222 202,122 194,685 2 4462. 4704 5 6750 7425 7125 9000
50 $ 255 ,96 5 $ 221 ,02 2 810 0
40
25500 24720 24720
40
825 734 642 2520 0 20800 15400 2437 5 20066 14758 2437 5 20066 14758
50
200
306916
40
50
$ $ $ $ 234,8 200,40 197,5 162,6 54 0 97 71
$119, 638
$2,397,9 38
$103, 306
$2,070,5 88
$ $ $ $ 202,7 173,04 170,6 140,4 93 3 22 64 7437. 5 6375 6300 5200
3850
1270 0
19425
21450
20687 26175
18345
$ $ 1,143 1,270
$ 1,942
$ 2,145
$ 2,069
234 75 21533 $ $ 2,3 $ 2,617 47 2,153
$ $ $ 1,835 1,807 1,487
$ 1,091
$ 21,907
$ $ 2,846 2,669
$ 3,202
$ 3,202
$ 2,669
$ 3,202
$ $ $ 3,024 3,202 2,846
$ 2,491
$ 35,580
11432
$ 3,2 02
$ 3,024
1807 5 14866 10908
22
Technology and Operation Management
WAC
ERP ID 07852
unskilled worker-Straight Time cost $ (Production Hours $ $ $ $ $ $ 1,0 $ $ $ $ $ $ Available *9.9 5,322 891 1,069 1,069 891 1,069 69 1,010 1,010 1,069 950 832 16,252 *Assumed for first year. For remaining months, ending inventory of previous month=Beginning inventory for current month ** Constant Skilled Workers=Average number of workers required each day over the Horizon: 306916*12.8/60/(200*10)=33 ***Constant unskilled Workers=Average number of workers required each day over the Horizon: 306916*28/60/(200*10)=72 ****Inventory Holding Cost $0.10/unit (assumed) Overtime Cost Skilled Worker: 1.5(25.27)=$38 Overtime Cost unskilled Worker: 1.5 (9.9)=15
Beginning Inventory Working Days per Month
2010 Jan Feb Mar Apr 1000 0 0
Green Comfort (overtime) 2010, Forecast Total May Jun Jul Aug Sept Oct Nov Dec. 0 0 0 0 0 0 0 0 0
16
15
18
18
15
18
18
17
17
18
16
14
Skilled Worker-Production hours available
97
91
109
109
91
109
109
103
103
109
97
85
unskilled Worker-Production hours available
546
512
614
614
512
614
614
580
580
614
546
477
Skilled Worker-Regular Shifts Production
448
420
504
504
420
504
504
476
476
504
448
392
1056
990
1188
1188
990
1188
1188
1122
1122 1188
1056
924
1504
1410
1692
1692
1410
1692
1692
1598
16960 16530
22680
25200
22500 27900 25200 21250
-14456 15120
20988
-23508
-21090 26208 23508 19652
14456 15120
20988
23508
21090 26208 23508 19652
40
50
unskilled Worker-Regular Shifts Production Total Regular Production Demand Forecast Units available before overtime(Beginning Inventory Regular Shift ProductionDemand Forecast Units Overtime Overtime hours in Month (# of Fridays in a month*10) Skilled Worker--Overtime Cost unskilled Worker--Overtime Cost Safety Stock (.25 of month demand Units Excess (units available before
50
40
40
40
50
$ $ $ $ $119,02 124,48 172,80 $ $ 215,77 193,5 1 8 1 193,549 173,641 9 49 $ $ $ $ $112,03 117,18 162,65 $ $ 203,11 182,1 4 0 7 182,187 163,448 2 87 4240 4132.5
5670
6300
10987. 5
15318
17208
10216
5625
6975
40 $ 161,8 01
$ 152,3 03 5312. 6300 5
15465 19233 17208
200
1598 1692 1504 1316 2250 21250 0 17600 14000
- 2080 19652 8 16096 12684 2080 19652 8 16096 12684
40
50
40
50
$ $ $ 161,80 171,3 132,5 $104, 1 19 24 432
$1,924,7 06
$ $ $ $ 152,30 161,2 124,7 98,30 3 62 44 1
$1,811,7 18
5312.5 5625
4400
3500
14339 14339. 1518 .5 5 3 11696
9184
23
Technology and Operation Management
WAC
ERP ID 07852
overtime-safety stock) Inventory cost
$ 1,022
$ 1,099
$ 1,532
$ 1,721
$ 1,547
$ 1,923
$ 1,721
$ 1,434
$ 1,434
$ $ $ 1,518 1,170 918
$ 17,038
Skilled worker-Straight Time cost
$ 2,453
$ 2,300
$ 2,759
$ 2,759
$ 2,300
$ 2,759
$ 2,759
$ 2,606
$ 2,606
$ $ $ 2,759 2,453 2,146
$ 30,661
unskilled worker-$ $ $ $ $ $ $ $ $ $ $ $ $ Straight Time cost 5,401 5,064 6,077 6,077 5,064 6,077 6,077 5,739 5,739 6,077 5,401 4,726 67,518 *Assumed for first year. For remaining months, ending inventory of previous month=Beginning inventory for current month ** Constant Skilled Workers=Average number of workers required each day over the Horizon: 253570*13/60/(200*10)=28 ***Constant unskilled Workers=Average number of workers required each day over the Horizon: 253570*31/60/(200*10)=66 ****Inventory Holding Cost $0.10/unit (assumed) Overtime Cost Skilled Worker: 1.5(25.27)=$38 Overtime Cost unskilled Worker: 1.5 (9.9)=15
Exhibit 7- Summary of Strategies Cost
Strategies Chase Strategy
Level Strategy Skilled Worker
Hiring Lay Off Excess Inventory
Subcontract unskilled Worker
$ 830,362
$ 416,709
Subcontract
$ 6,978,038 $ 7,201,947
$ 7,003,497 $ 7,833,858
$ 4,533,580 $ 4,950,289
$ 77,186
$ 77,186
$ 4,973,052 $ 163,407 $ 5,213,645
$ 5,037,636 $ 163,407 $ 5,278,228
$ 725,880
Overtime
Total Cost
Overtime unskilled Worker
$ 75,709 $ 148,200
Shortage
Straight Time
Skilled Worker
$ 4,533,580 $ 5,259,460
24
