case

Case: - FoldRite Furniture Co.:

Planning to Meet a Surge in Demand

Case Characters:-

Jose Ramos - VP of FoldeRite Furniture Company

Martin Kelsey - Production manager

Alice Yung - CFO

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.

Then company decided to change management in 2007, which was a recession, after that company did very well during recession.

What changes they made during recession:-

Major policies that company adopted after change in management:-

New CEO marshal Epstein from a major consumer goods company was appointed.

Manufacturing 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.

FoldeRite’s Market:-

Revenue wise there market was:

Hospitality:- 60% Governments, corporate offices, schools, colleges , clinics accounted

for :- 29% Individual Customers:- 9%

Demand for FoldRite products was seasonal. Folding chairs were in high demand in the summer. Stackable chairs and folding tables were also popular around the holidays.

Due to recession demand was very low in 2008.

They reduced no of products in 2010 and their main products were:-

AlStrong, a folding table in which recycled aluminum replaced the plastic top

GreenComfort, a washable and stackable chair CloudChair, a folding chair that conformed to a wide variety of body

shapes and provided comfortable seating even for overweight people (a growing market in most of the world).

Now next focus of FoldeRite furniture:-

Customization of their products Providing high quality products Emphasizing on ecofriendly products

Manufacturing process:-

The products used similar materials, which reduced the number of suppliers and the procurement overhead, and increased quality.

All production planning was highly centralized. The production supervisor assigned workers to various tasks based on daily production plans derived from the weekly plan.

Financial issues:-

According to their CFO Yung credit situation is tight. They have to generate cash from costly resources as expensive as

12% p.a.

Human resources issues:-

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.

SolutionThe aggregate planning is carried out using the chase strategy, level strategy, subcontracting strategy and the stable workforce strategy. The calculations are shown below

Wages (Skilled) = 19 + 33% of 19 = 25.27Wages (Unskilled) = 9 + 10% of 9=9.9

Chase strategy

Calculation for CloudChairProduction requirement = Demand forecastProduction hours required (Unskilled) = Production Requirement * Time taken to produce one unit (9/60)Production hours required (Skilled) = Production Requirement * Time taken to produce one unit (2/60)Hours per month per worker = Work days per month * Working hours in a day (10)Works required (Skilled) = Production hours required (Skilled) / Hours per month per workerWorks required (Unskilled) = Production hours required (Unskilled) / Hours per month per workerHiring Cost (Unskilled) = New workers hired (Unskilled) * Hiring expense (66.5)Straight Time Cost = (Production Hours Required (Skilled) * Wages (25.27)) +

(Production Hours Required (Unskilled) * Wages (9.9))Lay off Cost is calculated from http://www.coworkforce.com/uibestimator/ as given in case study (Colorado Unemployment Insurance Benefits).

Chase strategy - CloudChair

Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Total

Production requirement 4480 15000 45000 73800 65250 79200 86400 67150 34000 27000 14400 12600 524280Production hours required (unskilled) 672 2250 6750 11070 9788 11880 12960 10073 5100 4050 2160 1890Production hours required (skilled) 150 500 1500 2460 2175 2640 2880 2239 1134 900 480 420

Work days per month 16 15 18 18 15 18 18 17 17 18 16 14 200Hours per month per worker 160 150 180 180 150 180 180 170 170 180 160 140

Workers required (skilled) 1 4 9 14 15 15 16 14 7 5 3 3

New workers hired (skilled) 0 0 0 0 0 0 0 0 0 0 0 0Workers required (unskilled) 5 15 38 62 66 66 72 60 30 23 14 14Unskilled workers for training 3 5 5 1 0 1 0 0 0 0 0 0New workers hired (unskilled) 0 12 23 20 3 1 5 0 0 0 0 0

Hiring costs (skilled) 0 0 0 0 0 0 0 0 0 0 0 0 0

Hiring costs (unskilled) 0 118.8 227.7 198 29.7 9.9 49.5 0 0 0 0 0 633.6

Workers laid off (skilled) 8 0 0 0 0 0 0 2 7 2 2 0

Workers laid off (unskilled) 32 0 0 0 0 0 0 12 30 7 9 0

http://www.coworkforce.com/uibestimator/

Lay off cost (skilled) 100880 0 0 0 0 0 0 25116 87906 25220 25220 0 264342

Lay off cost (unskilled) 189696 0 0 0 0 0 0 71136 177840 41496 53352 0 533520

Straight time cost10443.

3 34910 104730171757.

2151863.4

5 184325201081.

6156302.

2 79146.18 6283833513.

6 29324.41220234.7

6

Opening work force Skilled 9

TC1= 2018730.36

Opening work force Unskilled 40

Calculation for AlStrongProduction requirement = Demand forecastProduction hours required (Unskilled) = Production Requirement * Time taken to produce one unit (28/60)Production hours required (Skilled) = Production Requirement * Time taken to produce one unit (12.8/60)Hours per month per worker = Work days per month * Working hours in a day (10)Works required (Skilled) = Production hours required (Skilled) / Hours per month per workerWorks required (Unskilled) = Production hours required (Unskilled) / Hours per month per workerHiring Cost (Unskilled) = New workers hired (Unskilled) * Hiring expense (66.5)Straight Time Cost = (Production Hours Required (Skilled) * Wages (25.27)) +


Chase strategy - AlStrong


Production requirement 18816 17850 27000 29700 28500 36000 32400 29750 25500 25200 20800 15400 306916Production hours required (unskilled) 8781 8330 12600 13860 13300 16800 15120 13884 11900 11760 9707 7187Production hours required (skilled) 4015 3808 5760 6336 6080 7680 6912 6347 5440 5376 4438 3286

Work days per month 16 15 18 18 15 18 18 17 17 18 16 14 200Hours per month per worker 160 150 180 180 150 180 180 170 170 180 160 140Workers required (skilled) 26 26 32 36 41 43 39 38 32 30 28 24New workers hired (skilled) 0 0 0 0 0 0 0 0 0 0 0 0Workers required (unskilled) 55 56 70 77 89 94 84 82 70 66 61 52Unskilled workers for training 0 6 4 5 2 0 0 0 0 0 0 0New workers hired (unskilled) 0 7 12 8 9 3 0 0 0 0 0 0

Hiring costs (skilled) 0 0 0 0 0 0 0 0 0 0 0 0 0

Hiring costs (unskilled) 0 465.5 798 532 598.5 199.5 0 0 0 0 0 0 2593.5

Workers laid off (skilled) 7 0 0 0 0 0 4 1 6 2 2 4Workers laid off (unskilled) 17 0 0 0 0 0 10 2 12 4 5 9


Lay off cost (skilled) 88270 0 0 0 0 0 50232 12558 75348 25220 25220 50440 327288

Lay off cost (unskilled) 100776 0 0 0 0 0 59280 11856 71136 23712 29640 53352 349752

Straight time cost 188391 178695 270295 297324.72 285311.6 360394 324354.2 297840.3 255278.8 252275.52 208248 154189 3072596.16

Opening work force Skilled 33

TC2= 3752229.66

Opening work force Unskilled 72

Calculation for GreenComfortProduction requirement = Demand forecastProduction hours required (Unskilled) = Production Requirement * Time taken to produce one unit (31/60)Production hours required (Skilled) = Production Requirement * Time taken to produce one unit (13/60)Hours per month per worker = Work days per month * Working hours in a day (10)Works required (Skilled) = Production hours required (Skilled) / Hours per month per workerWorks required (Unskilled) = Production hours required (Unskilled) / Hours per month per workerHiring Cost (Unskilled) = New workers hired (Unskilled) * Hiring expense (66.5)Straight Time Cost = (Production Hours Required (Skilled) * Wages (25.27)) +


Chase strategy - GreenComfort

Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec TotalProduction requirement 16960 16530 22680 25200 22500 27900 25200 21250 21250 22500 17600 14000 253570Production hours required (unskilled) 8763 8541 11718 13020 11625 14415 13020 10980 10980 11625 9094 7234Production hours required (skilled) 3675 3582 4914 5460 4875 6045 5460 4605 4605 4875 3814 3034Work days per month 16 15 18 18 15 18 18 17 17 18 16 14 200Hours per month per worker 160 150 180 180 150 180 180 170 170 180 160 140Workers required (skilled) 23 24 28 31 33 34 31 28 28 28 24 22New workers hired (skilled) 0 0 0 0 0 0 0 0 0 0 0 0Workers required (unskilled) 55 57 66 73 78 81 73 65 65 65 57 52Unskilled workers for training 1 4 3 2 1 0 0 0 0 0 0 0New workers hired (unskilled) 0 5 8 6 4 2 0 0 0 0 0 0

Hiring costs 0 0 0 0 0 0 0 0 0 0 0 0 0


(skilled)Hiring costs (unskilled) 0 332.5 532 399 266 133 0 0 0 0 0 0 1662.5Workers laid off (skilled) 5 0 0 0 0 0 3 3 0 0 4 2Workers laid off (unskilled) 11 0 0 0 0 0 8 8 0 0 8 5

Lay off cost (skilled) 63050 0 0 0 0 0 37674 37674 0 0 50440 25220 214058Lay off cost (unskilled) 65208 0 0 0 0 0 47424 47424 0 0 47424 29640 237120

Straight time cost17962

117507

324018

5266872.

2238278.7

529546

6266872.

2225070.

4 225070.35 238278.7518641

014828

6 2685483.38TC3=3138323.88

Opening work force Skilled 28Opening work force Unskilled 66

Level Strategy

Calculation for CloudChairProduction Hours Available (Skilled) = Production Days in Month * Work Hours per day (10) * Work Force (Skilled) (9)Production Hours Available (Unskilled) = Production Days in Month * Work Hours per day (10) * Work Force (Unskilled) (40)Ending Inventory = Beginning Inventory + Actual Production – Demand ForecastShortage Cost = Shortfall of units * Shortage Cost (50% of cost of product) (7.03)Inventory Cost = Excess units * Inventory Cost (15% of cost of product) (2.109)Straight Time Cost= (Production Hours Available (Skilled) * Wages (25.27)) +

(Production Hours Available (Unskilled) * Wages (9.9)) Safety stock is included in the demand forecast

Level strategy - CloudChair

Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec TotalBeginning inventory 2240 40427 65427 68427 42627 17377 -13823 -52223 -74039 -62705 -41705 -13438Work days per month 16 15 18 18 15 18 18 17 17 18 16 14 200Production hours available (skilled) 1440 1350 1620 1620 1350 1620 1620 1530 1530 1620 1440 1260Production hours available (unskilled) 6400 6000 7200 7200 6000 7200 7200 6800 6800 7200 6400 5600

Actual production 42667 40000 48000 48000 40000 48000 48000 45334 45334 48000 42667 37334

Demand forecast 4480 15000 45000 73800 65250 79200 86400 67150 34000 27000 14400 12600 524280

Ending inventory 40427 65427 68427 42627 17377 -13823 -52223 -74039 -62705 -41705 -13438 11296Shortage cost -97175.7 -367128 -520494 -440816 -293186 -

94469.1813268.99

1

Units excess 40427 65427 68427 42627 17377 11296

Inventory cost85260.5

4137985.

5144312.

589900.3

436648.0

9 0 0 0 0 0 023823.2

6 517930.329

Straight time cost 99748.8 93514.5112217.

4112217.

4 93514.5112217.

4112217.

4105983.

1105983.

1112217.

499748.

8 87280.2 1246860TC= 3578059.319

Opening work force Skilled 9Opening work force Unskilled 40Shortage cost = 50% of cost of product 7.03Inventory cost = 15% of cost of product 2.109

Calculation for AlStrongProduction Hours Available (Skilled) = Production Days in Month * Work Hours per day (10) * Work Force (Skilled) (33)Production Hours Available (Unskilled) = Production Days in Month * Work Hours per day (10) * Work Force (Unskilled) (72)Ending Inventory = Beginning Inventory + Actual Production – Demand ForecastShortage Cost = Shortfall of units * Shortage Cost (50% of cost of product) (29.855)Inventory Cost = Excess units * Inventory Cost (15% of cost of product) (8.9565)Straight Time Cost= (Production Hours Available (Skilled) * Wages (25.27)) +


Level strategy - AlStrong

Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec TotalBeginning inventory 9408 15278 20571 21343 19415 14058 5830 1202 -2319 -1590 982 4868Work days per month 16 15 18 18 15 18 18 17 17 18 16 14 200Production hours available (skilled) 5280 4950 5940 5940 4950 5940 5940 5610 5610 5940 5280 4620Production hours available

11520 10800 12960 12960 10800 12960 12960 12240 12240 12960 11520 10080

(unskilled)


Demand forecast 18816 17850 27000 29700 28500 36000 32400 29750 25500 25200 20800 15400 306916

Ending inventory 15278 20571 21343 19415 14058 5830 1202 -2319 -1590 982 4868 11068

Shortage cost -69233.7 -47469.5 116703.195

Units excess 15278 20571 21343 19415 14058 5830 1202 982 4868 11068

Inventory cost136837.

4184244.

2191158.

6173890.

4125910.

5 52216.410765.7

1 0 08795.28

343600.2

499130.5

4 1026549.248


6232006.

5278407.

8278407.

8232006.

5278407.

8278407.

8262940.

7262940.

7278407.

8247473.

6216539.

4 3093420TC= 4236672.443


Calculation for GreenComfortProduction Hours Available (Skilled) = Production Days in Month * Work Hours per day (10) * Work Force (Skilled) (28)Production Hours Available (Unskilled) = Production Days in Month * Work Hours per day (10) * Work Force (Unskilled) (66)Ending Inventory = Beginning Inventory + Actual Production – Demand ForecastShortage Cost = Shortfall of units * Shortage Cost (50% of cost of product) (30.415)Inventory Cost = Excess units * Inventory Cost (15% of cost of product) (9.1245)Straight Time Cost= (Production Hours Available (Skilled) * Wages (25.27)) +


Level strategy - GreenComfort

Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec TotalBeginning inventory 8480 11959 14591 14905 12699 9361 4455 2249 2716 3183 3677 6516Work days per month 16 15 18 18 15 18 18 17 17 18 16 14 200Production hours available (skilled) 4480 4200 5040 5040 4200 5040 5040 4760 4760 5040 4480 3920Production hours available (unskilled) 10560 9900 11880 11880 9900 11880 11880 11220 11220 11880 10560 9240Actual production 20439 19162 22994 22994 19162 22994 22994 21717 21717 22994 20439 17884Demand forecast 16960 16530 22680 25200 22500 27900 25200 21250 21250 22500 17600 14000 253570Ending inventory 11959 14591 14905 12699 9361 4455 2249 2716 3183 3677 6516 10400

Shortage cost 0

Units excess 11959 14591 14905 12699 9361 4455 2249 2716 3183 3677 6516 10400


9133135.

6136000.

7 11587285414.4

440649.6

5 2052124782.1

429043.2

833550.7

959455.2

4 94894.8 882439.5195Straight time cost

217753.6 204144

244972.8

244972.8 204144

244972.8

244972.8

231363.2

231363.2

244972.8

217753.6

190534.4 2721920

TC= 3604359.52


Subcontracting strategySubcontracting cost (unskilled) = 120% of wages = 11.88Subcontracting cost (skilled) = 120% of wages = 30.324

Calculation for CloudChairProduction Hours Available (Skilled) = Production Days in Month * Work Hours per day (10) * Work Force (Skilled) (9)Production Hours Available (Unskilled) = Production Days in Month * Work Hours per day (10) * Work Force (Unskilled) (40)Ending Inventory = Beginning Inventory + Actual Production – Demand ForecastUnits Subcontracted = Shortfall in production Subcontracting Cost = Units Subcontracted * Time taken for production of one unit * subcontracting chargesStraight Time Cost= (Production Hours Available (Skilled) * Wages (25.27)) +

(Production Hours Available (Unskilled) * Wages (9.9)) Subcontracting – CloudChair


Beginning inventory 2240 40427 65427 68427 42627 17377 -13823 -52223 -74039 -62705 -41705 -13438Production requirement 4480 15000 45000 73800 65250 79200 86400 67150 34000 27000 14400 12600 524280

Work days per month 16 15 18 18 15 18 18 17 17 18 16 14 200Production hours available (skilled) 1440 1350 1620 1620 1350 1620 1620 1530 1530 1620 1440 1260Production hours available (unskilled) 6400 6000 7200 7200 6000 7200 7200 6800 6800 7200 6400 5600


Ending inventory 40427 65427 68427 42627 17377 -13823 -52223 -74039 -62705 -41705 -13438 11296

Units subcontracted 13823 52223 74039 62705 41705 13438

Subcontracting cost 0 0 0 0 0 38604.87 145848.4 206776.1 175122.5 116473.737529.65 0 720355.2824


893514.

5112217.

4112217.

493514.

5112217.

4112217.

4105983.

1105983.

1112217.

4 99748.887280.

2 1246860TC= 1967215.282


Calculation for AlStrongProduction Hours Available (Skilled) = Production Days in Month * Work Hours per day (10) * Work Force (Skilled) (33)Production Hours Available (Unskilled) = Production Days in Month * Work Hours per day (10) * Work Force (Unskilled) (72)Ending Inventory = Beginning Inventory + Actual Production – Demand ForecastUnits Subcontracted = Shortfall in production Subcontracting Cost = Units Subcontracted * Time taken for production of one unit * subcontracting chargesStraight Time Cost= (Production Hours Available (Skilled) * Wages (25.27)) +

(Production Hours Available (Unskilled) * Wages (9.9)) Subcontracting -AlStrong

Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec TotalBeginning inventory 9408 15278 20571 21343 19415 14058 5830 1202 -2319 -1590 982 4868Production requirement 18816 17850 27000 29700 28500 36000 32400 29750 25500 25200 20800 15400 306916Work days per month 16 15 18 18 15 18 18 17 17 18 16 14 200Production hours available (skilled) 5280 4950 5940 5940 4950 5940 5940 5610 5610 5940 5280 4620Production hours available (unskilled) 11520 10800 12960 12960 10800 12960 12960 12240 12240 12960 11520 10080Actual production 24686 23143 27772 27772 23143 27772 27772 26229 26229 27772 24686 21600

Ending inventory 15278 20571 21343 19415 14058 5830 1202 -2319 -1590 982 4868 11068Units subcontracted 2319 1590Subcontracting cost 0 0 0 0 0 0 0

27858.43 19100.860 0 0

46959.286


6232006.

5278407.

8278407.

8232006.

5278407.

8278407.

8262940.

7262940.

7278407.

8247473.

6216539.

4 3093420TC= 3140379.286


Calculation for GreenComfortProduction Hours Available (Skilled) = Production Days in Month * Work Hours per day (10) * Work Force (Skilled) (28)Production Hours Available (Unskilled) = Production Days in Month * Work Hours per day (10) * Work Force (Unskilled) (66)Ending Inventory = Beginning Inventory + Actual Production – Demand ForecastUnits Subcontracted = Shortfall in production Subcontracting Cost = Units Subcontracted * Time taken for production of one unit * subcontracting chargesStraight Time Cost= (Production Hours Available (Skilled) * Wages (25.27)) +

(Production Hours Available (Unskilled) * Wages (9.9))

Subcontracting – GreenComfort

Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec TotalBeginning inventory 8480 11959 14591 14905 12699 9361 4455 2249 2716 3183 3677 6516Production requirement 16960 16530 22680 25200 22500 27900 25200 21250 21250 22500 17600 14000 253570Work days per month 16 15 18 18 15 18 18 17 17 18 16 14 200Production hours available (skilled) 4480 4200 5040 5040 4200 5040 5040 4760 4760 5040 4480 3920Production hours available (unskilled) 10560 9900 11880 11880 9900 11880 11880 11220 11220 11880 10560 9240


Ending inventory 11959 14591 14905 12699 9361 4455 2249 2716 3183 3677 6516 10400Units subcontracted 0 0 0 0 0 0 0 0 0 0 0 0Subcontracting cost 0 0 0 0 0 0 0 0 0 0 0 0 0


620414

4244972.

8244972.

820414

4244972.

8244972.

8231363.

2231363.

2244972.

8217753.

6190534.

4 2721920TC= 2721920


Stable Workforce strategy

Calculation for CloudChairProduction Hours Available (Skilled) = Production Days in Month * Work Hours per day (10) * Work Force (Skilled) (9)Production Hours Available (Unskilled) = Production Days in Month * Work Hours per day (10) * Work Force (Unskilled) (40)Ending Inventory = Beginning Inventory + Actual Production – Demand ForecastOvertime Cost = Shortfall * ((1.5*Wages (Skilled) (25.27) *(Labour time (Skilled))) +

(1.5*Wages (Unskilled) (9.9) *(Labour time (Unskilled))) Inventory Cost = Excess Stock* Inventory Cost (15% of cost of product) (2.109)Straight Time Cost= (Production Hours Available (Skilled) * Wages (25.27)) +

(Production Hours Available (Unskilled) * Wages (9.9))

Stable workforce strategy - CloudChair

Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec TotalBeginning inventory 2240 40427 65427 68427 42627 17377 -13823 -52223 -74039 -62705 -41705 -13438Work days per month 16 15 18 18 15 18 18 17 17 18 16 14 200Production hours available (skilled) 1440 1350 1620 1620 1350 1620 1620 1530 1530 1620 1440 1260Production hours available (unskilled) 6400 6000 7200 7200 6000 7200 7200 6800 6800 7200 6400 5600Regular shift production 42667 40000 48000 48000 40000 48000 48000 45334 45334 48000 42667 37334

Demand forecast 4480 15000 45000 73800 65250 79200 86400 67150 34000 27000 14400 12600 524280Shortfall after normal shift production 40427 65427 68427 42627 17377 -13823 -52223 -74039 -62705 -41705 -13438 11296Overtime production in units 13823 52223 74039 62705 41705 13438

Overtime cost 0 0 0 0 048256.0

9182310.

5258470.

1218903.

2145592.

246912.0

6 0 900444.103

Excess stock 40427 65427 68427 42627 17377 11296Inventory cost 85260.5 137985. 144312. 89900.3 36648.0 0 0 0 0 0 0 23823.2 517930.329

4 5 5 4 9 6

Straight time cost 99748.8 93514.5112217.

4112217.

4 93514.5112217.

4112217.

4105983.

1105983.

1112217.

4 99748.8 87280.2 1246860TC= 2665234.432

Opening work force Skilled 9Opening work force Unskilled 40Inventory cost = 15% of cost of product 2.109

Calculation for AlStrongProduction Hours Available (Skilled) = Production Days in Month * Work Hours per day (10) * Work Force (Skilled) (33)Production Hours Available (Unskilled) = Production Days in Month * Work Hours per day (10) * Work Force (Unskilled) (72)Ending Inventory = Beginning Inventory + Actual Production – Demand ForecastOvertime Cost = Shortfall * ((1.5*Wages (Skilled) (25.27) *(Labour time (Skilled))) +


(Production Hours Available (Unskilled) * Wages (9.9)) Stable workforce strategy - AlStrong

Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec TotalBeginning inventory 9408 15278 20571 21343 19415 14058 5830 1202 -2319 -1590 982 4868Work days per month 16 15 18 18 15 18 18 17 17 18 16 14 200Production hours available (skilled) 5280 4950 5940 5940 4950 5940 5940 5610 5610 5940 5280 4620Production hours available (unskilled) 11520 10800 12960 12960 10800 12960 12960 12240 12240 12960 11520 10080Regular shift production 24686 23143 27772 27772 23143 27772 27772 26229 26229 27772 24686 21600

Demand forecast 18816 17850 27000 29700 28500 36000 32400 29750 25500 25200 20800 15400 306916

Shortfall after normal shift production 15278 20571 21343 19415 14058 5830 1202 -2319 -1590 982 4868 11068Overtime production in units 2319 1590

Overtime cost 0 0 0 0 0 0 034823.0

323876.0

8 0 0 0 58699.1076

Excess stock 15278 20571 21343 19415 14058 5830 1202 982 4868 11068


4184244.

2191158.

6173890.

4125910.

5 52216.410765.7

1 0 08795.28

343600.2

499130.5

4 1026549.248


6232006.

5278407.

8278407.

8232006.

5278407.

8278407.

8262940.

7262940.

7278407.

8247473.

6216539.

4 3093420TC= 4178668.356


Calculation for GreenComfortProduction Hours Available (Skilled) = Production Days in Month * Work Hours per day (10) * Work Force (Skilled) (28)Production Hours Available (Unskilled) = Production Days in Month * Work Hours per day (10) * Work Force (Unskilled) (66)Ending Inventory = Beginning Inventory + Actual Production – Demand ForecastOvertime Cost = Shortfall * ((1.5*Wages (Skilled) (25.27) *(Labour time (Skilled))) +


(Production Hours Available (Unskilled) * Wages (9.9)) Stable workforce strategy – GreenComfort

Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec TotalBeginning inventory 8480 11959 14591 14905 12699 9361 4455 2249 2716 3183 3677 6516

Work days per 16 15 18 18 15 18 18 17 17 18 16 14 200

monthProduction hours available (skilled) 4480 4200 5040 5040 4200 5040 5040 4760 4760 5040 4480 3920Production hours available (unskilled) 10560 9900 11880 11880 9900 11880 11880 11220 11220 11880 10560 9240Regular shift production 20439 19162 22994 22994 19162 22994 22994 21717 21717 22994 20439 17884Demand forecast 16960 16530 22680 25200 22500 27900 25200 21250 21250 22500 17600 14000 253570Shortfall after normal shift production 11959 14591 14905 12699 9361 4455 2249 2716 3183 3677 6516 10400Overtime production in units

Overtime cost 0

Excess stock 11959 14591 14905 12699 9361 4455 2249 2716 3183 3677 6516 10400


9133135.

6136000.

7 11587285414.4

440649.6

5 2052124782.1

429043.2

833550.7

959455.2

4 94894.8 882439.5195Straight time cost

217753.6 204144

244972.8

244972.8 204144

244972.8

244972.8

231363.2

231363.2

244972.8

217753.6

190534.4 2721920

TC=3604359.52


RecommendationsComparison of the four strategies

Costs (in $)Plan1: Chase strategy

Plan2: Level strategy

Plan3: Sub-contracting

Plan4: Stable workforce strategy

Hiring 4889.6Layoff 1926080

Excess inventory 2426919.097 2426919.097Shortage 1929972.185Subcontracting 767314.5684Overtime 959143.2106Regular production 6978314.3 7062200 7062200 7062200TOTAL 8,909,283.9 11,419,091.28 7,829,514.568 10,448,262.31

The table above summarizes the total costs that will be incurred using the different strategies. Going through the above, we suggest that the FoldRite Company go with the Chase strategy for production. Below we discuss the advantages of using the chase strategy, why it is better compared to the other strategies and how it meets the company objectives.

The chase strategy is profitable. From the income statement the cost of labour that is estimated for 2010 is $7,345,000. By using this strategy the labour cost would be around $6,978,314.3. Hence the net income will increase by $366,685.7.

The main concern in using the Chase strategy is that it will impact the labour morale negatively. To reduce this impact, we have suggested that the company should not hire new skilled labourers; instead they should train unskilled labourers for the purpose. This actually encourages the labourers. They get a value addition to their profile. This is also less expensive from the company’s point of view. Also, the number of labourers laid off is minimal. The unemployment insurance that will be provided on laying off a labourer is the maximum the labourer can claim for. Hence, this strategy will affect labour morale to a small extent. It will also increase the quality of the work as there will be a healthy competition amongst the labourers to deliver their best so that they can be retained.

The sales needs will be met. The company produces enough to meet the demand forecasted. Also marketing will not be negatively impacted by this strategy. The customer demands will be always met and hence there is not the threat of losing customers.

Right now, the company has made GreenComfort and AlStrong eco-friendly. They could also extend the concept to CloudChair. As they are estimating that CloudChair will grow they could also make it more comfortable to use indoors. The Chase strategy is also useful for this new product development purposes.

Looking into the table above, one may argue that subcontracting strategy should be used. But while calculating the cost incurred the holding cost of inventory has not been added. If we go by the subcontracting strategy, the holding cost of inventory will be $2,426,919. This included, the subcontracting strategy will cost a total of $10,256,433.66. The inventory cost is also a matter of concern to the company as the subcontracting strategy leads to more than the two week inventory they wish to carry. Also using the subcontracting strategy the inventory falls below the minimum for protracted

periods of time. On the other hand, even if we include the beginning inventory and account for the 80% productivity of new labourers in the Chase strategy it will be cheaper than the subcontracting strategy.

As the other two strategies cost much more than the Chase strategy, we suggest that the company use the Chase strategy.

Effects on the four major objectives for the company:

1. Continued innovation in both products and processes. As the Chase strategy is the most effective strategy it would leave the company enough resources to spend on the innovations.

2. Customer responsiveness: producing high quality products that fulfilled market needs, and providing quick service. The Chase strategy uses enough labourers to produce the required amount of products. The quality will not be compromised on as the labourers do not need to work overtime. The market needs will always be met.

3. Lean manufacturing. This goal is also met by the Chase strategy. To reduce the expenses other than those that add value to the customer, this strategy sheds extra workforce. As hiring new skilled labourers is expensive the company hires unskilled labourers instead and trains them.

4. Retention of a well-trained, stable, and productive workforce, with reduced turnover. The chase strategy that we use encourages the workers to perform well. Those who do, are recognized and trained. This gives them a satisfaction. And again, while laying off, the best hands are retained. Turnover is also reduced as the inventory is minimal.

In case the expected demand does not materialize, the expenses will be low. As in this strategy there is not lot of inventory to be held, as compared to the other strategies. Also, labourers can be laid off.

case

Documents

unskilled production

unskilled hours

unskilled unskilled

wages unskilled

month hours

production planning

skilled new workers

production supervisor