Operations Management

1. Evaluate the company's operations during fiscal year 1979.

a) What were the principal problems?

b) What strengths do you see?

Ans. Following is the analysis for the operations during 1979. The aggregate demand and production are calculated in terms of Labour index and then the comparison is made. We assume that the shipment is done as per the demand and therefore, the shipment figures can be taken as the demand.

Table 1: Analysis for 1979 Actual Production Plan

Figure 1

In case of level production, the graph would be:

Figure 2

The graph of actual production of Kool King lies above the Level Production graph. An efficient policy would be one where the curve is always above the demand plot and at the same time, the inventory level is maintained at minimum possible. So, a policy in which the curve lies in between the level production and demand chase would be more efficient. Here, the curve departs from the level curve and at the same time carries more inventory. It would be better if they had gone for level production or a hybrid of level and demand chase. This is a major problem faced here as it is leading to a higher inventory cost of $108263 even at 10% cost of capital.

Another problem faced is to review and reschedule the plan because as production progressed, information was received which tended to force changes in the original plan. Due to this, it was required that the plan was kept flexible at all times.

The strengths of the operation are:

a) As we observe in Figure 1, the curve for production in term of labour hour index is close to linear and a constant aggregate production level in terms of labour hour index has been maintained.

b) Although there is scope for reduction of inventory costs by moving to a hybrid strategy, the curve is close to level production and is close to the efficient policy.

2. What problems experienced in 1979, are likely to recur in 1980?

There was a need to maintain flexible production plans because as production progressed and the management received more information about the demand, the plan was required to be changed from time to time. So, the management was not able to stick to its initial charted out production policy but had to review it regularly. This problem was bound to recur in 1980.

In 1979, the inventory level was more and if the same production policy is followed, the same problem would recur.

3. Look carefully at Kool King's use of capacity.

a) Can they meet the 1980 forecast?

In 1980, as per the forecasted demand, 281 weeks would be required for production (see exhibit 1). They will be able to meet this by either increasing the number of shifts by hiring extra workers for the extra number of weeks required or by implementing overtime. The analysis for the same has been shown subsequently. With the present resources and without overtime, meeting this forecast would not be possible.

b) Are they handling changeovers well? Support your answers with appropriate calculations.

In 1979, they had designed the plan in order to switch over four times. This was the efficient way of handling the changeover because it was sequenced in a way such that the demand of each product was met with minimum number of changeovers. However, during implementation, they had to changeover five times which led to a higher cost. In the designed plan, they required 8 days during the changeover, which was 10 days in the actual implemented plan along with an additional cost of $6000.

4. As an operations manager, establish an aggregate plan and describe operating policies to revise production schedules.

Answer

The unit of aggregation chosen is labour hour index. In order to produce the forecasted demand for 1980, extra number of days required is 54 weeks. On doing the cost analysis between choosing overtime or hiring extra workers and carrying out extra shifts, we find the best cost effective method.

We find that Cost of overtime