TIET Patiala

Department of Mechanical Engineering

UPE 602: Supply Chain Management
Tutorial Sheet No 3
Skycell, a major European cell phone manufacturer, is making production plans for the coming
year. Skycell has worked with its customers (the service providers) to come up with forecasts
of monthly requirements (in thousands of phones) as shown in Table 1. Manufacturing is
primarily an assembly operation, and capacity is governed by the number of people on the
production line. The plant operates for 20 days a month, eight hours each day. One person can
assemble a phone every 10 minutes. Workers are paid 20 euros per hour and a 50 percent
premium for overtime. The plant currently employs 1,250 workers. Component costs for each
cell phone total 20 euros. Given the rapid decline in component and finished-product prices,
carrying inventory from one month to the next incurs a cost of 3 euros per phone per month.
Skycell currently has a no-layoff policy in place. Overtime is limited to a maximum of 20 hours
per month per employee. Assume that Skycell has a starting inventory of 50,000 units and
wants to end the year with the same level of inventory.

Table 1: Monthly demand for Cell Phones, in thousand

Month Demand
January 1000
February 1,100
March 1,000
April 1,200
May 1,500
June 1,600
July 1,600
August 900
September 1,100
October 800
November 1,400
December 1,700
a) Assuming no backlogs, no subcontracting, and no new hires, what is the optimum
production schedule? What is the annual cost of this schedule?
b) Is there any value for management to negotiate an increase of allowed overtime per
employee per month from 20 hours to 40?
c) Reconsider parts (a) and (b) if Skycell starts with only 1,200 employees. Reconsider
parts (a) and (b) if Skycell starts with 1,300 employees. What happens to the value of
additional overtime as the workforce size decreases?
d) Consider part (a) for the case in which Skycell aims for a level production schedule
such that the quantity produced each month does not exceed the average demand over
the next 12 months (1,241,667) by 50,000 units. Thus, monthly production including
overtime should be no more than 1,291,667. What would be the cost of this level
production schedule? What is the value of overtime flexibility?

--------------