Space Age Furniture Company - Term Paper Example

?Space Age Furniture Company Contents Introduction 3 Questions & Answers 4 References 14 Introduction In the given case study, we can find that the Space Age Furniture Company is into the business of manufacturing cabinets and tables which are used for holding portable televisions and microwave ovens. The tables are made according to various sizes and various characteristics. Although all the products follow the same operations for production and assembly functions, still two products, namely the Gemini TV stand and the Saturn microwave stand have a component (no. 3079) which needs machining on a particular lathe equipment applied for the making of that special part only. Ed Szewczak, an able and experienced machinist is in charge of this special lathe machine. Once the lathe gets started it can run on its won without being attended by someone. However it is necessary for the machinist to be present during the operations of any machine, including the lathe. Recently it has become essential for Ed to opt for overtime in order to finish producing the part 3079 on time. Due to the increased overload, Ed has become unhappy and this news has been communicated to the operations manager, Coral Snodgrass. Coral has been finding solutions to solve the overtime issue. Recently the company started using an MRP system which has helped it in reducing the inventories and improving the timing of the deliveries. There are two different sub-assemblies where the part 3079 is used and the lathe machines are used for producing both the sub-assemblies of Saturn and Gemini. Ed Szewczak is supposed to get a 50% additional payment for the overtime work. Thus the whole scenario has got certain advantages and certain disadvantages which when studied carefully provide a framework for the better functioning of the organization. Questions & Answers 1. What options are open to Coral to address this problem? Coral Snodgrass the operations manager was informed by the foreman of Ed that Ed was unhappy about consecutive overtimes. Hence Coral started wondering what could be the way-outs to solve this issue. In this context it can be said that usage of overtime is the easiest and quickest means to meet the demand that surpass the facility strength, but if it is being applied on a regular basis then it can be considered that there are serious problems within the operations of the firm. Overtime is expensive and the variation between a profitable week and a losing week is represented by overtime. If the demand is constantly surpassing the facility, then Coral can consider either adding more employees or adding more facilities. While taking this step, he should attempt to improve the efficiency of the plant by eliminating waste and dropping bottlenecks. Whenever measures are taken to remove overtime, either by increasing capacity or improving efficiency, it is necessary to understand the consequence of such a step on the employees. As in this case the overtime is not consistent, therefore extreme measures are not required; however Coral should be conscious of when the overtime is taking place which will help him to recognize the grounds for overtime. There is an alternative way-out that can be applied instead of adding more people to the organization which is outsourcing the jobs and getting things done away from the workplace. This would of course incur more expenses but it would reduce the costs of material consumption, overhead costs, labor costs, electricity consumption and other related expenditures. Therefore in simple terms it can be concluded that Coral can either add more people to the company or add more machinery to the organization or a third option is there where he can include an additional shift between the regular shifts. These steps would be helpful in reducing the workload on Ed. 2. How would reducing the minimum quantity of subassemblies help? The Saturn and Gemini tables are made up of part 3079 which is exclusively manufactured by the lathe machine and the lathe machine is not used for any other purpose. Also the part 3079 is used in two different subassemblies, namely no.435 and no.257 which are used for Gemini and Saturn respectively. It means a piece of part 3079 is used up in a single subassembly and a single subassembly is used up to prepare the final product. It should be kept in mind that part 3079 can be created in any amount since the machinery that makes the part is not used for other production purpose. But the subassemblies are created using the same machinery. In order to minimize the switch time, the firm decided to make a minimum of 1000 subassemblies at a time. This scenario would certainly help the company by- Engaging the lathe machine for lesser time and allowing the production of part 3079 to take place Reducing the unnecessary consumption of part 3079 in making the sub assembly. Reducing the warehouse cost which will be more if the quantity of sub assembly is more. Making the organization part of the production process much simpler and easy to handle. We can see that for the next six weeks, the orders procured for Gemini and Saturn are not more than 1000 in the 1st, 2nd, 5th and 6th week. However for the 3rd and 4th week the numbers crossed 1000 units (altogether). Therefore minimizing the sub assembly units helped the firm to maintain an average range of production that always moves around 1000 so that any ups and downs in any of the weeks can get adjusted efficiently. 3. What are the costs of carrying excess items in inventory at each stage? The cost of carrying excess inventory at each stage gives rise to two types of costs which can be classified as the Variable cost and the fixed cost. The cost which comes under the variable cost is the taxes, cost of money, obsolescence reserve, and insurance. The cost of money implies the interest charge an organization pays towards loan capital, or if the organization has no business credit, the interest charge that the money spent in inventory could have earned if it was invested somewhere else. Some political measures impose tax on stock. If that is applicable for any inventory storage location, then the tax is included as a part of the carrying cost. The insurance charge covers the substitute value of the stock in the occasion of a disastrous loss such as natural disaster or fire. Insurance premiums differ with the worth of the assets. Firms that are self-insured don’t require paying premium towards insurance, but they usually maintain a financial reserve recognized to cover any damage. The Obsolescence reserve refers to a monetary reserve meant for covering predicted stock losses such as shrinkage or write-offs. The Fixed cost elements are the cost of space, personnel and capital equipment. The cost of space implies the overhead cost needed to run a plant. There is noteworthy cost included in the maintenance and establishment of the facility when a firm owns a warehouse. The capital equipment deals with the fund invested in the support systems, including scales, automated material handling systems, fork lift trucks, racks, etc. Personnel involves the people who are primarily responsible for the handling and management of inventory such as stock keepers, cycle counters, inventory managers, inventory controllers, material handlers, etc.( Harding, 2004) 4. What is the trade-off between overtime costs and inventory costs? An aggregate planner always makes trade-offs within the capacity, backlog cost and the inventory cost. The plan is framed in such a manner that when one of them is increased the other two gets decreased. In this line we can say that there can be three situations- The inventory cost is lowered by increasing the capacity cost or delaying the availability of the products to the end user. The capacity cost is lowered by increasing the delivery to the customers and by lowering the inventory cost. The increase in inventory cost by a decrease in the delivery and decrease in the capacity cost. Thus reaching the most profitable mix is the ultimate challenge faced by the planner. In this scenario we can say that the key costs considered by a planner are capacity cost which includes overtime, subcontracts and regular time, Backlog or lost customers due to delay and the inventory cost. The planner generally goes for strategies that strike a balance between these costs. The trade-offs involved in the strategies include workforce size, capital investment, inventory, work hours, backlogs. Here we are concerned with the tradeoff between overtime cost and inventory cost. In this regard first of all we need to consider each cost and its benefits and limitations. For increased overtime costs the benefits can be reduced employment of capital cost, more production, quick delivery etc. the limitations could be overburdened workforce, uneven distribution of work due to lack of equipments, wastage of talent etc. For the increased inventory cost the benefits can be reduction in cost for bulk purchase, smooth flow of the process, timely delivery to the customers. The limitations can be over-production, wastage of materials, storage cost etc (Chopra, 2008, p. 261). 5. Which type(s) of production processing – job shop, batch, repetitive, or continuous – is the primary mode of operation? Explain. A job shop production process is defined as a low volume producer, within a high-diversity market segment. We can draw some examples like a producer who manufactures machines castings, grind shafts, sheet metal fabrications, produces modules or machines. The job shop process primary sells its specialization in making of products of its kind. Unfortunately, the modern process of manufacturing has started influencing the job shops approach (De Garmo & ET. Al., 2011, p.33). Batch production is referred to a fixed quantity of production. It may necessitate a lot of manpower, but templates and jigs are applied to aid the production process. Often the equipments can be easily altered to produce a batch of diverse products. Example of Batch-produced graphic products involves programs for a concert or play (BBC, n.d.). Repetitive Manufacturing process is applied when the production lines are of high volume in nature. Here the production order processing is not required for managing and the process requires extreme processing. Continuous production approach is a modernized approach that refers to the constant manufacturing of the end products. In a simpler term, this method operates for 24 hours per day and for 7 days per week without any break. We can consider the case of stock markets for example; these markets constantly keep a watch on the performance of the stocks and keep reporting to the investor on a daily manner. In the situation of the Space Age Furniture Company we can come to the conclusion that the production process follows the repetitive mode of operation. In the case it has been already mentioned that,” but all follow basically the same production and assembly operations” which means there is a repetition of work and the quantity produced are high in volume. Therefore the production process contradicts the Job shop process and the batch production system. Also it has no similarity with the Continuous production approach as the workers working in the company has got provisions for over-time which means there is a limited time of production and crossing that time limit would lead to overtime cost. Thus we can say that the firm follows a repetitive production system (Business 101 — The Basics, n.d.). 6. In what ways could management keep track of job status and location during production? The primary factor that provides information to the management regarding the job status and location is the inventory level. The raw materials and its usage help the management to know the status of those raw materials, whether those have been totally consumed or those are still getting processed. If the raw materials have been consumed entirely then it can be estimated from the finished products and from the volume of raw material consumed. If there is no difference then it can be concluded that the raw materials have been used wisely and in case of deviations it can be concluded that there was wastage in the process. In order to continue an optimal level of inventory the management needs to keep a check on the level of raw material in your inventory. For this purpose the inventories control methods such as Economic Order Quantity can be used to keep a check on the preferred level of stock. It is an inventory-related method that estimates the best possible order quantity that a firm should maintain in its inventory levels considering a specified a set of demand rate, cost of production, and other factors. This method helps to reduce the variable inventory prices. The formula is as follows- Where: S = Setup costs  D = Demand rate  P = Production cost  I = Interest rate  The management can also opt for the method of ABC. ABC is an accounting tool that determines the activities performed by a firm, and then allocates indirect costs to the goods. An activity based costing (ABC) structure identifies the link between activities , products and costs and through this association allocates indirect costs to the goods less randomly than the conventional methods. 7. Can you suggest any changes that might be beneficial to the company or add value for the customer? What are they? After going through the entire case it can be identified that the production process of the organization is facing various issues. The issues are discussed below- The operations process suffers from huge disparity. The master schedule shows that on the 1st, 2nd, 5th and 6th week the orders procured are less than 1000 which means that the sub assembly produced keeping in mind these weeks are excess in number. Therefore the total orders received for both Gemini and Saturn for these weeks are (600+300+400+400+400+300+600+300) = 3300 units while the sub assemblies manufactured are (1000*8) =8000. Therefore we can see that there is an excess of 4700 units of sub-assembly. Again for the 3rd and 4th week we can see that the orders exceeded 1000 which amounts to (700+400+500+600) = 2200 units while the sub-assembly produced are 4000 units. Therefore here also we find an excess of 1800 units. The table below shows the detailed analysis- week 1 Sub assembly 2 Sub assembly 3 Sub assembly 4 Sub assembly 5 Sub assembly 6 Sub assembly Gemini 600 1000 400 1000 700 1000 500 1000 400 1000 600 1000 Saturn 300 1000 400 1000 400 1000 600 1000 300 1000 300 1000 Total 900 2000 2000 1100 2000 1100 2000 700 2000 900 2000 Excess of 1100 units to be stored Excess of 1200 units to be stored Excess of 900 units Excess of 900 units 1300 excess Excess of 1100 units to be stored Thus the above analysis shows that each week the sub assembly units are being produced in excess and therefore the company incurs storage cost which is $.75 per unit per week. However this problem can be solved if the company follows a batch quantity production by forecasting the average number of orders can be received within a week. Also the employees of the firm face overtime which is not good for the company. This can lead to dissatisfaction among the workers and the talented and skilled employees can look for other jobs. Therefore a planned salary structure can be introduced which will include a excess amount of payment for doing overtime and also the employees should be allowed occasional leaves so that they can get the time to relax. The company can employ more workers into its operations. This will distribute the work pressure equally among all the workers. Improved machineries and better technologies can also provide long term solution to the problems of the firm. Innovative techniques should also be employed within the firm’s operations Hence we can finish off stating that the Space Age Furniture Company was suffering previously due to assembly line production system which used to produce standardized products in a repetitive manner. However with the introduction of MRP the company started recovering its position by the means of reduced wastage and quick delivery to the customers. Previously it used to manufacture goods and then it used to wait for the orders to be placed. The MRP helped them to plan their production system according to the orders received. Thus it helped in reducing the shipment cost as well as the storage cost. On the other hand it failed to tackle the production of the sub-assembly parts which are necessary for the production of the finished goods. Though the lathe machine could be used at any time as it doesn’t get utilized by any other process, still the production of part 3079 depended entirely on the lathe machine. Therefore the firm decided to produce a minimum 1000 units of the sub assembly part for each week and for each product. However this minimum production incurred expenses for the firm. Also one of the most efficient workers started getting displeased with the ever increasing work load. This case is an ideal example of the actual problems that take place in operations management and thus requires critical analysis throughout. It can be concluded from the case that technology and machineries should always be updated to maintain a smooth production flow. References 1. Harding, M.L. (2004) Calculating the Carrying Cost of Inventory. 89th Annual International Supply Management Conference. Retrieved from http://www.ism.ws 2. Chopra, S. (2008) Supply Chain Management. New Delhi : Pearson Education India. 3. De Garmo, E.P. & et. Al., (2011) DeGarmo's Materials and Processes in Manufacturing. USA : John Wiley & Sons. 4. BBC, (n.d.) Design & Technology. Retrieved from http://www.bbc.co.uk 5. Business 101 — The Basics, (n.d.) Production and Operations Management. Retrieved from http://faculty.piercecollege.edu Read More