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Production and Operations Management

MBA 5503 Production and Operations Management

Week 5 Case Exercises

NB. These can be submitted as part of the 20% Class Participation component of assessment but you need to submit both exercises.

1. Clinton Ltd produces to seasonal demand, with the forecast for the next 12 months as given below:’

Month

J

F

M

A

M

J

J

A

S

O

N

D

Demand

650

700

850

700

650

500

600

850

800

900

700

600

 The current labor force can produce 500 units per month.

 Each employee added can produce an additional 20 units per month and is paid $2000 per month.

 The cost of materials is $40 per unit.

 Overtime can be used at the usual premium of time and a half for labor up to a maximum of 10% per month.

 The inventory-carrying cost is $50 per unit per year.

 Changes in the production level cost $100 per unit due to hiring costs, etc.

 Assume 200 units of initial inventory.

 Extra capacity may be obtained by subcontracting at an additional cost of $20 per unit more than the cost of the firm producing them on regular time.

(a) Using the information on labor costs and material costs, calculate the unit cost of production for (i) regular time, (ii) overtime, and (iii) subcontracting. Which one is the most expensive?

(b) Calculate the costs of a Level planning strategy;

(c) Calculate the costs of a Chase planning strategy;

(d) Which strategy minimizes costs?

(e) Compare the lowest cost strategy with subcontracting and make recommendations.

2. A barbershop has been using a level workforce of barbers five days a week, Monday-Thursday and Saturday. The barbers have considerable idle time on all days except Thursday afternoons and all day Saturday, where customers have to wait for a very long time to have a haircut. Some of the customers eventually become frustrated and leave without having a haircut.

 What options would you recommend to this barbershop to improve its capacity planning?

 How would you analyze these options? What data should be collected and analyzed?