Economics and Lead Time

CASE ANALYSIS FOLDRITE FURNITURE CO. : PLANNING TO MEET A SURGE IN DEMAND Submitted to: Submitted by: Dr. P. K. Dash Abhinav  Anand Operations Management PGDM-BHU010 Case facts about FoldeRite Furniture:- * Established in 1987 * Throughout 1990s company grew organically. * 1999-2006 annual growth rate 3. 5%. (More than market growth rate) but one competitor grew by 6% annually. * In 2006 company’s performance was very bad due to following concluded reasons- * Loss of productivity and yields caused by high labor turnover. Cost of raw materials was increasing * Increasing proportion of unskilled labor. * Continuous acquisition of small firms which distracted management from their main issues. * This thing also generated liquidity shortage * These things resulted in reduced margins as well as increased lead time from 4 to 6-8 weeks. Major policies that company adopted after change in management:- * New CEO marshal Epstein from a major consumer goods company was appointed. * Man ufacturing VP Jose Ramose was hired. Together they decided 4 major goals:- * Continued innovation in both products and processes, * Customer responsiveness: producing high quality products that fulfilled market needs, and providing quick service, * Lean manufacturing, and * Retention of a well-trained, stable, and productive workforce, with reduced turnover. * Reduced no of products to provide high quality products. Consequences:- * All these helped in reduction of lead time. * They had a $60M revenues and profitable despite recession Ques-(01) what are the Manufacturing Options available with Mr. Martin Kelsey? Ans. The objective of the aggregate plan was to demonstrate cost-effective ways to meet the demand while maintaining productivity, quality, reliability and providing on-time delivery at effective yields. The following are the manufacturing options with Mr. Martin Kelsey: 1. The first option available was to ask the staff to work an extra shift. 2. Increase the staff temporarily to take advantage of idle production capacity. 3. Changing the designs of the cloud chair slightly to require one minute less in assembly 4. To increase the amount of inventory using a constant level of production. 5. The last option available with Kelsey was subcontracting part of work, such as the manufacture of seats for stackable chairs. Q2. What are the financial implications of the three options? How does it impacts the lead time? Wages of the Skilled workers is = 19 + 33% of 19 = 25. 27 Wages of the Unskilled workers is = 9 + 10% of 9=9. 9 Change Strategy In alstrong, the hiring cost would be zero for skilled and $2593. 5 for unskilled labors. The layoff cost would be $327288 for skilled $349752 for unskilled labours In case of cloud chairs, the hiring cost would be zero for skilled and $633. 6 for unskilled labours. The layoff cost would be $264342 for skilled $533520 for unskilled labours In case of green comfort, the hiring cost would be zero for skilled and $1662. 5 for unskilled labours. The layoff cost would be $214058 for skilled $231270 for unskilled labors Subcontracting Strategy In case of cloud chairs, units subcontracted cost would be $720355. 32. In case of alstrong, units subcontracted cost would be $46959. 28. In case of green comfort, units subcontracted cost would be zero. The lead time will reduce in all the 3 cases. Ques (03) what are the risks? How does each of the options accommodate changes in economy and environment? Ans. The risk associate with it are: Financial Risk:- * According to their CFO Yung credit situation is tight. * They have to generate cash from costly resources as expensive as 12% p. . Human resources Risk:- * Hiring a skilled worker would cost $1500 * Supervisor cost for these workers $25 per hour + 33% for benefits * Training of unskilled worker takes 4 weeks during which full wages are paid. Changes in economy and environment are as follows: 1. If staff would be doing overtime than it would increase the productivity in short run but at the same time this would have lead to fatigue and boredom among the staff leading to decrease in efficiency. 2. Hiring staff temporarily would automatically increase the cost of training and would also require management and supervision resources. 3. If the demand did not materialize than laying of the workers would demoralize the remaining workforce and cost the company in adding unemployment. 4. Another major concern was the cost of carrying inventory beyond two weeks. Ques-(4) Weighing options in term of non-financial implications Ans. The non-financial implications are: 1. Overtime work done by Employees: This will affect the profitability in short term in a positive manner but in long term as the workers do have chance of getting fatigue it might lead to decrease in quality of product which in turn decrease the profitability. The overtime formula will not affect the relationship among employees but the competitiveness will affect if the efficiency decreases in long run. 2. Increasing the staff This will lead to increase in profitability in short term as well as in long term if company does not lay off workers. The sales will increase if the efficiency of work increases as a result of increase in workers. . Changing the Design In short term there will be a decrease in profitability as the company would have to pay a onetime charge of $15000 but in long term as because of innovation the profitability will increase. Dut to innovation the company will have a competitive and also the sales will increase as it’s a new designed product. 4. Sub contracting The company will focus in th e core area which will lead to profitability in short term and long term both. This will further lead to increase in sales as a result of efficient production. The employee morale will also be boosted because of increase in sales.