Preliminary Capacity and the Cost Reduction - Assignment Example

Case Study Case Study Question Although the sales team has achieved good progress based on the forecast consumption and resulting MDS in Part 1, it is clear that the market is still not well-supplied. The production levels can only satisfy certain areas of the market but some consumers cannot access the product. The sales team should optimize its output and supply chain so that production remains stable and flexible. It also appears that the sales team needs to improve its market research so that it can supply products to specific sections of the market at the least possible cost. At the moment, although output is relatively satisfactory, the sales team seems to lack a proper understanding of the market. Such understanding allows the company to deliver products to every consumer and retail outlet without incurring collateral losses and extra expenses. If I were the head of sales, I would focus my sales team’s efforts on P/N 1000 and in the month of July. This is because P/N 1000 has more bookings, on average, than P/N 1001. In terms of the month, July sales are generally higher than those of August. As a result, it represents the best value for the company. Question 2 Preliminary capacity is one of the most important aspects of production, and the scenario in part 2 shows why. In general, the preliminary capacity situation is better than expected, and the company seems to be underutilizing its production capacity. The revised MDS as well as the results of the rough capacity analysis show that the company has a higher production capacity than it exploits. In such scenarios, it is always better for a company to upscale its capacity so that it can align its forecasts with actual results. However, it is also worth noting that although the company seems prone to underproduction when its output is compared to its capacity, it is also encouraging that current output is already high enough when measured against industry averages. The fluctuation of weekly output, especially with P/N 1001, is also of concern because the company stands to gain more from consistent production. There should be a maximum difference of 50 units in every week, otherwise it will be not only difficult to sell but also to account for the extra units. The company can balance its output to stabilize turnover. Question 3 Preliminary capacity is a major indicator of current and future production capacity. However, with the inconsistencies shown in part 2, it is better for the firm to employ capacity planning tools and resource management software to ensure that its output compliments its capacity. Since resource management and capacity planning is both labor and capital intensive, the company should hire more workers and set aside extra funds to align its production methods with its strategic objectives. The likely result is that the weekly and monthly production numbers will be balanced in such a way that when taking orders, no products are left as surplus. The aim should be to sell all weekly orders to create room for the next week. If this is not possible, storage capacity can be expanded to accommodate surplus. Finally, since the company’s supply and demand components appear to be incongruent, it would be recommendable if the firm can intensify marketing efforts with the objective of marrying supply and demand. In the long term, production will stabilize and supply and demand will coexist more successfully, creating room for further expansion of capacity as market forces dictate. Question 4 If the holding cost is $0.50 per unit per week, the beginning inventory is 1500, and the safety stock is 500, it means that the company can incur holding costs of $3000 (1500 * 0.50 * 4 (weeks). Assuming the company clears both the beginning inventory and the safety stock (unlikely), and the order cost is $75 per order, the cost of sales will be 112,500 (75* 1500). The answer to the question concerning whether there is any benefit in increasing the order size to a multiple of 1500 depends on the length of time considered. In the short term, there is no benefit to expanding the order size because the company cannot meet all its orders. However, in the long term, if output is streamlined and stabilized, then the order size can increase substantially and it will be necessary to increase the order size. It is also worth noting that the safety stock may have to be considered, depending on prevailing conditions, and this will alter the dynamics of the order size. In conclusion, if the company is set up for the long haul, which seems to be the case, then increasing the order size to 1500 is a valid decision. Question 5 Based on the results of my MRP, the capacity requirement planning has saved Maxi-TV a substantial amount of funds, suggesting that capacity planning and performance regulation yield the best results when done with the right tools. Doing otherwise increases risk rather than minimising it. However, because the company does not know precisely the amount of capacity it has available and how it can fully exploit that capacity, it cannot make maximum use of its resources. The capacity requirements planning has enabled the firm to evaluate its sales and inventory records with the objective of understanding how many TVs it is actually selling compared to market demand, and manufacturing ability. At the moment, owing to its capacity planning requirements model, Maxi-TV can examine its past sales records for periods relative to the ones it is planning for (e.g., a fiscal quarter) and juxtapose them with recent sales and inventory records. This has allowed the company to know whether demand is growing or declining and has provided a platform for forecasting how much it can anticipate selling in the near term. Ultimately, this shows that although Maxi-TV is yet to make maximum use of CRP, it understands its importance. Question 6 Question 7 First, I will analyze all production records (e.g., individual sales or records on how many TV units the company manufactures, to determine whether current output levels are sufficient to meet forecasted future demand. If this is the case, I will make several changes for the benefit of the organization. If production cannot compliment estimated demand, I will adopt measures to optimize production, such as formulating and incentivizing objectives, hiring more workers, upgrading equipment and technology to latest and more efficient models, and offering overtime to workers. I will also plan Maxi-TV’s capacity demands using a top-down approach, familiarize myself with the company’s strategic goals, and evaluate what it is trying to accomplish. Another important action involves incorporating business data into the planning process. Using relevant software, I will integrate many types of time series data, so that I can adopt metrics that are also valued by Maxi-TV’s stakeholders. I will ensure that the company’s systems are operating to their capabilities. This will be augmented by the provision of services to fulfill capacity and service level contracts. Identifying and remedying deficiencies, fine-tuning to achieve capacity and performance optimization, and formulating goals and metrics are all vital in optimizing the situation in Part 4. Question 8 The cost reduction resulting from improvements in supply performance in Department B are high when the number of components, customer service, or demand variability are also high, or even when the finished products are more expensive in comparison to parts. In general, minimizing the lead time of the costlier parts yield more profits than doing the same for the cheaper parts. Also, the benefit of enhancing one of the supply metrics (lead time capacity, or service level) is greater when the value of the other metric is already higher (higher capacity or lower lead time). In this regard, the necessary actions include understanding the optimal capacity strategy when Department B is centralised, and then implementing the resultant decentralised equilibrium thresholds under various settings. The performance is likely to improve as the department’s portion of the company-wide capacity expense increases. More importantly, it will not be influenced by the number of the company’s suppliers. In the current situation, performance declines both in the number of suppliers and the department’s portion of capacity cost. These measures will ensure that both departments (A and B) have consistent and comparable capacities in all respects. Read More