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ForldRite Furniture Co :PLANNING TO MEET A SURGE IN DEMANDmagister management 2012Operational Management PresentationPrese...
1 2 3 4CompanyProfileandSynopsisProblemIdentification& Constrain5Theoretical AnalysisSolutionsConclusionRecommendationLess...
1PART 1Company Profile &Synopsis
19871990s20062007• Revenueincrease from$47.5 Mto $60.3 M• Agregategrowth 3.5%• Financialturmoil• New investortook over• Co...
Product Categories Product Name High Demand in SeasonFolding Table Folding AlStrong Holiday seasonWashable & Stackable Cha...
Part 1 | Company’s Profile & Synopsis60%29%9%2%SalesHospitalityGovernment, Corporate, School, CollegesIndividual CustomerO...
2PART 2Problem Identification
Part 2 | Problems Identification020000400006000080000100000Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec2009 Production2...
Product CloudChair AlStrong GreenComfortAverage Market Price 30,00 90,00 88,00Raw Material 11,73 49,70 50,2439,10% 55,22% ...
Category Parameters ValuesLabor Cost Skilled Worker $19 + 33% benefit = $25.27Unskilled Worker $10 + 10% benefit = $10.90H...
Parameters FormulaDemand forcast per month (1) Based on marketing dataBeginning inventory (2) Ending inventory from previo...
Subcontract• Add extra 20% to cost of labor• Not need pay set-up fee or commit to minimum orderDesign Change• Cost $15,000...
3PART 3The Theories
Sales and Operations PlanningProcess should help firms to provide:• Better customer service• Lower inventory• Shorten cust...
PURE STRATEGIESChase Strategy:Hiring and laying off employees as the order rate variesStable workforce-variable work hours...
AGGREGAT RELEVANT COST1. Hiring / Lay Off Cost2. Overtime Cost3. Inventory Carrying Cost4. Subcontracting Incremental Cost...
4PART 4Analysis Solutions
AGGREGATE PRODUCTION REQUIREMENT PLANNINGProduct Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov DecDemand forcast permonth:Cl...
Jan Feb Mar Apr May Jun JulCloudChair - 37.067 64.817 71.117 48.617 26.117 (1.783)AlStrong - 5.938 11.295 12.144 10.293 5....
PLAN 1Hiring & Training Workers
PLAN 1 : Exact Production, Hiring & Training WorkersProduct Jan Feb Mar Apr May Jun JulCloudChair 12.611 31.310 62.063 71....
Problem Analysis Hiring & Training New LaborsPRO CONS1. Cost. It is profitable2. Sustainability; can meet demand ifthe dem...
PLAN 2Constant Worker, VaryInventory
PLAN 2 : Constan Worker, Vary InventoryJan Feb Mar Apr May Jun JulActual productionFinished Goods (95% yield) CloudChair 4...
Problem Analysis Constant Level of Production1. producing above the demandmay result in high inventorylevel2. There are co...
PLAN 3Subcontracting
PLAN 3: Constant Low Workforce, SubcontractJan Feb Mar Apr May Jun JulWorking Hours in Month 160 150 180 180 150 180 180 2...
Problem Analysis Subcontracting1. Get the job done right andon time2. Don’t need to spendmoney on recruitmentand training3...
PLAN 4Overtime
PLAN 4 : Constant Workforce, OvertimeJan Feb Mar Apr May Jun JulCloudChair - 37.067 61.017 62.757 35.697 9.397 - 302.990Al...
Problem Analysis Overtime1. No need to lay off thesuperfluous labors andthus suffer from thedemoralization and highunemplo...
PLAN 5Design Change
PLAN 5 : Design ChangeJan Feb Mar Apr May Jun JulCloudChair - 37.067 61.017 62.757 35.697 9.397 - 302.990AlStrong - 5.938 ...
Problem Analysis Change Design1. Once for all: increase theproductivity1. High cost2. Long time: it takes one monthto chan...
5PART 5ConclusionsRecommendationsLesson Learned
ConclusionsPlan 1 : Exact Production, Vary WorkforcePlan 2 : Constant Workforce, Vary Inventory and Stock outPlan 3 : Cons...
Conclusions• FoldRite goal to reduced turnover of work force aligned with stableworkforce strategy. To be a lean manufactu...
Recommendations• More production for CloudChair since it has greater contribution marginand lower cost of production and c...
Lessons Learned• Cost reduction initiative for labor cost will notgive significant effect if the labor portion onlysmall a...
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Fold rite furniture v1.7

  1. 1. ForldRite Furniture Co :PLANNING TO MEET A SURGE IN DEMANDmagister management 2012Operational Management PresentationPresented by Group 2:Aftina – Alfin – Ali – AzharDame – Frisca – Gita – Iman – Indri
  2. 2. 1 2 3 4CompanyProfileandSynopsisProblemIdentification& Constrain5Theoretical AnalysisSolutionsConclusionRecommendationLessonLearnedOutline
  3. 3. 1PART 1Company Profile &Synopsis
  4. 4. 19871990s20062007• Revenueincrease from$47.5 Mto $60.3 M• Agregategrowth 3.5%• Financialturmoil• New investortook over• Continuedinnovation inboth products &processes.• Customerresponsiveness• Leanmaufacturing• Retention of awell-trained,stable &productiveworkforce withreduced turnoverPart 1 | Company’s Profile & Synopsis
  5. 5. Product Categories Product Name High Demand in SeasonFolding Table Folding AlStrong Holiday seasonWashable & Stackable Chair Green Comfort Holiday seasonFolding Chair Cloud Chair SummerPart 1 | Company’s Profile & SynopsisProduct Competitive AdvantagesHigh QualityStylist InnovativeCustomizedEnvironmentallyFriendlyNot EasilyImitated
  6. 6. Part 1 | Company’s Profile & Synopsis60%29%9%2%SalesHospitalityGovernment, Corporate, School, CollegesIndividual CustomerOthers
  7. 7. 2PART 2Problem Identification
  8. 8. Part 2 | Problems Identification020000400006000080000100000Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec2009 Production2010 DemandCloud Chair010000200003000040000Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec2009 Production2010 DemandAlStrong050001000015000200002500030000Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec2009 Production2010 DemandGreen Comfort
  9. 9. Product CloudChair AlStrong GreenComfortAverage Market Price 30,00 90,00 88,00Raw Material 11,73 49,70 50,2439,10% 55,22% 57,09%Required LaborSkilled 2,00 12,80 13,00Unskilled 9,00 28,00 31,00Labor CostSkilled 0,84 5,39 5,48Unskilled 1,49 4,62 5,12Total 2,33 10,01 10,607,77% 11,12% 12,05%Total Cost 14,06 59,71 60,84Margin 15,94 30,29 27,1653,13% 33,66% 30,86%CloudChair has the highest Contribution Margin and lowest market price more profitable likely to produce more than others to benefit economic of scalePart 2 | Problems IdentificationParameters
  10. 10. Category Parameters ValuesLabor Cost Skilled Worker $19 + 33% benefit = $25.27Unskilled Worker $10 + 10% benefit = $10.90Hiring $1,500Layoff $8,000 (assumption)Production Operation hours 10 hours / dayOperation days 200 day / yearWorking day 4 day / weekOvertime day FridayInventory Beginning balanced 0 (at January 2010)Excess cost Interest Rate x Product CostStock out cost Opportunity cost of MarginParametersPart 2 | Problems Identification
  11. 11. Parameters FormulaDemand forcast per month (1) Based on marketing dataBeginning inventory (2) Ending inventory from previous periodSafety stock requirement (3) Half month (two week) of forecasted demandProduction requirement (4) Demand forecasted (1) + Safety Stock (3) –(Beginning Inventory (2) X 100/95 (yield)Defect loss (5) 5% X Production Requirement (4)Finished goods (6) 95% X Production Requirement (4)Ending inventory (7) Beginning Inventory (2) + ProductionRequirement (4) - Demand forecasted (1)Part 2 | Problems IdentificationParameters
  12. 12. Subcontract• Add extra 20% to cost of labor• Not need pay set-up fee or commit to minimum orderDesign Change• Cost $15,000 one time charge & take 1 month to implement• Only applicable to CloudChair ProductPart 2 | Problems IdentificationConsiderationsOvertime• Overtime wages were 1.5 time s the normal fully loaded rates• Introduced fatigue, leading declines in qualityConstant Worker Vary InventoryHigh inventory or Shortage of productHiring & LayoffDoesn’t Compatible with Company’s Goals
  13. 13. 3PART 3The Theories
  14. 14. Sales and Operations PlanningProcess should help firms to provide:• Better customer service• Lower inventory• Shorten customers lead times• Stabilize production rates• Give top management a handle on the business.Part 3 | The TheoriesAggregate Operation PlanThe main purpose of the aggregate plan is to specify theoptimal combination of:• Production rate• Work forces level• Inventory on hand
  15. 15. PURE STRATEGIESChase Strategy:Hiring and laying off employees as the order rate variesStable workforce-variable work hours:Vary the output by varying the number of work hours workedthrough flexible work schedules or overtimeLevel Strategy:Maintain a stable workforce working at a constant output rateMIXED STRATEGYIf two or more strategies used in combinationPart 3 | The Theories
  16. 16. AGGREGAT RELEVANT COST1. Hiring / Lay Off Cost2. Overtime Cost3. Inventory Carrying Cost4. Subcontracting Incremental Cost5. Part Time Labor Cost6. Back Order Cost7. Stock Out CostPart 3 | The Theories
  17. 17. 4PART 4Analysis Solutions
  18. 18. AGGREGATE PRODUCTION REQUIREMENT PLANNINGProduct Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov DecDemand forcast permonth:CloudChair 4.480 15.000 45.000 73.800 65.250 79.200 86.400 67.150 34.000 27.000 14.400 12.600AlStrong 18.816 17.850 27.000 29.700 28.500 36.000 32.400 29.750 25.500 25.200 20.800 15.400GreenComfort 16.960 16.530 22.680 25.200 22.500 27.900 25.200 21.250 21.250 22.500 17.600 14.000Beginning inventory CloudChair - 7.756 22.940 38.158 34.587 41.318 45.307 35.826 18.693 14.341 7.885 6.659AlStrong - 9.939 13.952 15.576 15.031 18.756 17.150 15.717 13.522 13.264 11.056 8.233GreenComfort - 9.179 11.757 13.208 11.911 14.544 13.336 11.277 11.178 11.810 9.386 7.451Safety stockrequirementCloudChair 7.500 22.500 36.900 32.625 39.600 43.200 33.575 17.000 13.500 7.200 6.300 6.300AlStrong 8.925 13.500 14.850 14.250 18.000 16.200 14.875 12.750 12.600 10.400 7.700 7.700GreenComfort 8.265 11.340 12.600 11.250 13.950 12.600 10.625 10.625 11.250 8.800 7.000 7.000ProductionrequirementCloudChair 12.611 31.310 62.063 71.860 73.961 85.349 78.597 50.867 30.323 20.904 13.489 12.885AlStrong 29.201 22.538 29.366 29.868 33.125 35.204 31.710 28.193 25.871 23.512 18.363 15.649GreenComfort 26.553 19.674 24.761 24.465 25.831 27.322 23.673 21.682 22.444 20.516 16.015 14.262Defect loss (5%) CloudChair 375 1.125 1.845 1.631 1.980 2.160 1.679 850 675 360 315 315AlStrong 446 675 743 713 900 810 744 638 630 520 385 385GreenComfort 413 567 630 563 698 630 531 531 563 440 350 350Finished goods (95%yield)CloudChair 12.236 30.185 60.218 70.229 71.981 83.189 76.919 50.017 29.648 20.544 13.174 12.570AlStrong 28.755 21.863 28.624 29.155 32.225 34.394 30.967 27.555 25.241 22.992 17.978 15.264GreenComfort 26.139 19.107 24.131 23.903 25.133 26.692 23.141 21.150 21.882 20.076 15.665 13.912Ending inventory CloudChair 7.756 22.940 38.158 34.587 41.318 45.307 35.826 18.693 14.341 7.885 6.659 6.629AlStrong 9.939 13.952 15.576 15.031 18.756 17.150 15.717 13.522 13.264 11.056 8.233 8.097GreenComfort 9.179 11.757 13.208 11.911 14.544 13.336 11.277 11.178 11.810 9.386 7.451 7.363
  19. 19. Jan Feb Mar Apr May Jun JulCloudChair - 37.067 64.817 71.117 48.617 26.117 (1.783)AlStrong - 5.938 11.295 12.144 10.293 5.000 (3.152)GreenComfort - 3.385 5.928 6.135 3.823 396 (4.616)Working Hours in Month 160 150 180 180 150 180 180CloudChair 12.611 31.310 62.063 71.860 73.961 85.349 78.597AlStrong 29.201 22.538 29.366 29.868 33.125 35.204 31.710GreenComfort 26.553 19.674 24.761 24.465 25.831 27.322 23.673Production total CloudChair 544.219AlStrong 322.601GreenComfort 267.198Production hours requiredSkilled CloudChair 18.141AlStrong 68.822` GreenComfort 57.893Unskilled CloudChair 81.633AlStrong 150.547` GreenComfort 138.052Worker requiredSkilled CloudChair 10 10 7AlStrong 35 35 28` GreenComfort 29 29 25Unskilled CloudChair 41 41 30AlStrong 76 76 60` GreenComfort 70 70 59Beginning inventoryProduction requirementCalculating Required Worker
  20. 20. PLAN 1Hiring & Training Workers
  21. 21. PLAN 1 : Exact Production, Hiring & Training WorkersProduct Jan Feb Mar Apr May Jun JulCloudChair 12.611 31.310 62.063 71.860 73.961 85.349 78.597 544.219AlStrong 29.201 22.538 29.366 29.868 33.125 35.204 31.710 322.601GreenComfort 26.553 19.674 24.761 24.465 25.831 27.322 23.673 267.198Production hours requiredCloudChair 420 1.044 2.069 2.395 2.465 2.845 2.620AlStrong 6.230 4.808 6.265 6.372 7.067 7.510 6.765GreenComfort 5.753 4.263 5.365 5.301 5.597 5.920 5.129CloudChair 1.892 4.696 9.309 10.779 11.094 12.802 11.790AlStrong 13.627 10.518 13.704 13.938 15.459 16.428 14.798GreenComfort 13.719 10.165 12.793 12.640 13.346 14.116 12.231Working Hours in Month 160 150 180 180 150 180 180 2.000Workers required per month (Production Hours Required / Working Hours in Month)CloudChair 3 7 12 14 17 16 15 9AlStrong 39 33 35 36 48 42 38GreenComfort 36 29 30 30 38 33 29CloudChair 12 32 52 60 74 72 66AlStrong 86 71 77 78 104 92 83GreenComfort 86 68 72 71 89 79 68New workers required per month - 30 38 12 95 - -Layoff worker per month - 46 - 1 - 36 35Keep a skilled worker with full wage - 13 13 8 - - -Training unskilled worker to be a skilled per month - 12 - - - - -Cost fo hiring new workers required per month - 9.163 2.527 798 36.421 - - 58.441Cost of layoff worker per month - 92.000 - 2.000 - 72.000 70.000 508.000Straight time cost 201.474 157.788 207.592 210.578 227.110 242.561 215.326 2.227.429Total Labor Cost 201.474 258.950 210.119 213.376 263.531 314.561 285.326 2.793.870Material Cost 2.933.218 2.475.848 3.431.516 3.556.465 3.811.637 4.123.444 3.687.258 35.841.006Total Cost 3.134.692 2.734.798 3.641.635 3.769.841 4.075.168 4.438.005 3.972.584 38.634.875Sales revenue 3.320.320 3.511.140 5.775.840 7.104.600 6.502.500 8.071.200 7.725.600 65.665.000Margin 185.628 776.342 2.134.205 3.334.759 2.427.332 3.633.195 3.753.016 27.030.125Unskilled workersProduction requirementSkilled workersUnskilled workersSkilled workers
  22. 22. Problem Analysis Hiring & Training New LaborsPRO CONS1. Cost. It is profitable2. Sustainability; can meet demand ifthe demand continuous to increase3. No need to train; the workers canperform well from the start1. Demoralization; future lay off ofsuperfluous labors may demoralizeother workers1. Sustainability; can meet the demandif demand continous to increase1. Cost; management and supervisorresources2. Subsequent result; layoff these newworkface and cost the company inadded unemployment insurance3. Time; training unskliled workers toskliled position takes four weeksFull time regular directworkersTraining unskilledworkers
  23. 23. PLAN 2Constant Worker, VaryInventory
  24. 24. PLAN 2 : Constan Worker, Vary InventoryJan Feb Mar Apr May Jun JulActual productionFinished Goods (95% yield) CloudChair 41.547 42.750 51.300 51.300 42.750 51.300 51.300 565.947AlStrong 24.754 23.207 27.849 27.849 23.207 27.849 27.849 309.429GreenComfort 20.345 19.073 22.888 22.888 19.073 22.888 22.888 254.308CloudChair 4.480 15.000 45.000 73.800 65.250 79.200 86.400 524.280AlStrong 18.816 17.850 27.000 29.700 28.500 36.000 32.400 306.916GreenComfort 16.960 16.530 22.680 25.200 22.500 27.900 25.200 253.570CloudChair 37.067 64.817 71.117 48.617 26.117 (1.783) (36.883) 151.550AlStrong 5.938 11.295 12.144 10.293 5.000 (3.152) (7.703) 3.377GreenComfort 3.385 5.928 6.135 3.823 396 (4.616) (6.928) (12.771)CloudChair 7.500 22.500 36.900 32.625 39.600 43.200 33.575 266.200AlStrong 8.925 13.500 14.850 14.250 18.000 16.200 14.875 151.750GreenComfort 8.265 11.340 12.600 11.250 13.950 12.600 10.625 125.305CloudChair 29.567 42.317 34.217 15.992 (13.483) (44.983) (70.458)AlStrong (2.987) (2.205) (2.706) (3.957) (13.000) (19.352) (22.578)GreenComfort (4.880) (5.412) (6.465) (7.427) (13.554) (17.216) (17.553)CloudChair 62.356 89.246 72.163 33.726 - - - 349.092AlStrong - - - - - - - -GreenComfort - - - - - - - -62.356 89.246 72.163 33.726 - - - 349.092CloudChair - - - - 32.239 107.555 168.466 669.898AlStrong 13.570 10.016 12.295 17.981 59.067 87.925 102.584 674.135GreenComfort 19.883 22.050 26.337 30.257 55.218 70.139 71.513 562.52133.453 32.066 38.632 48.238 146.524 265.618 342.562 1.906.554Straight time cost (Production Hours Required x Labor Cost) 2.567.280CloudChair 1.344 1.260 1.512 1.512 1.260 1.512 1.512 16.800AlStrong 30.184 28.298 33.957 33.957 28.298 33.957 33.957 377.300GreenComfort 25.427 23.838 28.606 28.606 23.838 28.606 28.606 317.840CloudChair 9.774 32.576 42.650 43.441 48.016 51.247 46.140 436.300AlStrong 56.179 52.668 63.202 63.202 52.668 63.202 63.202 702.240GreenComfort 57.344 53.760 64.512 64.512 53.760 64.512 64.512 716.800Total Material 2.739.744 2.613.084 3.135.701 3.135.701 2.613.084 3.135.701 3.135.701 34.793.573Total Cost 2.982.353 2.894.729 3.442.301 3.404.656 2.820.923 3.378.736 3.373.629 37.709.945Total Sales 3.320.320 3.511.140 5.775.840 7.104.600 6.502.500 8.071.200 7.725.600 65.665.000Margin 337.967 616.411 2.333.539 3.699.944 3.681.577 4.692.464 4.351.971 27.955.055Cost of shortage of inventorySkilled workersUnskilled workersDemand forcast per month:Ending inventoriesSafety stockExcess (shortage) of inventoryCost of excess of inventory
  25. 25. Problem Analysis Constant Level of Production1. producing above the demandmay result in high inventorylevel2. There are cost of carryinginventory3. When demand was very highbut production constant mayresult in shortage of productPROS1. Labour work in a constant time,produce the same amount per daymakes labour on high productivity andavoid fatigue2. Utility of machine easily measure3. Furniture design likely to change inlong period4. Keeping inventory in some level helpFoldrite for fast deliveryRecomendation :By calculating existing labour based on December 2009 data, Foldrite must addlabour to produce constant level of product without overtime to fulfill demandforecast for the year of 2010. Cost of additional labour and do constant level ofproduction, although result in vary of inventory level still below the cost of donothing (not add worker, no overtime, no training, no subcontracting and nochange in design)CONS
  26. 26. PLAN 3Subcontracting
  27. 27. PLAN 3: Constant Low Workforce, SubcontractJan Feb Mar Apr May Jun JulWorking Hours in Month 160 150 180 180 150 180 180 2.000CloudChair 12.611 31.310 62.063 71.860 73.961 85.349 78.597 544.219AlStrong 29.201 22.538 29.366 29.868 33.125 35.204 31.710 322.601GreenComfort 26.553 19.674 24.761 24.465 25.831 27.322 23.673 267.198Production hours availableSkilled CloudChair 480 450 540 540 450 540 540 20.000AlStrong 6.240 5.850 7.020 7.020 5.850 7.020 7.020 70.000` GreenComfort 5.760 5.400 6.480 6.480 5.400 6.480 6.480 58.000Unskilled CloudChair 1.920 1.800 2.160 2.160 1.800 2.160 2.160 24.000AlStrong 13.760 12.900 15.480 15.480 12.900 15.480 15.480 152.000` GreenComfort 13.760 12.900 15.480 15.480 12.900 15.480 15.480 140.000Actual productionFinished Goods (95% yield) CloudChair 12.160 11.400 13.680 13.680 11.400 13.680 13.680 152.000AlStrong 27.788 26.051 31.261 31.261 26.051 31.261 31.261 347.344GreenComfort 25.255 23.677 28.412 28.412 23.677 28.412 28.412 315.692CloudChair 29.567 42.317 34.217 15.992 - - - 165.525AlStrong - - - - - - - -GreenComfort - - - - - - - -29.567 42.317 34.217 15.992 - - - 165.525CloudChair 1.260 55.668 135.278 162.671 174.921 200.388 181.509 1.096.645AlStrong 16.980 - - - 84.980 47.363 5.398 154.721GreenComfort 16.501 - - - 27.397 - - 43.89834.740 55.668 135.278 162.671 287.299 247.751 186.907 1.295.264Straight time cost (Production Hours Required x Labor Cost)202.485 189.830 227.795 227.795 189.830 227.795 227.795 2.531.060Total Material 2.792.506 2.617.974 3.141.569 3.141.569 2.617.974 3.141.569 3.141.569 34.906.326Total Cost 3.029.731 2.863.472 3.504.643 3.532.036 3.095.103 3.617.116 3.556.272 38.732.650Total Sales 254.893 4.770.140 5.724.167 5.724.167 4.770.140 5.724.167 5.724.167 58.768.605Margin (2.774.838) 1.906.667 2.219.525 2.192.132 1.675.037 2.107.052 2.167.896 20.035.955Production requirementUnit subcontract per month:Cost of excess subcontracting
  28. 28. Problem Analysis Subcontracting1. Get the job done right andon time2. Don’t need to spendmoney on recruitmentand training3. Can have relatively flexiblechange according to thedemand1. Inventory cost and extrato the cost of labor for theproduct.2. Finding the rightsubcontractor can bedifficult3. Communication can beproblematic4. Difficult to maintain thequality of productPROS CONS
  29. 29. PLAN 4Overtime
  30. 30. PLAN 4 : Constant Workforce, OvertimeJan Feb Mar Apr May Jun JulCloudChair - 37.067 61.017 62.757 35.697 9.397 - 302.990AlStrong - 5.938 11.295 12.144 10.293 5.000 - 56.326GreenComfort - 3.385 5.928 6.135 3.823 396 - 25.750Working Hours in Month 160 150 180 180 150 180 180 2.000CloudChair 12.611 31.310 62.063 71.860 73.961 85.349 78.597 544.219AlStrong 29.201 22.538 29.366 29.868 33.125 35.204 31.710 322.601GreenComfort 26.553 19.674 24.761 24.465 25.831 27.322 23.673 267.198Actual productionFinished Goods (95% yield) CloudChair 41.547 38.950 46.740 46.740 38.950 46.740 46.740 519.333AlStrong 24.754 23.207 27.849 27.849 23.207 27.849 27.849 309.429GreenComfort 20.345 19.073 22.888 22.888 19.073 22.888 22.888 254.308CloudChair 4.480 15.000 45.000 73.800 65.250 79.200 86.400 524.280AlStrong 18.816 17.850 27.000 29.700 28.500 36.000 32.400 306.916GreenComfort 16.960 16.530 22.680 25.200 22.500 27.900 25.200 253.570CloudChair 37.067 61.017 62.757 35.697 9.397 (23.063) (39.660) 298.043AlStrong 5.938 11.295 12.144 10.293 5.000 (3.152) (4.551) 58.838GreenComfort 3.385 5.928 6.135 3.823 396 (4.616) (2.312) 26.488CloudChair - - - - - 23.063 39.660 85.730AlStrong - - - - - 3.152 4.551 11.152GreenComfort - - - - - 4.616 2.312 6.928Overtime hoursSkilled CloudChair - - - - - 769 1.322 2.858AlStrong - - - - - 672 971 2.379` GreenComfort - - - - - 1.000 501 1.501Unskilled CloudChair - - - - - 3.460 5.949 12.860AlStrong - - - - - 1.471 2.124 5.204` GreenComfort - - - - - 2.385 1.195 3.580Overtime costSkilled CloudChair - - - - - 29.141 50.110 108.320AlStrong - - - - - 25.486 36.805 90.177` GreenComfort - - - - - 37.911 18.990 56.902Unskilled CloudChair - - - - - 51.374 88.343 190.964AlStrong - - - - - 21.841 31.541 77.281` GreenComfort - - - - - 35.417 17.741 53.159Straight time cost 180.253 168.987 202.784 202.784 168.987 202.784 202.784 2.253.160Total Material 2.739.744 2.568.510 3.082.212 3.082.212 2.568.510 3.082.212 3.082.212 34.246.798Total Cost 3.015.806 2.850.795 3.378.160 3.339.712 2.923.998 3.802.665 3.844.602 39.016.748Total Sales 3.320.320 3.511.140 5.775.840 7.104.600 6.502.500 8.071.200 7.725.600 65.665.000Margin 304.514 660.345 2.397.680 3.764.888 3.578.502 4.268.535 3.880.998 26.648.252Demand forcast per month:Unit available before overtimeOvertime unitBeginning inventoryProduction requirement
  31. 31. Problem Analysis Overtime1. No need to lay off thesuperfluous labors andthus suffer from thedemoralization and highunemployment insuranceafter the surge in demand2. Flexibility: can makechange according to thechange of the demandPROS1. High cost: overtime wages were 1.5 timesthe normal fully loaded rates.2. Decline in quality and yield: overtime maylead to labors’ fatigue3. Potential risk: may not able to meet thedemand if the demand continues toincrease4. Negative effect on potential labors: thelong-lasting overtime may discourage otherlabor join in the companyCONS
  32. 32. PLAN 5Design Change
  33. 33. PLAN 5 : Design ChangeJan Feb Mar Apr May Jun JulCloudChair - 37.067 61.017 62.757 35.697 9.397 - 302.990AlStrong - 5.938 11.295 12.144 10.293 5.000 - 56.326GreenComfort - 3.385 5.928 6.135 3.823 396 - 25.750Working Hours in Month 160 150 180 180 150 180 180 2.000CloudChair 12.611 31.310 62.063 71.860 73.961 85.349 78.597 544.219AlStrong 29.201 22.538 29.366 29.868 33.125 35.204 31.710 322.601GreenComfort 26.553 19.674 24.761 24.465 25.831 27.322 23.673 267.198Production hours availableSkilled CloudChair 1.600 1.500 1.800 1.800 1.500 1.800 1.800 20.000AlStrong 5.600 5.250 6.300 6.300 5.250 6.300 6.300 70.000` GreenComfort 4.640 4.350 5.220 5.220 4.350 5.220 5.220 58.000Unskilled CloudChair 6.560 6.150 7.380 7.380 6.150 7.380 7.380 82.000AlStrong 12.160 11.400 13.680 13.680 11.400 13.680 13.680 152.000` GreenComfort 11.200 10.500 12.600 12.600 10.500 12.600 12.600 140.000Actual productionFinished Goods (95% yield) CloudChair 41.547 38.950 46.740 46.740 38.950 46.740 46.740 519.333AlStrong 24.754 23.207 27.849 27.849 23.207 27.849 27.849 309.429GreenComfort 20.345 19.073 22.888 22.888 19.073 22.888 22.888 254.308CloudChair 4.480 15.000 45.000 73.800 65.250 79.200 86.400 524.280AlStrong 18.816 17.850 27.000 29.700 28.500 36.000 32.400 306.916GreenComfort 16.960 16.530 22.680 25.200 22.500 27.900 25.200 253.570CloudChair 37.067 61.017 62.757 35.697 9.397 (23.063) (39.660) 298.043AlStrong 5.938 11.295 12.144 10.293 5.000 (3.152) (4.551) 58.838GreenComfort 3.385 5.928 6.135 3.823 396 (4.616) (2.312) 26.488Overtime costSkilled CloudChair - - - - - 29.141 50.110 108.320AlStrong - - - - - 25.486 36.805 90.177` GreenComfort - - - - - 37.911 18.990 56.902Unskilled CloudChair - - - - - 51.374 88.343 190.964AlStrong - - - - - 21.841 31.541 77.281` GreenComfort - - - - - 35.417 17.741 53.159Cost of excess of inventory 62.356 81.232 54.532 6.478 - - - 576.010Cost of shortage of inventory 33.453 32.066 38.632 48.238 186.501 316.499 316.075 1.363.977Design change setup cost 15.000Straight time cost 180.253 168.987 202.784 202.784 168.987 202.784 202.784 2.253.160Total Material 2.739.744 2.568.510 3.082.212 3.082.212 2.568.510 3.082.212 3.082.212 34.246.798Total Cost 3.015.806 2.850.795 3.378.160 3.339.712 2.923.998 3.802.665 3.844.602 39.031.748Total Sales 3.320.320 3.511.140 5.775.840 7.104.600 6.502.500 8.071.200 7.725.600 65.665.000Margin 304.514 660.345 2.397.680 3.764.888 3.578.502 4.268.535 3.880.998 26.633.252Beginning inventoryProduction requirementDemand forcast per month:Unit available before overtime
  34. 34. Problem Analysis Change Design1. Once for all: increase theproductivity1. High cost2. Long time: it takes one monthto change3. Little effect: the change maynot have too great influenceon the whole productivityPROS CONS
  35. 35. 5PART 5ConclusionsRecommendationsLesson Learned
  36. 36. ConclusionsPlan 1 : Exact Production, Vary WorkforcePlan 2 : Constant Workforce, Vary Inventory and Stock outPlan 3 : Constant Low Workforce, SubcontractPlan 4 : Constant Workforce, OvertimePlan 5 : Design ChangeCost Plan 1 Plan 2 Plan 3 Plan 4 Plan 5Hiring 58.441Layoff 2.032.000Excess Inventory 349.092 576.010 576.010Shortage 1.906.554Subcontract 1.295.264Overtime 576.802 576.802Design change 15.000Straight time 2.227.429 2.567.280 2.531.060 2.253.160 2.239.220Total 4.317.870 4.822.926 3.826.324 3.405.972 3.407.032
  37. 37. Conclusions• FoldRite goal to reduced turnover of work force aligned with stableworkforce strategy. To be a lean manufacturer which has flexibilityto response specific customer requirement, the company couldadopt level strategy.• Demand variations are high for CloudChair product, so the planningsystem must include sufficient flexibility to cope with, that canachieved by cross-training worker to handle a wide variety oforders, developing alternative source of supply, and engaging inmore frequent replanning during high-demand periods.• Chasing strategy at Plan 1 with target production to fullfilldemand requirement using flexible workforce by hiring, training,and layoff labors seems to be suffer with layoff cost and this alsodoesn’t compatible with FoldRite goals. Design change did notsiginificant lowering cost (only 1 minutes improvement forCloudChair product). Other alternative planning are more suitablewith FoldRite strategy to achieve 4 goals.• Relationship with among various functional unit, includingmarketing is a key of success to manage production planning.
  38. 38. Recommendations• More production for CloudChair since it has greater contribution marginand lower cost of production and cheaper product line.• Keep planning strategy aligned with company goals by choosing stableworkforce and level strategy. For seasonal product, it’s more efficient tohave constant of labor and subcontracting the rest of demand. This couldaffect to lower employee turnover also, managing quality of product andlowering inventory fluctuation.• By calculating existing labour based on December 2009 data, FoldRitemust add labour to produce constant level of product without overtime tofulfill demand forecast for the year of 2010. Cost of additional labour anddo constant level of production, although result in vary of inventory levelstill below the cost of do nothing (not add worker, no overtime, notraining, no subcontracting and no change in design).• The usage of MRP, ERP, SCM, and other IT related system to improveproduction planning quality.
  39. 39. Lessons Learned• Cost reduction initiative for labor cost will notgive significant effect if the labor portion onlysmall amount of overall cost structure. Reductionof material cost has more impact on costreduction since it’s has 6 time larger than laborcost.• Seasonal effect of CloudChair should compensatewith other product that has opposite seasonaleffect to reduce risk of materialized demand.
  40. 40. ThankYou

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