Case: - FoldRite Furniture Co.

:
Planning to Meet a Surge in Demand
Case Characters:-

Jose Ramos - VP of FoldeRite Furniture Company

Martin Kelsey - Production manager

Alice Yung - CFO

Case facts about FoldeRite Furniture:-

 Established in 1987
 Throughout 1990s company grew organically.
 1999-2006 annual growth rate 3.5%. (More than market growth rate)
but one competitor grew by 6% annually.
 In 2006 company’s performance was very bad due to following
concluded reasons-
 Loss of productivity and yields caused by high labor turnover.
 Cost of raw materials was increasing
 Increasing proportion of unskilled labor.
 Continuous acquisition of small firms which distracted
management from their main issues.
 This thing also generated liquidity shortage
 These things resulted in reduced margins as well as increased lead
time from 4 to 6-8 weeks.

Then company decided to change management in 2007, which was a

recession, after that company did very well during recession.

What changes they made during recession:-

Major policies that company adopted after change in
management:-
 New CEO marshal Epstein from a major consumer goods company
was appointed.
 Manufacturing VP Jose Ramose was hired.
 Together they decided 4 major goals:-
 Continued innovation in both products and processes,
 Customer responsiveness: producing high quality products
that fulfilled market needs, and providing quick service,
 Lean manufacturing, and
 Retention of a well-trained, stable, and productive workforce,
with reduced turnover.
 Reduced no of products to provide high quality products.
Consequences:-
 All these helped in reduction of lead time.
 They had a $60M revenues and profitable despite recession.
FoldeRite’s Market:-
Revenue wise there market was:

 Hospitality:- 60%
 Governments, corporate offices, schools, colleges , clinics accounted
for :- 29%
 Individual Customers:- 9%

Demand for FoldRite products was seasonal. Folding chairs were in high
demand in the summer. Stackable chairs and folding tables were also
popular around the holidays.

Due to recession demand was very low in 2008.

They reduced no of products in 2010 and their main products were:-

 AlStrong, a folding table in which recycled aluminum replaced the

plastic top
 GreenComfort, a washable and stackable chair
 CloudChair, a folding chair that conformed to a wide variety of body
shapes and provided comfortable seating even for overweight people
(a growing market in most of the world).

Now next focus of FoldeRite furniture:-

 Customization of their products

 Providing high quality products
 Emphasizing on ecofriendly products

Manufacturing process:-

 The products used similar materials, which reduced the number of

suppliers and the procurement overhead, and increased quality.
 All production planning was highly centralized. The production
supervisor assigned workers to various tasks based on daily
production plans derived from the weekly plan.

Financial issues:-

 According to their CFO Yung credit situation is tight.

 They have to generate cash from costly resources as expensive as
12% p.a.

Human resources issues:-

 Hiring a skilled worker would cost $1500\

 Supervisor cost for these workers $25 per hour + 33% for benefits
 Training of unskilled worker takes 4 weeks during which full wages
are paid.
 Solution
The aggregate planning is carried out using the chase strategy, level strategy, subcontracting strategy
and the stable workforce strategy. The calculations are shown below

Wages (Skilled) = 19 + 33% of 19 = 25.27

Wages (Unskilled) = 9 + 10% of 9=9.9

Chase strategy
Calculation for CloudChair
Production requirement = Demand forecast
Production hours required (Unskilled) = Production Requirement * Time taken to produce one unit
(9/60)
Production hours required (Skilled) = Production Requirement * Time taken to produce one unit (2/60)
Hours per month per worker = Work days per month * Working hours in a day (10)
Works required (Skilled) = Production hours required (Skilled) / Hours per month per worker
Works required (Unskilled) = Production hours required (Unskilled) / Hours per month per worker
Hiring Cost (Unskilled) = New workers hired (Unskilled) * Hiring expense (66.5)
Straight Time Cost = (Production Hours Required (Skilled) * Wages (25.27)) +
(Production Hours Required (Unskilled) * Wages (9.9))
Lay off Cost is calculated from http://www.coworkforce.com/uibestimator/ as given in case study
(Colorado Unemployment Insurance Benefits).
Chase strategy - CloudChair
  Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Total
Production requirement 4480 15000 45000 73800 65250 79200 86400 67150 34000 27000 14400 12600 524280
Production hours required
(unskilled) 672 2250 6750 11070 9788 11880 12960 10073 5100 4050 2160 1890  
Production hours required
(skilled) 150 500 1500 2460 2175 2640 2880 2239 1134 900 480 420  
Work days per month 16 15 18 18 15 18 18 17 17 18 16 14 200
Hours per month per
worker 160 150 180 180 150 180 180 170 170 180 160 140  
Workers required (skilled) 1 4 9 14 15 15 16 14 7 5 3 3  
New workers hired (skilled) 0 0 0 0 0 0 0 0 0 0 0 0  
Workers required
(unskilled) 5 15 38 62 66 66 72 60 30 23 14 14  
Unskilled workers for
training 3 5 5 1 0 1 0 0 0 0 0 0  
New workers hired
(unskilled) 0 12 23 20 3 1 5 0 0 0 0 0  
Hiring costs (skilled) 0 0 0 0 0 0 0 0 0 0 0 0 0
Hiring costs (unskilled) 0 118.8 227.7 198 29.7 9.9 49.5 0 0 0 0 0 633.6
Workers laid off (skilled) 8 0 0 0 0 0 0 2 7 2 2 0  
Workers laid off (unskilled) 32 0 0 0 0 0 0 12 30 7 9 0  
Lay off cost (skilled) 100880 0 0 0 0 0 0 25116 87906 25220 25220 0 264342
Lay off cost (unskilled) 189696 0 0 0 0 0 0 71136 177840 41496 53352 0 533520
 10443. 171757. 151863.4 201081. 156302. 33513.
Straight time cost 3 34910 104730 2 5 184325 6 2 79146.18 62838 6 29324.4 1220234.76
                           
Opening work force TC1=
Skilled 9                       2018730.36
Opening work force
Unskilled 40                        

Calculation for AlStrong

Production requirement = Demand forecast
Production hours required (Unskilled) = Production Requirement * Time taken to produce one unit
(28/60)
Production hours required (Skilled) = Production Requirement * Time taken to produce one unit
(12.8/60)
Hours per month per worker = Work days per month * Working hours in a day (10)
Works required (Skilled) = Production hours required (Skilled) / Hours per month per worker
Works required (Unskilled) = Production hours required (Unskilled) / Hours per month per worker
Hiring Cost (Unskilled) = New workers hired (Unskilled) * Hiring expense (66.5)
Straight Time Cost = (Production Hours Required (Skilled) * Wages (25.27)) +
(Production Hours Required (Unskilled) * Wages (9.9))
Lay off Cost is calculated from http://www.coworkforce.com/uibestimator/ as given in case study
(Colorado Unemployment Insurance Benefits).
Chase strategy - AlStrong
  Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Total
Production requirement 18816 17850 27000 29700 28500 36000 32400 29750 25500 25200 20800 15400 306916
Production hours
required (unskilled) 8781 8330 12600 13860 13300 16800 15120 13884 11900 11760 9707 7187  
Production hours
required (skilled) 4015 3808 5760 6336 6080 7680 6912 6347 5440 5376 4438 3286  
Work days per month 16 15 18 18 15 18 18 17 17 18 16 14 200
Hours per month per
worker 160 150 180 180 150 180 180 170 170 180 160 140  
Workers required
(skilled) 26 26 32 36 41 43 39 38 32 30 28 24  
New workers hired
(skilled) 0 0 0 0 0 0 0 0 0 0 0 0  
Workers required
(unskilled) 55 56 70 77 89 94 84 82 70 66 61 52  
Unskilled workers for
training 0 6 4 5 2 0 0 0 0 0 0 0  
New workers hired
(unskilled) 0 7 12 8 9 3 0 0 0 0 0 0  
Hiring costs (skilled) 0 0 0 0 0 0 0 0 0 0 0 0 0
Hiring costs (unskilled) 0 465.5 798 532 598.5 199.5 0 0 0 0 0 0 2593.5
Workers laid off (skilled) 7 0 0 0 0 0 4 1 6 2 2 4  
Workers laid off
(unskilled) 17 0 0 0 0 0 10 2 12 4 5 9  
Lay off cost (skilled) 88270 0 0 0 0 0 50232 12558 75348 25220 25220 50440 327288
Lay off cost (unskilled) 100776 0 0 0 0 0 59280 11856 71136 23712 29640 53352 349752
Straight time cost 188391 178695 270295 297324.72 285311.6 360394 324354.2 297840.3 255278.8 252275.52 208248 154189 3072596.16
                           
Opening work force 33                       TC2=
Skilled 3752229.66
Opening work force
Unskilled 72                        

Calculation for GreenComfort

Production requirement = Demand forecast
Production hours required (Unskilled) = Production Requirement * Time taken to produce one unit
(31/60)
Production hours required (Skilled) = Production Requirement * Time taken to produce one unit (13/60)
Hours per month per worker = Work days per month * Working hours in a day (10)
Works required (Skilled) = Production hours required (Skilled) / Hours per month per worker
Works required (Unskilled) = Production hours required (Unskilled) / Hours per month per worker
Hiring Cost (Unskilled) = New workers hired (Unskilled) * Hiring expense (66.5)
Straight Time Cost = (Production Hours Required (Skilled) * Wages (25.27)) +
(Production Hours Required (Unskilled) * Wages (9.9))
Lay off Cost is calculated from http://www.coworkforce.com/uibestimator/ as given in case study
(Colorado Unemployment Insurance Benefits).

Chase strategy - GreenComfort

  Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Total
Production
requirement 16960 16530 22680 25200 22500 27900 25200 21250 21250 22500 17600 14000 253570
Production hours
required (unskilled) 8763 8541 11718 13020 11625 14415 13020 10980 10980 11625 9094 7234  
Production hours
required (skilled) 3675 3582 4914 5460 4875 6045 5460 4605 4605 4875 3814 3034  
Work days per
month 16 15 18 18 15 18 18 17 17 18 16 14 200
Hours per month
per worker 160 150 180 180 150 180 180 170 170 180 160 140  
Workers required
(skilled) 23 24 28 31 33 34 31 28 28 28 24 22  
New workers hired
(skilled) 0 0 0 0 0 0 0 0 0 0 0 0  
Workers required
(unskilled) 55 57 66 73 78 81 73 65 65 65 57 52  
Unskilled workers
for training 1 4 3 2 1 0 0 0 0 0 0 0  
New workers hired
(unskilled) 0 5 8 6 4 2 0 0 0 0 0 0  
Hiring costs
(skilled) 0 0 0 0 0 0 0 0 0 0 0 0 0
Hiring costs
(unskilled) 0 332.5 532 399 266 133 0 0 0 0 0 0 1662.5
Workers laid off
(skilled) 5 0 0 0 0 0 3 3 0 0 4 2  
Workers laid off
(unskilled) 11 0 0 0 0 0 8 8 0 0 8 5  
Lay off cost (skilled) 63050 0 0 0 0 0 37674 37674 0 0 50440 25220 214058
Lay off cost 65208 0 0 0 0 0 47424 47424 0 0 47424 29640 237120
(unskilled)
17962 17507 24018 266872. 238278.7 29546 266872. 225070. 18641 14828
Straight time cost 1 3 5 2 5 6 2 4 225070.35 238278.75 0 6 2685483.38
TC3=
                          3138323.88
Opening work
force Skilled 28                        
Opening work
force Unskilled 66                        

Level Strategy
Calculation for CloudChair
Production Hours Available (Skilled) = Production Days in Month * Work Hours per day (10) * Work
Force (Skilled) (9)
Production Hours Available (Unskilled) = Production Days in Month * Work Hours per day (10) * Work
Force (Unskilled) (40)
Ending Inventory = Beginning Inventory + Actual Production – Demand Forecast
Shortage Cost = Shortfall of units * Shortage Cost (50% of cost of product) (7.03)
Inventory Cost = Excess units * Inventory Cost (15% of cost of product) (2.109)
Straight Time Cost= (Production Hours Available (Skilled) * Wages (25.27)) +
(Production Hours Available (Unskilled) * Wages (9.9))
Safety stock is included in the demand forecast

Level strategy - CloudChair

  Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Total
Beginning
inventory 2240 40427 65427 68427 42627 17377 -13823 -52223 -74039 -62705 -41705 -13438  
Work days per
month 16 15 18 18 15 18 18 17 17 18 16 14 200
Production hours
available (skilled) 1440 1350 1620 1620 1350 1620 1620 1530 1530 1620 1440 1260  
Production hours
available
(unskilled) 6400 6000 7200 7200 6000 7200 7200 6800 6800 7200 6400 5600  

Actual production 42667 40000 48000 48000 40000 48000 48000 45334 45334 48000 42667 37334  

Demand forecast 4480 15000 45000 73800 65250 79200 86400 67150 34000 27000 14400 12600 524280

Ending inventory 40427 65427 68427 42627 17377 -13823 -52223 -74039 -62705 -41705 -13438 11296  
-
94469.
Shortage cost           -97175.7 -367128 -520494 -440816 -293186 1   1813268.99

Units excess 40427 65427 68427 42627 17377             11296  

85260.5 137985. 144312. 89900.3 36648.0 23823.2
Inventory cost 4 5 5 4 9 0 0 0 0 0 0 6 517930.329
112217. 112217. 112217. 112217. 105983. 105983. 112217. 99748.
Straight time cost 99748.8 93514.5 4 4 93514.5 4 4 1 1 4 8 87280.2 1246860
TC=
                          3578059.319
Opening work
force Skilled 9                        
Opening work
force Unskilled 40                        
 Shortage cost =
50% of cost of
product 7.03                        
Inventory cost =
15% of cost of
product 2.109                        

Calculation for AlStrong

Production Hours Available (Skilled) = Production Days in Month * Work Hours per day (10) * Work
Force (Skilled) (33)
Production Hours Available (Unskilled) = Production Days in Month * Work Hours per day (10) * Work
Force (Unskilled) (72)
Ending Inventory = Beginning Inventory + Actual Production – Demand Forecast
Shortage Cost = Shortfall of units * Shortage Cost (50% of cost of product) (29.855)
Inventory Cost = Excess units * Inventory Cost (15% of cost of product) (8.9565)
Straight Time Cost= (Production Hours Available (Skilled) * Wages (25.27)) +
(Production Hours Available (Unskilled) * Wages (9.9))
Safety stock is included in the demand forecast

Level strategy - AlStrong

  Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Total
Beginning
inventory 9408 15278 20571 21343 19415 14058 5830 1202 -2319 -1590 982 4868  
Work days per
month 16 15 18 18 15 18 18 17 17 18 16 14 200
Production hours
available (skilled) 5280 4950 5940 5940 4950 5940 5940 5610 5610 5940 5280 4620  
Production hours
available
(unskilled) 11520 10800 12960 12960 10800 12960 12960 12240 12240 12960 11520 10080  

Actual production 24686 23143 27772 27772 23143 27772 27772 26229 26229 27772 24686 21600  

Demand forecast 18816 17850 27000 29700 28500 36000 32400 29750 25500 25200 20800 15400 306916

Ending inventory 15278 20571 21343 19415 14058 5830 1202 -2319 -1590 982 4868 11068  

Shortage cost               -69233.7 -47469.5       116703.195

Units excess 15278 20571 21343 19415 14058 5830 1202     982 4868 11068  
136837. 184244. 191158. 173890. 125910. 10765.7 8795.28 43600.2 99130.5
Inventory cost 4 2 6 4 5 52216.4 1 0 0 3 4 4 1026549.248
247473. 232006. 278407. 278407. 232006. 278407. 278407. 262940. 262940. 278407. 247473. 216539.
Straight time cost 6 5 8 8 5 8 8 7 7 8 6 4 3093420
TC=
                          4236672.443

Opening work 33                        
force Skilled
Opening work
force Unskilled 72                        
Shortage cost =
50% of cost of
product 29.855                        
Inventory cost =
15% of cost of
product 8.9565                        

Calculation for GreenComfort

Production Hours Available (Skilled) = Production Days in Month * Work Hours per day (10) * Work
Force (Skilled) (28)
Production Hours Available (Unskilled) = Production Days in Month * Work Hours per day (10) * Work
Force (Unskilled) (66)
Ending Inventory = Beginning Inventory + Actual Production – Demand Forecast
Shortage Cost = Shortfall of units * Shortage Cost (50% of cost of product) (30.415)
Inventory Cost = Excess units * Inventory Cost (15% of cost of product) (9.1245)
Straight Time Cost= (Production Hours Available (Skilled) * Wages (25.27)) +
(Production Hours Available (Unskilled) * Wages (9.9))
Safety stock is included in the demand forecast

Level strategy - GreenComfort

  Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Total
Beginning
inventory 8480 11959 14591 14905 12699 9361 4455 2249 2716 3183 3677 6516  
Work days per
month 16 15 18 18 15 18 18 17 17 18 16 14 200
Production
hours available
(skilled) 4480 4200 5040 5040 4200 5040 5040 4760 4760 5040 4480 3920  
Production
hours available
(unskilled) 10560 9900 11880 11880 9900 11880 11880 11220 11220 11880 10560 9240  
Actual
production 20439 19162 22994 22994 19162 22994 22994 21717 21717 22994 20439 17884  
Demand
forecast 16960 16530 22680 25200 22500 27900 25200 21250 21250 22500 17600 14000 253570
Ending
inventory 11959 14591 14905 12699 9361 4455 2249 2716 3183 3677 6516 10400  

Shortage cost                         0
 Units excess 11959 14591 14905 12699 9361 4455 2249 2716 3183 3677 6516 10400  
109119. 133135. 136000. 85414.4 40649.6 24782.1 29043.2 33550.7 59455.2
Inventory cost 9 6 7 115872 4 5 20521 4 8 9 4 94894.8 882439.5195
Straight time 217753. 244972. 244972. 244972. 244972. 231363. 231363. 244972. 217753. 190534.
cost 6 204144 8 8 204144 8 8 2 2 8 6 4 2721920
TC=
                          3604359.52
Opening work
force Skilled 28                        
Opening work
force Unskilled 66                        
Shortage cost
= 50% of cost
of product 30.415                        
Inventory cost
= 15% of cost
of product 9.1245                        

Subcontracting strategy
Subcontracting cost (unskilled) = 120% of wages = 11.88
Subcontracting cost (skilled) = 120% of wages = 30.324
Calculation for CloudChair
Production Hours Available (Skilled) = Production Days in Month * Work Hours per day (10) * Work
Force (Skilled) (9)
Production Hours Available (Unskilled) = Production Days in Month * Work Hours per day (10) * Work
Force (Unskilled) (40)
Ending Inventory = Beginning Inventory + Actual Production – Demand Forecast
Units Subcontracted = Shortfall in production
Subcontracting Cost = Units Subcontracted * Time taken for production of one unit * subcontracting
charges
Straight Time Cost= (Production Hours Available (Skilled) * Wages (25.27)) +
(Production Hours Available (Unskilled) * Wages (9.9))
Subcontracting – CloudChair

  Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Total

Beginning inventory 2240 40427 65427 68427 42627 17377 -13823 -52223 -74039 -62705 -41705 -13438  
Production
requirement 4480 15000 45000 73800 65250 79200 86400 67150 34000 27000 14400 12600 524280
Work days per month 16 15 18 18 15 18 18 17 17 18 16 14 200
Production hours
available (skilled) 1440 1350 1620 1620 1350 1620 1620 1530 1530 1620 1440 1260  
Production hours
available (unskilled) 6400 6000 7200 7200 6000 7200 7200 6800 6800 7200 6400 5600  

Actual production 42667 40000 48000 48000 40000 48000 48000 45334 45334 48000 42667 37334  

Ending inventory 40427 65427 68427 42627 17377 -13823 -52223 -74039 -62705 -41705 -13438 11296  

Units subcontracted           13823 52223 74039 62705 41705 13438    

37529.6
Subcontracting cost 0 0 0 0 0 38604.87 145848.4 206776.1 175122.5 116473.7 5 0 720355.2824
99748. 93514. 112217. 112217. 93514. 112217. 112217. 105983. 105983. 112217. 87280.
Straight time cost 8 5 4 4 5 4 4 1 1 4 99748.8 2 1246860
TC=
                          1967215.282
Opening work force
Skilled 9                        
Opening work force
Unskilled 40                        

Calculation for AlStrong

Production Hours Available (Skilled) = Production Days in Month * Work Hours per day (10) * Work
Force (Skilled) (33)
Production Hours Available (Unskilled) = Production Days in Month * Work Hours per day (10) * Work
Force (Unskilled) (72)
Ending Inventory = Beginning Inventory + Actual Production – Demand Forecast
Units Subcontracted = Shortfall in production
Subcontracting Cost = Units Subcontracted * Time taken for production of one unit * subcontracting
charges
Straight Time Cost= (Production Hours Available (Skilled) * Wages (25.27)) +
(Production Hours Available (Unskilled) * Wages (9.9))
Subcontracting -AlStrong

  Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Total
Beginning
inventory 9408 15278 20571 21343 19415 14058 5830 1202 -2319 -1590 982 4868  
Production 18816 17850 27000 29700 28500 36000 32400 29750 25500 25200 20800 15400 306916
requirement
Work days per
month 16 15 18 18 15 18 18 17 17 18 16 14 200
Production hours
available (skilled) 5280 4950 5940 5940 4950 5940 5940 5610 5610 5940 5280 4620  
Production hours
available
(unskilled) 11520 10800 12960 12960 10800 12960 12960 12240 12240 12960 11520 10080  
Actual
production 24686 23143 27772 27772 23143 27772 27772 26229 26229 27772 24686 21600  

Ending inventory 15278 20571 21343 19415 14058 5830 1202 -2319 -1590 982 4868 11068  
Units
subcontracted               2319 1590        
Subcontracting 27858.43 19100.86 46959.286
cost 0 0 0 0 0 0 0 0 0 0
247473. 232006. 278407. 278407. 232006. 278407. 278407. 262940. 262940. 278407. 247473. 216539.
Straight time cost 6 5 8 8 5 8 8 7 7 8 6 4 3093420
TC=
                          3140379.286
Opening work
force Skilled 33                        
Opening work
force Unskilled 72                        

Calculation for GreenComfort

Production Hours Available (Skilled) = Production Days in Month * Work Hours per day (10) * Work
Force (Skilled) (28)
Production Hours Available (Unskilled) = Production Days in Month * Work Hours per day (10) * Work
Force (Unskilled) (66)
Ending Inventory = Beginning Inventory + Actual Production – Demand Forecast
Units Subcontracted = Shortfall in production
Subcontracting Cost = Units Subcontracted * Time taken for production of one unit * subcontracting
charges
Straight Time Cost= (Production Hours Available (Skilled) * Wages (25.27)) +
(Production Hours Available (Unskilled) * Wages (9.9))
 Subcontracting – GreenComfort

  Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Total
Beginning
inventory 8480 11959 14591 14905 12699 9361 4455 2249 2716 3183 3677 6516  
Production
requirement 16960 16530 22680 25200 22500 27900 25200 21250 21250 22500 17600 14000 253570
Work days per
month 16 15 18 18 15 18 18 17 17 18 16 14 200
Production hours
available (skilled) 4480 4200 5040 5040 4200 5040 5040 4760 4760 5040 4480 3920  
Production hours
available
(unskilled) 10560 9900 11880 11880 9900 11880 11880 11220 11220 11880 10560 9240  

Actual production 20439 19162 22994 22994 19162 22994 22994 21717 21717 22994 20439 17884  

Ending inventory 11959 14591 14905 12699 9361 4455 2249 2716 3183 3677 6516 10400  
Units
subcontracted 0 0 0 0 0 0 0 0 0 0 0 0  
Subcontracting
cost 0 0 0 0 0 0 0 0 0 0 0 0 0
217753. 20414 244972. 244972. 20414 244972. 244972. 231363. 231363. 244972. 217753. 190534.
Straight time cost 6 4 8 8 4 8 8 2 2 8 6 4 2721920

                          TC= 2721920
Opening work
force Skilled 28                        
Opening work
force Unskilled 66                        

Stable Workforce strategy

Calculation for CloudChair
Production Hours Available (Skilled) = Production Days in Month * Work Hours per day (10) * Work
Force (Skilled) (9)
Production Hours Available (Unskilled) = Production Days in Month * Work Hours per day (10) * Work
Force (Unskilled) (40)
Ending Inventory = Beginning Inventory + Actual Production – Demand Forecast
 Overtime Cost = Shortfall * ((1.5*Wages (Skilled) (25.27) *(Labour time (Skilled))) +
(1.5*Wages (Unskilled) (9.9) *(Labour time (Unskilled)))
Inventory Cost = Excess Stock* Inventory Cost (15% of cost of product) (2.109)
Straight Time Cost= (Production Hours Available (Skilled) * Wages (25.27)) +
(Production Hours Available (Unskilled) * Wages (9.9))

Stable workforce strategy - CloudChair

  Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Total
Beginning
inventory 2240 40427 65427 68427 42627 17377 -13823 -52223 -74039 -62705 -41705 -13438  
Work days per
month 16 15 18 18 15 18 18 17 17 18 16 14 200
Production hours
available (skilled) 1440 1350 1620 1620 1350 1620 1620 1530 1530 1620 1440 1260  
Production hours
available
(unskilled) 6400 6000 7200 7200 6000 7200 7200 6800 6800 7200 6400 5600  
Regular shift
production 42667 40000 48000 48000 40000 48000 48000 45334 45334 48000 42667 37334  

Demand forecast 4480 15000 45000 73800 65250 79200 86400 67150 34000 27000 14400 12600 524280
Shortfall after
normal shift
production 40427 65427 68427 42627 17377 -13823 -52223 -74039 -62705 -41705 -13438 11296  
Overtime
production in units           13823 52223 74039 62705 41705 13438    
48256.0 182310. 258470. 218903. 145592. 46912.0
Overtime cost 0 0 0 0 0 9 5 1 2 2 6 0 900444.103

Excess stock 40427 65427 68427 42627 17377             11296  

85260.5 137985. 144312. 89900.3 36648.0 23823.2
Inventory cost 4 5 5 4 9 0 0 0 0 0 0 6 517930.329
112217. 112217. 112217. 112217. 105983. 105983. 112217.
Straight time cost 99748.8 93514.5 4 4 93514.5 4 4 1 1 4 99748.8 87280.2 1246860
TC=
2665234.43
                          2
Opening work
force Skilled 9                        
Opening work
force Unskilled 40                        
Inventory cost =
15% of cost of
product 2.109                        
 Calculation for AlStrong
Production Hours Available (Skilled) = Production Days in Month * Work Hours per day (10) * Work
Force (Skilled) (33)
Production Hours Available (Unskilled) = Production Days in Month * Work Hours per day (10) * Work
Force (Unskilled) (72)
Ending Inventory = Beginning Inventory + Actual Production – Demand Forecast
Overtime Cost = Shortfall * ((1.5*Wages (Skilled) (25.27) *(Labour time (Skilled))) +
(1.5*Wages (Unskilled) (9.9) *(Labour time (Unskilled)))
Inventory Cost = Excess Stock* Inventory Cost (15% of cost of product) (2.109)
Straight Time Cost= (Production Hours Available (Skilled) * Wages (25.27)) +
(Production Hours Available (Unskilled) * Wages (9.9))
Stable workforce strategy - AlStrong

  Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Total
Beginning
inventory 9408 15278 20571 21343 19415 14058 5830 1202 -2319 -1590 982 4868  
Work days per
month 16 15 18 18 15 18 18 17 17 18 16 14 200
Production hours
available (skilled) 5280 4950 5940 5940 4950 5940 5940 5610 5610 5940 5280 4620  
Production hours
available
(unskilled) 11520 10800 12960 12960 10800 12960 12960 12240 12240 12960 11520 10080  
Regular shift
production 24686 23143 27772 27772 23143 27772 27772 26229 26229 27772 24686 21600  

Demand forecast 18816 17850 27000 29700 28500 36000 32400 29750 25500 25200 20800 15400 306916
Shortfall after
normal shift
production 15278 20571 21343 19415 14058 5830 1202 -2319 -1590 982 4868 11068  
Overtime
production in
units               2319 1590        
34823.0 23876.0
Overtime cost 0 0 0 0 0 0 0 3 8 0 0 0 58699.1076

Excess stock 15278 20571 21343 19415 14058 5830 1202     982 4868 11068  
136837. 184244. 191158. 173890. 125910. 10765.7 8795.28 43600.2 99130.5
Inventory cost 4 2 6 4 5 52216.4 1 0 0 3 4 4 1026549.248
247473. 232006. 278407. 278407. 232006. 278407. 278407. 262940. 262940. 278407. 247473. 216539.
Straight time cost 6 5 8 8 5 8 8 7 7 8 6 4 3093420
TC=
                          4178668.356
Opening work
force Skilled 33                        
Opening work
force Unskilled 72                        
Inventory cost =
15% of cost of
product 8.9565                        
 Calculation for GreenComfort
Production Hours Available (Skilled) = Production Days in Month * Work Hours per day (10) * Work
Force (Skilled) (28)
Production Hours Available (Unskilled) = Production Days in Month * Work Hours per day (10) * Work
Force (Unskilled) (66)
Ending Inventory = Beginning Inventory + Actual Production – Demand Forecast
Overtime Cost = Shortfall * ((1.5*Wages (Skilled) (25.27) *(Labour time (Skilled))) +
(1.5*Wages (Unskilled) (9.9) *(Labour time (Unskilled)))
Inventory Cost = Excess Stock* Inventory Cost (15% of cost of product) (2.109)
Straight Time Cost= (Production Hours Available (Skilled) * Wages (25.27)) +
(Production Hours Available (Unskilled) * Wages (9.9))
Stable workforce strategy – GreenComfort

  Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Total
Beginning
inventory 8480 11959 14591 14905 12699 9361 4455 2249 2716 3183 3677 6516  
Work days per
month 16 15 18 18 15 18 18 17 17 18 16 14 200
Production
hours available
(skilled) 4480 4200 5040 5040 4200 5040 5040 4760 4760 5040 4480 3920  
Production
hours available
(unskilled) 10560 9900 11880 11880 9900 11880 11880 11220 11220 11880 10560 9240  
Regular shift
production 20439 19162 22994 22994 19162 22994 22994 21717 21717 22994 20439 17884  
Demand
forecast 16960 16530 22680 25200 22500 27900 25200 21250 21250 22500 17600 14000 253570
Shortfall after
normal shift
production 11959 14591 14905 12699 9361 4455 2249 2716 3183 3677 6516 10400  
Overtime
production in
units                          

Overtime cost                         0

Excess stock 11959 14591 14905 12699 9361 4455 2249 2716 3183 3677 6516 10400  
109119. 133135. 136000. 85414.4 40649.6 24782.1 29043.2 33550.7 59455.2
Inventory cost 9 6 7 115872 4 5 20521 4 8 9 4 94894.8 882439.5195
Straight time 217753. 244972. 244972. 244972. 244972. 231363. 231363. 244972. 217753. 190534.
cost 6 204144 8 8 204144 8 8 2 2 8 6 4 2721920
TC=
                          3604359.52
Opening work
force Skilled 28                        
Opening work
force Unskilled 66                        
Inventory cost =
15% of cost of
product 9.1245                        
Recommendations
Comparison of the four strategies

Plan1: Chase Plan2: Level Plan3: Sub- Plan4: Stable

Costs (in $) strategy strategy contracting workforce strategy
Hiring 4889.6      
Layoff 1926080      
Excess inventory   2426919.097   2426919.097
Shortage   1929972.185    
Subcontracting     767314.5684  
Overtime       959143.2106
Regular
production 6978314.3 7062200 7062200 7062200
TOTAL 8,909,283.9 11,419,091.28 7,829,514.568 10,448,262.31

The table above summarizes the total costs that will be incurred using the different strategies. Going
through the above, we suggest that the FoldRite Company go with the Chase strategy for production.
Below we discuss the advantages of using the chase strategy, why it is better compared to the other
strategies and how it meets the company objectives.

The chase strategy is profitable. From the income statement the cost of labour that is estimated for
2010 is $7,345,000. By using this strategy the labour cost would be around $6,978,314.3. Hence the net
income will increase by $366,685.7.

The main concern in using the Chase strategy is that it will impact the labour morale negatively. To
reduce this impact, we have suggested that the company should not hire new skilled labourers; instead
they should train unskilled labourers for the purpose. This actually encourages the labourers. They get a
value addition to their profile. This is also less expensive from the company’s point of view. Also, the
number of labourers laid off is minimal. The unemployment insurance that will be provided on laying off
a labourer is the maximum the labourer can claim for. Hence, this strategy will affect labour morale to a
small extent. It will also increase the quality of the work as there will be a healthy competition amongst
the labourers to deliver their best so that they can be retained.

The sales needs will be met. The company produces enough to meet the demand forecasted. Also
marketing will not be negatively impacted by this strategy. The customer demands will be always met
and hence there is not the threat of losing customers.

Right now, the company has made GreenComfort and AlStrong eco-friendly. They could also extend the
concept to CloudChair. As they are estimating that CloudChair will grow they could also make it more
comfortable to use indoors. The Chase strategy is also useful for this new product development
purposes.

Looking into the table above, one may argue that subcontracting strategy should be used. But while
calculating the cost incurred the holding cost of inventory has not been added. If we go by the
subcontracting strategy, the holding cost of inventory will be $2,426,919. This included, the
subcontracting strategy will cost a total of $10,256,433.66. The inventory cost is also a matter of concern
to the company as the subcontracting strategy leads to more than the two week inventory they wish to
carry. Also using the subcontracting strategy the inventory falls below the minimum for protracted
periods of time. On the other hand, even if we include the beginning inventory and account for the 80%
productivity of new labourers in the Chase strategy it will be cheaper than the subcontracting strategy.

As the other two strategies cost much more than the Chase strategy, we suggest that the company use
the Chase strategy.

Effects on the four major objectives for the company:

1. Continued innovation in both products and processes. As the Chase strategy is the most effective
strategy it would leave the company enough resources to spend on the innovations.

2. Customer responsiveness: producing high quality products that fulfilled market needs, and providing
quick service. The Chase strategy uses enough labourers to produce the required amount of products.
The quality will not be compromised on as the labourers do not need to work overtime. The market
needs will always be met.

3. Lean manufacturing. This goal is also met by the Chase strategy. To reduce the expenses other than
those that add value to the customer, this strategy sheds extra workforce. As hiring new skilled
labourers is expensive the company hires unskilled labourers instead and trains them.

4. Retention of a well-trained, stable, and productive workforce, with reduced turnover. The chase
strategy that we use encourages the workers to perform well. Those who do, are recognized and
trained. This gives them a satisfaction. And again, while laying off, the best hands are retained. Turnover
is also reduced as the inventory is minimal.

In case the expected demand does not materialize, the expenses will be low. As in this strategy there is
not lot of inventory to be held, as compared to the other strategies. Also, labourers can be laid off.