Harvard Business Scllco~

9-689-082

Rev. AugustlS, 199t

Chaircraft Corporation, 1988

orporation manufactured upholstered chairs, platform rockers, and 'onwide through its sales force to 10,000 dealers .. Sales volume for 1988 was $60 million, on. 'dent, was anticipating annual sales growth of 10% to 20%. Located in a .small southern community, e manufacturing operations of Chaircra.ft employed 700 factory

wo.rkers under the supervisi rank Johnson, the company's manufacturing manager,

In January l'mlolfttu!

Johnson into her office:

executive committee meeting, Acton was angry. She called

want you to get upset about the remarks '01\5 at yesterday's meeting. but 1 expect n seriously. Manufacturing operations are . sales growth. Declining profits are

uf'lIl£hltr"iJlg process that is almost out of you gave us yesterday, frame e installation of new equipment. lIhl''ianlcer are almost double last year's, mateIia1variances, up as well, and rework costs are up 20%. Not only that, but Slieila 1 bent my ear for an hour last week about

dealers' complaints regarding 'top it off, there was an

$18,000 increase in finished g Bhip~osts. We shouldn't be

spending a penny on ship finished '~, but now we're

IIIIs!rsticn by JlIM Shlcn spending over $30,000. W~v nt a Lot If time during the past

two years reorganizing and training our sales ree, t the effort is

beginning to payoff, it seems we haven't focused en· , Something

has to be done,

I know we have some problems, Sarah, but things proportion at the meeting, The frame parts and assembly -

J chnson replied:

1 Sheila Gibson was a regional sales manager.

This t:iJM U7dS pr~ lIS the basis for class discussiDnmfher than to iIlustro.u either e{fectWe or '

ailmmiBtrIlttve !dtuatiDn,

Copyright Cll989 by th(! President and FellowlI of Harvard College, To order copie:l or request permission to reproduce materials, call 1-800-545-7685, write Harvard Business School Publishing. Boston. MA 02163, or go to nttp:I Iwww.hbep.harvard.edu. No part of this publication may be reproduce::l, stored in a retrieval sy&tem, used in a apreadsheet, or IraIlBmitted in any form or by any means-electronic, mechanical, pbotocopymg, recording. or otherwise-without the permission of Harvard Businesa School.

l

Chalrcnlft COIlJIlnIdOft. 1988

biggeSt difficulties, and I'll be roncentmting on tlwse areaa c:a~Y during the next few mnntbet, T also hired an intern from the University of VIrginia to help me figure

out how the computer2 can help operal:im1s. He starts ihis week.

WflrV gomg to _d w make SOJ¥tP big changes in operations, Frank, and fast" '111 be in Chicago all next week, but I'll expect an update when J retum."

Manufacturing Operations

materials; Chait~ft main elements! (primarily springs

egrated manufacturer. From raw lumber, cotton, fabric, and other upholstered chairs. An upholstered chair is composed of three e (an assembly of a dozen or more wooden parts); (2) upholstery n, foam" her, or foam plastid; and (3) cover fabric,

Chaircraft's manufacturing process were lumber preparlltion,

. (E . 1 shows the layout of Chairaaft's plant.) The lumber

ro . dry lw:nber to the frame shop, and the frame shop in

the assembly department. The company produced seven

Lumbar Preparation

were constructed of solid southern

!-y.~!»!t! tPy.'E.i;I.e\'.\\1 ~f}.j .i»l\\W ..... ~. ~ ~ P\WE~

Lumber for the company in three principal grad grade, number-one common, and number-two

OOll'tD\on. Chrurcraft utilized lumber in-five thickne<!5Q<ol·,1. inl'll-. t . , 'l- mcl!.., on '",,;~M., =~ 'b~,* •.

About 75% of the lumber used by Chaircraft was either 1 in Lumber cost about $0.45

per board-foot+ , . )w-

When it was received, lumber was stacked. in an au £ storage to fonn lumber loads5

of the same grade and thickness. As the boards were stacked, . . separated by slats

&0 air could circulate. Typically, a six-month supply of raw lumber w outdoor storage

area.

Lumber drying. Before lumber could be used in the factory, it bad operation (located just outside the factory) was segmented into three areas: drying, and (3) covered dry storage.

Lumber loads were moved through the lumber drying area on wheeled platforms ri " n

steel tracks. To minimize time spent stocking empty kilns, full kiln-loads (80,000 boar - ) of

lumber were assembled before entering the kilns. Load drying times varied considerably, d

I

"

2 Olaircraft owned II. few personal computers fuat were used to run payroll, billing, accounts receivable, and

other conventional accounting appHcati0tL9.

3 A line was composed of numerous styles of one generic type of upholstered chair. 4 A boerd-footequala 11" x 12" x 1"0£ lumber.

5 A lumber load is a Illack of boards forming a cube roughly 12' in each dimension and containing about 2.0,000 board-feet

2

1

~ lumber species~ lumber grade, l~ber .moisture content, and the season of the year. Exact drying time was not predictable; average drying time per load was one week.

I

were not always utilized at a max1m1m\ JeveL Although each af l"hetkrnc kiln:; had a oughly 80~ board-feet and predry and dry storage each had a capacity of 250,000 extent af kihl ~ge often. d~pended on th.e availability of space in the dry lumber area ber after drying. Space m the dry storage area was often insufficient because the al~ys ~ ~ lumber promptly. The factory's prompt use of dried lumber nux of SJZe, species, and grade of lumber in dry storage, and the extent to whlch it requirements, Because of prohibitive extra handling costs, no oilier areas

·stomge.

The rDugh mill ..... ' ...... ftn .. n+ brought into the width, and lengthl

'Width, and leDgm,

prorluction line that (1) cut pieces, and (3) sorted the boards andthicknesses,

lumber tovmake.fr.mte..PjITbL.The_tw0..<areas~m.the"fn=.'U~ The fTameshop employed 54 workers on the day shift and 32

n

The frame shO]'. used. were rough mill and parts workers on the night

w as foHows~ for the Brstcut, boards were d widths. After the first cut, boards were o .0 handling carts, oversized boards, which were returned to the operator on the feed s' of the saw fur another pass; undersized pieces, which

were set aside to be moved (:0 another department where they would be glued to. form larger boards,

and scrap pieces, which were placed on a conveyor for , ripsaw operation demanded

special skills because of the rapid pare of the operation vari~ sorting decisions require. The

rough mill manufactured pieces of about 250 sizes, fa the "core ~"7

The yougB. mill @ffil'lByOO H ~ple lOR bath ~

Machining. In the parts machining department, core stock were ready to be assembled into frames, Most of !he parts . Eitock"consisted of pilIbil:hat were rectangular and that usually stock, operations were simple: bath ends were cut to finished. finished. width, and any necessary boring was done. Parts with more co band saws or shapers. Finally, the few parts that would be visible on a

Material moved through the machine shop on carts. Each cart transported a se core stock 1:0 be machlncd into one specific part.

finished parts that in shape. "Straight es. For St:rai.ghl: ripsawed to formed on nded,

6 The pbming operation smoothed: the top and bottom surfaces of the beard and det&m.ined its thicl:nI!SS.; the jointing operation smoothed the. sides of the board.

7 Core stock consisted of pieces of finished board to which a standard allowance of 3/8~ wasadded tneaeh dlrnensi.onof an intended part.

3

Production Scheduling

Chalrcraft CurpondJon, 1988

Equipment in the machining department was tended by operators who were paid piece rates and who were responsible for transporting materials and performing any necessary setup on the machines. When an operator completed work 00 a lot, he or she informed the department supervisor who then ga the operator another job. '

narrcrare plU'chaMd two aulomaHt rnaclUnes, a shaper and a I::ranster maclUne. on the new shaper much faster 'liuurwas po66ible on the band SlW or the the new machine required more Hlan an hour for setup, whereas the older few minutes at m.ost.. The high-speed transfer machine combined the cut-oft tasks performed for straight stock, The transfer machine ran at a faster three older machines had run with three operators.

employed in the parts machining department on the day shift and

'Five hundred different parts Beven. product lines. Some parts ,

,,9"

\,"

produced to build the 50 frame styles that were used in the in more than one line.

Assembly

The assembly operation upholstery assembly line.

Frame as.sembly. The first assembl e assembly. Six material handlers wheeled

carts of completed frame parts from chining area to the assembly area for

assemblers. Each assembler built' compL lots of 25 frames, (Because of space

limitation, parts for no IILOIe than 25 chair frames OJ ted close to an assembler.) Lots often

included more than one chair style. The rna . " ed lot tickets listing frame styles and

quantities of each style rontained in a 2S-frame en using the lot tickets to remove parts from

parts machining, the handlers relied strictly ontheir memory of which parts were required to

complete each frame style. Frames were assembled to meet . of the upholstery assembly

line, which was the second and final assembly line. \

U¢1olstery ,xsambly. The upholstery assembly line chair ~gs in more than 500

different fabric patterns and colors. Customers also cou choose different types of

upholstery (e.g., springs versus foam rubber). Because of v~ti abric, color, and

upholstery, the number of different final products Chaircrnft ptoduc rat thousand. A

small buffer of assembled frames was held between the frame asse Istery assembly

~. .

Olaircraft had a long-standing policy against carrying finished go chairs were normally shipped within two days of final assembly. This poli

twice in the past 10 years. Both times, no more than 10,000 chairs in a fe p

produced to finished goods inventory, and all were sold by year-end at regular prices,

Because of the company's policy against producing to finished goods inventory, the rate of chair production varied seasonally, matching customer demand. (See &hibits 2-5.)

Order booking. Every customer order specified a required delivery date, When Chaircraft received an order, it was added to the production bookings for the month it was needed. Orders to be shipped during a given month were generally :received by the fifteenth day of the prior month. (It was rare for

"

1

Chaircraft to process orders for shipment in less than three weeks.) When the bookings for a month reached maximum capacity (which was determined in part by the planned production rate for that month), Frank [ohnson had to decide whether to stop booking production for that month or 10 production rate. A three-month production report was generated daily, containlltg regarding incoming orders, existing bookings, and maximum planned production

Ing. Chaircraft shipped orders by rail and by truck, Customers paid full freight ents if ClIaircraft (1) shipped units ordered together at the same time, and (2) were destined for the same geographical area. When Chaircraft did not meet absorbed the excess shipping costs. Because of the magnitude of freight Ian production so that it could meet these two criteria.

te shipment planning, the monthly production schedule was broken down

into daily , which based on shipping load plans.8 The translation of orders into

shipping load plans was the nsibility of the traffic control clerk, Felix Hernandez; Hernandez

prepared each day's shi· plans two to three weeks in advance of the shipping da~, so that

each Friday aftemoo he e ucti control a shipping load plan for the five-day period ending

on the Thursday three eeks Wit 6 for the plannlng time horizon..)

, '

Although daily shipping liIilled three weeks in advance, the lead time for

detern\ining frame parts requiremen nsidera' less for two reasons. First, shipping plans

were accumulated for a week and were rei n Friday. This system of batching was

effident, but it cut down the lead time for 0 arts. Second, final upholstery assembly

began two days before the planned shippi , and fi'imte assembly began two days before final

upholstery assembly.9 "This schedule red d time for ordering frame parts by nearly a week.

Actual requirements for parts assembly were not known . Monday of the week preceding shipment.

control was staffed by a manager and three clerks. parts lists, production control determined which order. Parts requirements were determined weekly.

Parts requlmments l planni Using the shipping load P parbI were needed to assemble th

Every Monday (after receiving the shipping load plans prev.ious Friday), the production control manager issued the fra . frame shop supervisor. Standard order tickets specified the quanti used, and the standard routing the ordered parts would take department. Several hundred order tickets were issued each week. The returned to production control after the parts were produced:

Frame parts production scheduling. The frame shop supervisor, 5haina Jones, wa for scheduling each frame parts order. Every part was supposed to be produced 'Ifi

the date the order for the part had been issued. Of the actual orders handled in

1 clerk on the week to the stock to be machining ti eta were

Frame pam ordering. Based on the weekly frame placed for the standard order quantity (5OQ) establishe SOQ for each part was set at 80% of the number of pieces in the frame shop.

S. Sbipping load plans were lists identifying every unit In be shipped in a given load on a given date.

9 It took each chair Only a few hours to get through each assembly operation-o:msiderably less than the two days each opaation was allotted. This extra time resulted in a small buffer of completed frames awaiting upholstery assembly and a buHer of completed chairs awaiting shipment.

5

1988, 70% were completed within three days of issue, and 90% were completed before the one-week deadline..

Jones developed a schedule that would balance the production load over the various

ma~ toni. The schedule depended on the ava:ilability of the proper species, quality,

and 0 ood in the rough mill department.. To balance the mix of drying lumber with the

of frame parts schedule, [ones maintained. an informal liaison with the dry-kiln

. Manufacturing Manager's View

lion with Sarah 1\.ct1)n. Frank {ohIlson ret1ected on Nw.> ~~ meclhtg aM ~ lmpliUl."\iIJM fox his department. Jobnson out the production control system lor frame parts; he tnaughl parts ordering, madUn.e loading, and production rate setting.

Parts Ordering

Johnson was frustrated

parts. while other parts were unav . when

three items out of stock each day; wh- this

several hundred units bad been p. nonstandard pam;lO or used more thait parts went unrecorded, Material handlers were sa supposed to deliver only standard parts to assemb

ive inventories accumulated for some frame . Material handlers typically reported one to

production control records often indicated that ~d be available, When assemblers used (due to excess waste), the use of those report extra withdrawals and were policies were rarelyenfor<rd-

If the frame shop ran out of certain p chances of Chain:raft missing a shipment and

incurring excess shipping costs greatly increased. Although parts could be rushed through the

shop, rush orders :required special expediting time of sunervi . assistants,

"",

Machine Loading jW

The supervisor and assistant supervisor determined w parts order. Johnson thought the machines were not being op' centralize the scheduling of some important machines. He decided control clerk would supervise the operation of the automatic shaper, machine fully loaded, and (2) when available work exceeds machine Without centralized machine loading, the mix of frame parts needed for a overburdened some machines, while leaving other machines and their opera

be used for each and wanted to t a production

" (1) keep the iobsfirst,

The chief engineer, Alexander Wong, thought more data were needed before

.loading could be centralized He felt machine loads should be scheduled according to tbanstandard machine times and suggested computing performance ratios1l for both times. Average actual output was estimared to be 125% of standard, but perlonnan • workstations varied widely.

. "

10 Assemblen; found that substituting one part for another sometimes speeded assembly; anxiOlUl to increase piece rate earnings, some a!lSetnblers a:msistently used IION1andlU'd parts.

11 A performance ratio divides actual time by standard time .

6

Production Rate Setting

Because operations produced chairs according to customer demand (which was seasonal),

Chaircr erienced fluctuations in labor-hour requirements, Peak production in the fall of 1988

had the capacity of the three dry kilns.12 However, the rough mill and parts machining

d e not operating at full capacity and were capable of increasing output considerably,

significant capital expenditures.

abov thought it base pay r hours per Chlurcraft w'~~rIi

erred to schedule 45 hours of work for employees. When the workweek fell efficiency dropped. Johnson set 36 hours as a minimum workweek and t to persuade workers to work more than 50 hours per week. The average

shop was $8.70 pel' hour. For overtime (defined as time worked above 40 s received time-and-a-half. All attempts made by unions to organize iled.

Frame Parts Study

nd shift was hired for the rough mill department, and a partial enecks in parts machining. It had been difficult, however, to find . ~ t shift. Not only was the cost of hlring secondshlft operators IOSJ~5iM, were inadequate, and their tenure was short.

In August 1988, a full second shift was hired to b skilled operators w' LL1iI~V hish. but the skills t

It was expensive to mill department worked at month. 75% their third month, their fifth month on the job. N department, working at 69% of staaaam before producing 100% of standard hourly wages until they worked at 100% of stan

~~ir,e &ame shop. In general. new workers in the rough g their first month on the job, 65% their second month, before working at 100% of standard by y were more productive in the parts machining nth, 77% tlicir second, and 90% their third, on the job. New employees received only . ch time they began receiving bonuses.

Based on frame parts usage, standard frame parts costs, cost percentage of 25%, an economic order quantity (EOQ) was o the study indicated that the typiatllot size for frame parts produ the EOQ amount. In fact, for the sample of parts examined, the EOQ 608 setups would be required annually, whereas existing procedures

inventory carrying . The results of smaller than ed that only sannually .

In December 1988, Johnson ordered a study of (The data contained in the study appear in Exhibit 7.) frame partsl3 produced during the 22-week period upon which the study was based. These 50 parts, in consumed and 4.5% of standard frame shop labor hours d.....,..~I-& ...

. "

12 Unfortunately, no spa«' adjacent to the factory existed fur adding another kiln.

13 For the parts covered in !:he shldy, the average standard time aTh?wance per lot for setup was 0.46 hours. The standard cost rate for direct labor and variable overhead in the frame shop was $12 per hour.

7

I

Chalrnraft CmpontUon, 1988

Exhibit 1 Plant Layout

Railroad

Rough MDI

.-_--- .... _- ... -------

-1<In #'--:--1_

Tracks

Roadway

Undlied Lumber (2 112 acres)

Final Assembly

B

b ICl CII I"- M (") eN (g (0 00 10 tot
_g:l (0 ~ ~ N ~ a; cD d ~ ~ cD 00 Q)
lI! ... I'll N e- COl: I'l N g
Oi5j
Cl! CD ,._ ~ m 0. ...,
..; ..... g Ifi ..... N re !i
N I'll M 'It M
(")
N "": (') Q> CC! a:> 10 0
N ~ c:ti ....: - cD g ,..:
.., M M 'It N 10
M
ee CO <Ie! (1.1 (t) ~ O! q
it ....: CO ~ <"i 0 .- Q)
...... N <"I M N 0
l':>
\..
f!l Cll 0 ..... M C)
..... ~ r.:j ~ oj r-.:
IIJ "iii::' .- C)
III. al (")
...
~} en ell a'! IlO !D
~ c:.i M ..; d
§§ N N N
Get
~! U) (II c:? 'It .., O'CO
~ gj m d ..; Iri cD ,._
~_g: I'll I'll N .... I'll
Utij
i ~ ,.._
~~ IX) (;) IX! "'i; ...... r: M M 10 <P ~ €I)
!IS ID ~ ~ a;l ..... Ili .... «i ~ ;t d <0 trl d
~ CD ..... N N N M I'll ... IC
m ts] N
~ ..
e,
d
QQ b "": "" ,
IX) .~~ "": a> N 'It <0 I'll C!! IE! CD O! It) "-
a- U) ,._ Iri ci tri to Ifi M ..... ... N N ..;
~ ~! r'l N N .... N N <"l N N ..... -e- .....
N
....
i
!IS ~l I"- M N "" .- ~ I"- M 1'-: ,._ ..... f't <0
Q ai o:i .¢ tri ,.; U) <'i ,..; M -; ..; ~ ~
ee 2-f!: .- ...... N N N N N N I'll I'll <>:i
.$ N
Uij5 ~
~ s
IJ) 1) .5
"Ij ~a ~ OC! 0 I:\! IX! .... <':! eo Ul C'! <D GO Ol "0
" II) ... ex) Iri ..,. M M (g ui ~ ~ cD oj ....: A ~.
!IS ID <II~ N .- N N N N .,... N N ..... .... c ~"
c:: III t5e N I
0 ..
s Cl
~
~ b ~ as ac 10 M I"- ,._ 'It to (t) r- ""! II> ~
e! c Ici cd .0 N ~ to u) <ci ,...: C I:l.
~l Q ~
k N .... "" t') M N .... .... ....
-E a&! Pl.
'"
0 I
... "0
.... "- 01)
N (D III II) !
- 2:- ~ ~ j .0 ..0
:Q III ~ E E
II> 2 TI ! I'-
~ :J 'E ~ (I) -§ ~ IS ~ ~
e .D (0 C :>. Ql
aI III c.. :J :; :::J ID 0 ~
w --, LL ~ .01( ~ ..., ., -c rn 0 z z r_u~ __ "", ._", _.~ __ "_

....... - •• _F ••••• _.,.

_' ..

Chalrcraft Clll]lOl'lltlon, 1988

Exhibit 3 Monthly Data, 1985--1988

Unl1s

. ,

'. :

..

\: 'i

10

'<:
't
CIIaIrcndI: Corpondion, 1988 6811.{JB2 ",
..
Exhibit 4 Monthly Production Activity, 1986-1988
Standard labor Hours
Dry Kilns ;~-,
(Boord Feef) Rougn Mill Paffs Machining
467,200 3,084 5,43~ .:
3,911 7,897 : ,~:~
3,835 7,957 I ~~,
Octol;ler 4,596 8,620 ' ~ :
'c'.
4,857 8,347 :;,:.,.
I ~:
'::,
2,467 4,741
22,730 42,994
19B7
Jilnuary 3,959 7,107
FfI[)ru~ry 6,549
March 7,459
April 8,.D74
May 8,801
June 7,235
July 6,828
August 718,500 8,882
September 732,000 8,907
OQober 768,000 11,709
November nS,600 5,208 9,615
Oeoember 448,500 3,294
7,695,500 51,930
1988
January 897,400 5,181
February 649,500 3,632
March 657,300 3,870
April 645,200 4.409
May 609,800 4,520
June 795,500 4,093
~ 579,30(1 3,966
Augus' 1;v.,700 5;043 ...
:f
September 928,600 6,327 10,746 ';; ,
October 981,300 7,360 12,863 ... ~, :.~ ~,
November 917,700 5,793 10,798
December 610,500 5.092 10,471
8,995,800 59,286 104,278
Note: These data affl grephIcaIly I1IpI1!Sel1!I!d 11 ExhJbjf 5. 11

. I

Bxhibit 5 Monthly Production Activity, July 1986-December 1988

J A SON D100

A S 0

1986

Exhibit 6 Planning Tmte Cycle

M

w

F

Ship Load Plan announced hero

,..

Frame Parts ~' .... ~. and production Is SCheOuled.

,..

Frame AssemblY

~"'"

chairs in

nrst dflY1l shipment

12

--------

Exbibit7-A Frame Parts Activity Study
""'-I No. fII-.. by Pan. AdMly 122--2
C3l AdUaI {4} Ec:oncnlc (5) Actual (_lUbell' {'TJLumber
LDtSi¥e QuantIIJos 0JanfIUeI (Hous) (Board FMI:, 000)
450 29 as 20.52 8.28
975 15 40 320.20 12.30
1.400 20 48 ea.6\) 10.86
1,250 19 3CJ 36.90 !i.13
1.000 36 110 111.65 111.00
1.000 8 12 49.20 2..35
1.100 15 12 13.28 2.77
1.000 ,5 22 22.33 S.70
400" 4 3.59
215" 3 12 6.73 .17
4 10 19.70 .59
7 74 4 12 8.33 .24
21 1 13 38 B6.113 6.61
21 37 13 54 153.63 13'.74
22 4 20 44 37.84 10.01
22 45 11 22 55.55 3.57
22 58 66ll 12 2(j 17.16 4.35
;
23 17 316 3 6 1.69 .16
24 16 3,015 13 3S 45.98 2.14
41 a 1,130 24 76.68 4.77
41 123 622 44 216,1)2 10.22
41 147 2,140 sa 132.24 6.55
41 158 878 8 38.84 1.66
41 195 !Kl4 56 155.12 10.44
42 41 1,110 1.2.50 II 9.80 t10
43 5 1.4IlO 450 56 246.40 9.80
43 95 1.935 1,250 16 18.24 3.55
43 1~ 1,165 1,000 5 6 10.65 ,94
43 146 1.360 2,500 '3 211.10 ,23
43 171 1.076 500" 4 \ 8.44 .45
44 48 2,185 1,750 5 21.99 .70
M 50 377 100" 2 (; :; 2.60 .11
45 9 838 I,OllO" 10 6 .83
46 30 427 soo- :I. .15
48 46 2,440 625 ~ 33111
48 51 806 4&l 16 4.17
49 87 986 400* 4 ,53
49 98 1.525 SOO* 3 .011
51 35 614 525 D 1.28
~ 2 786 1.100 B 1.14
52 II nl 1,100 6 4 .eo
S2 25 143 so- I 2 i~ ,08
65 1 861 175 61 &12 ;.
66 3 1,1150 1,000 13 26 65.00
81 11 610 1,800 2 ;~,
84 4 2,530 1,500 32 54 21.54
95 6 790 500 15 24 111.60
ss 6 851 225" 2 8 3.12
97 78 1.840 751Y 2 4 3.9;' 27
97 132 2,850 1,800 9 18 91.52 2.73
00 18 __ID ~ _4 ~ ...az§ __&!l
101a1 67.849 36,417 60B t,504 3,385 319
Noftl: See Exhlbtt 7 -i3 for e:qllanBtion of sIuOy .
• see ExhIbIt 7-C.
13 .. . ,~ ~~ .. . .. -

~ .~~ _ .. ~.. :~"

Cbalrc:raft CorponIlIon, 19&8

Exhibit 7·» Frame Paris Activity Study Explained

The data presented in Exhibit 7-A represent the results ofa study of production and usage for 50

randomly frame parts. The data are based on the 22-week period from July 2 to November

28,1988. weeks historically accounted for 50% ofChaircraft's annual production.

tudy was to compare economic lot sizes with actual order quantities Chai:rcraft how much lumber usage and shop activity were concentrated on relatively

Column 1:, Columrl2:

es the part.

Quantity ~ is calculated as follows:

Where:

"Unit cost" is the total variable material, expense costs} derived from

standard coot records.

'1nventory carrying cost" was set at

Column 3: Actual Lot Size shows the quantities actually used

Column 4: Annunl Setups, Economic Quantities is the n the ordered volume of each part if orders were based 0 Column 2.

Column 5: Annual Setups, Actual QUlJntities is the number of setu order quantities presented in Column 3. These figures are twi performed during the 22-week study period.

Column 6; Parts Activity, whor is the standard frame shop labor hours quantities of each part actually manufactured during the ll-week study perio

Column 7: Parts Acti1Ji.ty, Lumber is the standard quantity of lumber (in thousands of b required to produce the quantity actually produced. in the 22-week period.

14

,', ,"'" - p •...... ,

Exhibit 7-C Actual Quantities vs. Standard Quantities

owed by an asterisk in Exhibit 7-A are the actua1lot sizes for parts ordered in 1018 smaller lished standard order quantity.

le presents a comparison of actual and standard order quantities for the 16 items Exhibit 7-A.

I Quantit)' Standard Quantity
6 2,000,
f1 2,500
7' 600
7 74 2,500
23 17 1,000
41 158 250
43 171 1,750
44 50 1,500
45 9
46 30 500
4~ 87 400
49 98 600
62 25 50
96 B 225
97 78 750
99 18 325 " ~~:",,"! ",' ".:' ••• :: ;, ,: ... ',\ --:'_' .. ,', • - ." •• - .... r: ... ' ..... ''/'',_-

15

.' ',- • • ~ .; I

Sign up to vote on this title
UsefulNot useful