Planning to Meet a Surge in Demand

GROUP 2

1. Iskandar Muda 6. M. Akbar

2. Linda Alan 7. M. Hanafi S.
3. Lini Fefani 8. M. Yasser A.
4. Maria Uliarta P. 9. Nerissa Arviana
5. Martino S. 10. Novi Budiyanti
 SYNOPSIS –
GROWTH, THEN DECLINE: 1987-2006
 FoldRite Furniture Co. Founded in 1987 with
1st product Light strong folding banquet table
which design for school and church.
 Foldrite’s Major Goals:
 Continued innovation in both products and
processes.
 Customers responsiveness: Producing high
quality products that fulfilled market needs and
providing quick services.
 Lean manufacturing
 Retention of well trained, stable and productive
workforce with reduced turnover

o In 2006 they experiences with financial turmoil that majoring

caused by :
• high turnover workers among the same factory
• increase less experiences worker
• Lead time reached 6–8 weeks—up from a norm of 4 weeks
• On-time delivery dropped to 30%–40% from an average of over 90%
SYNOPSIS –
TRANSFORMATION BEGINS IN EARLY 2007

In early 2007, FoldRite was took over

by a group of private investor

 New strategic policies to achieve four major goals for the company:
1. Continued innovation in both products and processes
2. Customer responsiveness: producing high quality products
that fulfilled market needs, and providing quick service,
3. Lean manufacturing, and
4. Retention of a well-trained, stable, and productive workforce,
with reduced turnover.
SYNOPSIS –
TRANSFORMATION BEGINS IN EARLY 2007
 Supporting Actions :
 Reducing number or products in order to :
 Higher Quality of Products delivery at lower prices.
 More productivity to utilize manufacture resources.
 Consolidating manufacturing from four smaller facilities in to one.
 Discontinuing commodities products.
 Purchase new automations tools.
 Streamlining manufacturing processes and trimming product lines
reduced delivery times and improved margin.
 Reduce lead-time to a maximum of two weeks and established a two
day shipping policy for many products.
 Useful in recession period which many customers delayed purchasing till
last minutes.
 Maintain distributions very lean inventory
 Reduce probability of order cancellation
PROBLEM IDENTIFICATION
1. Forecast
the traditional surge in demand during summer months, and the
stocking requirements for CloudChair.
2. Financial Issues
credit was tight and the firm needed to run off of internally generated
cash flow or rely on expensive alternatives such as a cash draw from a
line of credit at a cost of 12% per annum
3. Hiring and Human Resource Issues
hiring a skilled worker would cost $1,500 in recruiting and
administrative expenses
4. Design Change
considering an option to change the design of the CloudChair slightly to
require one minute less in assembly—a task normally performed by
unskilled labor; cost the company a one-time charge of $15,000, and
would take about one month to implement

Therefor, The company needs to create aggregate production

plan for the next six months (March-August 2010)
PROBLEM IDENTIFICATION

Viable Options to meet demands :

1. Use of overtime
2. Increasing staff temporarily
3. Changing the design
4. Increasing the amount of inventory using a constant level of production
5. Sub-contracting
6. Combination of these options

The Company has to add a section to address :

 specific non-quantitative issues arising from the new plan
 how minimize expenses and risk in case the expected demand did not
materialize.
ANALYSIS
 The Aggregate Operation Plan
Concerned with setting production rates by products group or other broad categories
for the intermediate term (3 to 18 months)
Main purpose :
To specify the optimal combination of production rate, workforce level, and inventory
on hand
 Production Planning Strategies
1. Chase Strategy
Match the production rate to the order rate by hiring and laying-off
employee as the order rate varies.
2. Stable Workforce – Variable Work hours
Vary the output by varying the number of hours worked through flexible
work schedules or overtime
3. Level Strategy
Maintain a stable workforce working at a constant output rate.
Pure Strategy : when just one of these variables is used
Mixed Strategy : two or more variables are used
 Sub-contracting
The practice of assigning part of the obligation and task under a contract to another
party known as sub-contractor, it can be desireable to accommodate demand
fluctuations.
ANALYSIS – CHASE STRATEGY
ANALYSIS – CHASE STRATEGY
ANALYSIS – CHASE STRATEGY
ANALYSIS – CHASE STRATEGY
Cost (in US$)
Output Maret April Mei Juni Juli Agustus Total
Reguler
CloudChair 632,475 1,046,355 918,855 1,113,156 1,216,251 943,793 5,870,885
$11.73 - Raw Material 527,850 865,674 765,383 929,016 1,013,472 787,670 4,889,064
$2.33 - Labor 104,625 171,585 151,706 184,140 200,880 156,124 969,060
- Recruitment - 9,096 1,766 - 1,899 - 12,761
- Lay off n/a n/a n/a n/a n/a n/a -

AlStrong 1,612,170 1,779,853 1,710,033 2,152,893 1,934,604 1,776,373 10,965,925

NORMAL

$49.70 - Raw Material 1,341,900 1,476,090 1,416,450 1,789,200 1,610,280 1,478,575 9,112,495
$10.01 - Labor 270,270 297,297 285,285 360,360 324,324 297,798 1,835,334
- Recruitment - 6,466 8,298 3,333 - - 18,096
- Lay off n/a n/a n/a n/a n/a n/a -

GreenComfort 1,379,738 1,538,008 1,372,120 1,698,996 1,533,042 1,292,744 8,814,647

$50.24 - Raw Material 1,139,443 1,266,048 1,130,400 1,401,696 1,266,048 1,067,600 7,271,235
$10.60 - Labor 240,295 266,994 238,388 295,601 266,994 225,144 1,533,414
- Recruitment - 4,966 3,333 1,700 - - 9,998
- Lay off n/a n/a n/a n/a n/a n/a -
TOTAL 3,624,383 4,364,215 4,001,008 4,965,045 4,683,897 4,012,910 25,651,457
Design change - - - - - - -
CloudChair 647,475 1,033,885 908,174 1,100,339 1,202,130 932,870 5,824,874
$11.73 - Raw Material 527,850 865,674 765,383 929,016 1,013,472 787,670 4,889,064
$2.16 - Labor 104,625 159,580 141,092 171,257 186,826 145,201 908,581
- Recruitment - 8,631 1,700 67 1,833 - 12,229
- Design change cost 15,000 - - - - - 15,000
- Lay off n/a n/a n/a n/a n/a n/a -
DESIGN CHANGE

AlStrong 1,612,195 1,779,880 1,710,060 2,152,926 1,934,634 1,776,400 10,966,096

$49.70 - Raw Material 1,341,900 1,476,090 1,416,450 1,789,200 1,610,280 1,478,575 9,112,495
$10.01 - Labor 270,295 297,325 285,312 360,394 324,354 297,825 1,835,505
- Recruitment - 6,466 8,298 3,333 - - 18,096
- Lay off n/a n/a n/a n/a n/a n/a -

GreenComfort 1,379,628 1,537,886 1,372,011 1,698,861 1,532,920 1,292,641 8,813,948

$50.24 - Raw Material 1,139,443 1,266,048 1,130,400 1,401,696 1,266,048 1,067,600 7,271,235
$10.59 - Labor 240,185 266,872 238,279 295,466 266,872 225,041 1,532,715
- Recruitment - 4,966 3,333 1,700 - - 9,998
- Lay off n/a n/a n/a n/a n/a n/a -
TOTAL 2,991,823 3,317,766 3,082,071 3,851,787 3,467,554 3,069,041 25,604,917
ANALYSIS – SUBCONTRACT
Production Plan 3 : Constant Low Workforce - Subcontract
Maret April Mei Juni Juli Agustus TOTAL
Production requirement (units)
- Cloud Chair 45,000 73,800 65,250 79,200 86,400 67,150
- AlStrong 27,000 29,700 28,500 36,000 32,400 29,750
- Green Comfort 22,680 25,200 22,500 27,900 25,200 21,250
Total 94,680 128,700 116,250 143,100 144,000 118,150

Internal Capacity (units)

- Cloud Chair 45,000 45,000 45,000 45,000 45,000 45,000
- AlStrong 27,000 27,000 27,000 27,000 27,000 27,000
- Green Comfort 22,680 22,680 22,680 22,680 22,680 21,250
Total 94,680 94,680 94,680 94,680 94,680 94,680

Difference that must be subcontracted (units)

- Cloud Chair - 28,800 20,250 34,200 41,400 22,150
- AlStrong - 2,700 1,500 9,000 5,400 2,750
- Green Comfort - 2,520 (180) 5,220 2,520 -
Total - 34,020 21,570 48,420 49,320 24,900

Labor Cost from Internal capacity ($)

- Cloud Chair $104,850 $104,850 $104,850 $104,850 $104,850 $104,850
- Cloud Chair w/ Design Change $104,850 $97,200 $97,200 $97,200 $97,200 $97,200
- AlStrong $270,270 $270,270 $270,270 $270,270 $270,270 $270,270
- Green Comfort $240,181 $240,181 $240,181 $240,181 $240,181 $225,038
Total $720,151 $712,501 $712,501 $712,501 $712,501 $697,358
Total w/ Design Change $615,301 $607,651 $607,651 $607,651 $607,651 $592,508

Labor Cost from Subcontract ($)

- Cloud Chair $0 $80,525 $56,619 $95,623 $115,754 $61,931
- Cloud Chair w/ Design Change $0 $74,650 $52,488 $88,646 $107,309 $57,413
- AlStrong $0 $32,432 $18,018 $108,108 $64,865 $33,033
- Green Comfort $0 $32,024 ($2,287) $66,336 $32,024 $0
Total $0 $219,631 $124,838 $358,713 $319,952 $152,377
Total w/ Design Change $0 $139,106 $68,219 $263,090 $204,198 $90,446

Material Cost ($)

- Cloud Chair $527,850 $865,674 $765,383 $929,016 $1,013,472 $787,670
- AlStrong $1,341,900 $1,476,090 $1,416,450 $1,789,200 $1,610,280 $1,478,575
- Green Comfort $1,139,443 $1,266,048 $1,130,400 $1,401,696 $1,266,048 $1,067,600
Total $3,009,193 $3,607,812 $3,312,233 $4,119,912 $3,889,800 $3,333,845 $21,272,794

Total Cost $3,729,344 $4,539,944 $4,149,571 $5,191,127 $4,922,253 $4,183,579 $26,715,819

Total Cost w/ Design Change $3,624,494 $4,354,569 $3,988,102 $4,990,653 $4,701,649 $4,016,798 $25,676,266
ANALYSIS – SUBCONTRACT
Production Plan 4 : Constant Low Workforce - Overtime
Maret April Mei Juni Juli Agustus TOTAL
Production requirement (units)
- Cloud Chair 45,000 73,800 65,250 79,200 86,400 67,150
- AlStrong 27,000 29,700 28,500 36,000 32,400 29,750
- Green Comfort 22,680 25,200 22,500 27,900 25,200 21,250
Total 94,680 128,700 116,250 143,100 144,000 118,150

Working Hours Required (hour)

- Skilled 12,420 14,580 13,350 16,560 15,480 13,600
- Unskilled 31,320 38,160 34,950 43,380 41,220 35,190
- Unskilled w/ Design Change 31,320 36,900 33,750 42,120 39,780 34,000
Total 43,740 52,740 48,300 59,940 56,700 48,790
Total w/ Design Change 43,740 51,480 47,100 58,680 55,260 47,600

Working Hours Capacity (hour)

- Skilled 12,420 12,420 12,420 12,420 12,420 12,420
- Unskilled 31,320 31,320 31,320 31,320 31,320 31,320
Total 43,740 43,740 43,740 43,740 43,740 43,740

Overtime needed (hour)

- Skilled - 2,160 930 4,140 3,060 1,180
- Unskilled - 6,840 3,630 12,060 9,900 3,870
- Unskilled w/ Design Change - 5,580 2,430 10,800 8,460 2,680
Total - 9,000 4,560 16,200 12,960 5,050
Total w/ Design Change - 7,740 3,360 14,940 11,520 3,860

Normal Labor Cost ($)

- Skilled (133% x $19) 313,853 313,853 313,853 313,853 313,853 313,853
- Unskilled (110% x$9) 310,068 310,068 310,068 310,068 310,068 310,068
Total 623,921 623,921 623,921 623,921 623,921 623,921

Overtime Labor Cost ($)

- Skilled (200% x $19) - 82,080 35,340 157,320 116,280 44,840
- Unskilled (165% x $9) - 101,574 53,906 179,091 147,015 57,470
- Unskilled w/ Design Change - 82,863 36,086 160,380 125,631 39,798
Total - 183,654 89,246 336,411 263,295 102,310
Total w/ Design Change - 164,943 71,426 317,700 241,911 84,638

Material Cost ($)

- Cloud Chair $527,850 $865,674 $765,383 $929,016 $1,013,472 $787,670
- AlStrong $1,341,900 $1,476,090 $1,416,450 $1,789,200 $1,610,280 $1,478,575
- Green Comfort $1,139,443 $1,266,048 $1,130,400 $1,401,696 $1,266,048 $1,067,600
Total $3,009,193 $3,607,812 $3,312,233 $4,119,912 $3,889,800 $3,333,845 $21,272,794

Total Cost $3,633,115 $4,415,387 $4,025,399 $5,080,244 $4,777,016 $4,060,075 $25,991,238

Total Cost w/ Design Change $3,633,115 $4,396,676 $4,007,579 $5,061,533 $4,755,632 $4,042,404 $25,896,940
ANALYSIS

Normal USD 25,651,457

Design Change USD 25,604,917

1. Chase Strategy
Overtime N/A as the concept is
only using lay-off and
Subcontract hiring

Overtime USD 25,991,238

Normal
Sub-contract USD 26,715,819
2. Stable Workforce
Overtime USD 25,896,940
Design Change
Sub-contract USD 25,676,266

3. Level Strategy N/A (no inventory data available)

ANALYSIS
 From the three options, chase strategy with design plan is the lowest cost
however this will not in accordance with company’s objective
 Therefore we consider that Stable Workforce with design change and sub-
contractor is the most suitable strategy as cost is quite competitive among
other strategies & options moreover this strategy is also in line with
company’s objective.
 Other concerns by taking Stable Workforce with design change and sub-
contractor as the option are:
 FoldRite is able to fulfill all demand on time with good quality thus
will maintain the profitability as FoldRite gain trust from customer
 Stable Workforce hence no high turn over which cause work
instability
 Avoid employee reduction which cause stability of employees’ morale
and able to work more effective and efficient
 No additional cost for employee hire or termination
CONCLUSION
 FoldRite should deliver the order to consumer within two week
turn around time/lead time so no chance for competitor to take
advantage from the delay in delivery
 FoldRite has a tight financial condition, the chosen operational
source of fund is from bank loan with 12% interest per year or
from internal funding
 The cost of skilled worker would require $1,500 for recruitment
process and administration, while the recruitment process for
unskilled worker would spend $25 per person per hour plus 33%
benefit for supervisor who will be assigned to interview the
unskilled worker
 To replace the product design for CloudChair will reduce the lead
time for 1 minute in assembly whereby this work process is
usually performed by unskilled worker. This design change will
cost $15,000 (one-time charge) and take one month to be fully
implemented
RECOMMENDATION
 Based on analysis, we suggest FoldRite to make aggregate production
plan with Stable Workforce Strategy by design change and sub-contractor
due to competitive cost
 Although this strategy is not the lowest cost, Stable Workforce is in line
with one of company’s objective
 Other advantages of Stable Workforce with design change and sub-
contractor are:
 On-time fulfillment of all demand with high quality which create
profitability as FoldRite obtain trust from customer
 Low employee turn over
 Avoid employee reduction and support stability of employees’ morale
which impact to a more effective and efficient work activity
 No additional cost for employment process (hiring & termination
LESSON LEARNED
 Aggregated planning demand is required when designing the
product so that the production can be prepared with a cost
efficiency and effective in order to fulfill demand. The
productivity, quality and durability as well as on-time delivery
should be maintained
 In preparing an aggregated planning, a company need to do a
simulation for three strategies which includes chase strategy,
stable workforce and level strategy in order to achieve the
company’s goal and the expected cost of benefit
 From the aggregated production planning alternatives, we have to
chose the most advantageous and beneficial strategy with the
lowest cost level
LESSON LEARNED
 Besides all the above that have been mentioned, a company needs
to have understanding on:
 Strategy which will be implemented to meet or respond a high
demand in a short term
 Required flexibility to face a surge in demand and reduce risks

 Short term and long term analysis of the production planning

will be applied
 Besides those strategies, company can also choose sub-contractor
alternative as part of production function. Area of concern in
implementing this method is company has to control settlement
process and quality of goods which is produced by sub-contractor
company