Economics and Lead Time

CASE abbreviation FOLDRITE FURNITURE CO. PLANNING TO MEET A SURGE IN DEMAND Submitted to Submitted by Dr. P. K. Dash AbhinavAnand operations Management PGDM-BHU010 Case facts about FoldeRite Furniture- * Established in 1987 * Throughout 1990s society grew organically. * 1999-2006 yearly growth rate 3. 5%. (More than market growth rate) but one competitor grew by 6% annually. * In 2006 companys performance was very bad due to following concluded reasons- * red of productivity and yields caused by high labor turnover. Cost of raw materials was increasing * Increasing proportion of unenlightened labor. * Continuous acquisition of small firms which distracted management from their main issues. * This thing also generated liquidity deficit * These things headed in reduced margins as well as attachd mite 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. * Manufactu ring 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 * memory 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 recessionQues-(01) what are the Manufacturing Options available with Mr. Martin Kelsey? Ans. The objective of the heart and soul plan was to demonstrate terms-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 unembellished shift. 2. Increase the staff temp orarily to take advantage of idle production capacity. 3.Changing the designs of the cloud prexy slightly to require one minute less in assembly 4. To cast up the amount of archive 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 permute StrategyIn 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 lineament 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 StrategyIn 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 pass on 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 fiscal 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 * supervisory program 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 s tep-up the productivity in short run but at the same time this would have lead to fatigue and boredom among the staff leading to diminution 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 pose 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 through with(p) by EmployeesThis exit imply the advantageousness in short term in a demonstrable manner but in desire term as the workers do have chance of acquiring 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 competi tiveness 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 its a new designed product. 4. Sub contracting The company will centralize in the 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.