Supply Chain Control and Planning for FoldRite

FoldRite, an Aurora-based furniture manufacturer, specialized in the production of folding chairs and stackable tables (Wheelwright and Bellisario 2010, p. 2). Since 2010, the demand for its products has been unexpectedly seasonal, varying at different seasons of the year. Many business analysts have continued to disagree over the state. Nonetheless, from a traditional standpoint, the corporation produces massive shipments to dealers in April but experiences a sudden jump in demand in May. Nonetheless, the unexpected occurred in 2010. The request for stackable tables and folding chairs was uncharacteristically high. Besides, it was something that had never happened for the company earlier. Due to that, FoldRite required a new business strategy to fill the demand gap while compensating for the extra labor needs (Wheelwright and Bellisario 2010, p. 2-4). Good approaches such as chase and the subcontracting strategy can not only increase the productivity but also reduce the company’s work in process time (WIP). They can additionally make the entire system cost-effective and responsive. The company should apply these design change plans with utmost confidence.

Introduction

As a manufacturing company, FoldRite Co. operates in a substantially competitive business environment (Wheelwright and Bellisario 2010, p.5). It was born in 1987 with the primary agenda of making folding furniture for churches and schools (Alfin Ali, Frisca and Indri 2012, p. 3). Nonetheless, owing to the changes in the market, the company produced massively around the 1990s as the target market changed from public institutions to hotels and government offices. Furthermore, the production line changed increasingly thereby developing the company in those years. Following the growth, as well, FoldRite registered an annual growth rate of 3.5 percent from 1999-2005, a proportion that was above the normal average (Wheelwright and Bellisario 2010, p.5). Nonetheless, in 2006, the company encountered a financial turmoil. It faced a significantly high worker turnover and a gradual increase of inexperienced workers. As a result, the financial havoc increased the company WIP time from 4-8 weeks and downgraded the previous delivery time from the documented 90 percent to about 30 percent (Wheelwright and Bellisario 2010, p.8).

Owing to the fall of the company, as such, it was presided over by new private investors in 2007. The expectations were that, with the help of the new leaders, Marshal Epstein (CEO) and Jose Ramos (VP), the company would restructure its production line and recover its market nitch. The managers named the milestone as a “re-tooling,” plan, which involved product consolidation and reduction of manufacturing products (Wheelwright and Bellisario 2010, p.5). Consequently, although it was not the dominant strategy, it reduced the production lead-time significantly and increased the profits to about $60 million by 2009. As a result, therefore, the variation affected the demand curve for FoldRite products (Case Solution, 2017). It became seasonal whereby the highest demands were evidenced during the summer months, a change that prompted the company to segment its revenues into three markets as shown in the chart below.

All the same, at the start of 2010, there was an accumulative forecast. Due to the new conceptualization of the eco-friendly products, the current sales were expected to hike. Furthermore, the CEO expected the changes to pick up by at least 20 percent that year with the condition that orders would increase drastically as well. Additionally, because of the growing notion of the eco-friendly goods (”Green Products”) that was rising in 2010, the FoldRite replaced all its plastics and wood products with the new recyclable materials. In fact, with its efforts to attain the expected prediction, the company recycled water and incorporated organic compounds during the manufacture. The undertakings, consequently, maintained a strategic inventory, which led to a shorter WIP (lead-time) and an increased inventory cost.

Nonetheless, with the new administration, purchasing contracts with the suppliers were created to eliminate the inventory cost, a decision that increased the purchase of raw materials and the final product as well. The company production time, moreover, was narrowed to four days, working on a shift of 10 hours a day. Increased production time remained on Friday only, a step that led to additional labor. Essentially, labor in FoldRite requires both skilled and unskilled employees to accomplish the manufacturing process. Due to such a variation, the wage rates differ as well. Therefore, according to studies, a substantial labor production can be maintained if the company utilized a subcontracting plan (Chase and Jacobs 2006, p.38). Likewise, it will reduce the procurement overhead significantly.

Methodology

The discussed data motivates the drafting of this case research. Through an analytic study approach, the paper presents a capacity plan for FoldRite Company. It provides appropriate recommendations that Martin Kelsey and his team can employ to meet the surge in product demands. Even so, to measure the effectiveness of the set recommendations, the paper employs a comparative cross-sectional study to give both the financial and the qualitative implications, which invoke the execution of the commendations. Succinctly, data will be analytically demonstrated about the aggregate production plan to change the entire process design. Relevant calculations and assumptions, as well, will adopt a case-control study approach to demonstrate the exact production by calculating the available skilled and unskilled workers and at the same time, determining the actual labor estimated to meet the demand surge. Eventually, the overall cost of overtime, subcontractors, training and hiring, the cost of inventory and design change will be determined as well.

The Analysis

The change in the process design is based on an aggregate production planning, which is expected to meet the company’s demand surge. Planning, as such, can be done in the following strategies.

Constant Workforce: The varrying inventory cost (level strategy).

It assumes a level strategy (Peng, Peng and Chen 2014, p.14). The stable workforce in this plan must be maintained at a changing rate of output (Mahadevan 2010, p. 439-440). The surpluses and shortages, on the other hand, must be absorbed by the various inventory levels. The assumption in this approach is that both the skilled and the unskilled workers work for 10 hours per day (Olson 2008, p.24). The calculation, therefore, will be as follows:

Skilled worker = the actual production hours x (Actual Working Days x 10hrs/day x the minimum workers required)

Unskilled workers = the Actual production hours x (Actual workdays x 10hrs/day x the minimum workers) or

Skilled worker = The Actual production x (Actual Production hours/ Lead time)

Unskilled Worker = Actual Production x (production hours/ lead time), whereby,

The ending inventory is the beginning inventory + the total production ­­– the forecasted demand and the minimum number of skilled/unskilled workers needed is:

Straight Time Cost = (Production Hours of skilled workers x Total Wages) + (Production Hours of Unskilled Workers x wages)

Calculation of Cloud Chair

Constant Skilled worker = production hour/ month x 10hours/ day x minimum skilled workers. That is,

Constant Unskilled workers = production hours/month x 10 hours/day x minimum unskilled workers. That is,

Ending inventory = beginning inventory + the total production ­­– the forecasted demand, whereby safety is inclusive

Inventory cost = $ 0.1 per unit of production

Straight cost = [skilled working hours x 25.27 (the wages)] + [unskilled working hours x 9.9 (wages)

Shortage = cost of shortages (50% x price of cloud chair) x shortfall x 7.03

Additional Assumptions include:

The beginning inventory is assumed in the first month. However, for the remaining number of months, the beginning inventory is ending inventory of the previous working month (Trent 2007, p. 66).

Constant skilled and unskilled workers are the average number of employees working each day.

The unit of the inventory holding cost is $0.1 per unit (Mukoyama and Şahin 2005, p.11-13)

AlStrong

Constant Skilled workers = production hour/ month x 10hours/ day x minimum skilled workers. That is,

Unskilled workers = production hours/month x 10 hours/day x minimum unskilled workers. That is,

Inventory cost = excess production units x inventory cost (15% of the price of AlStrong) x 8.9565

Straight cost = [skilled working hours x 25.27 (the wages)] + [unskilled working hours x 9.9 (wages)

Shortage = cost of shortages (50% x price of AlStrong) x shortfall x 29.855

Green Comfort

Constant skilled workers needed =

Constant unskilled workers needed =

Whereby the inventory cost is $ 0.1 per unit of every production of Green Comfort.

Exact Production/ Chase strategy: Varying Workforce

It is also known as Chase strategy. By using it, the rate of production is harmonized with the rate of ordering products through hiring more workers or retrenching others (Olhager 2013, p. 6837). It is done depending on the status of the orders made, whereby more orders demand more workers while reduced ordering lays off some employees (O’Brien 2009, p. 120). Like the level strategy, however, the Chase method pertains the following assumptions:

The demand expectation is equal to the production

Laying off skilled workers goes for 1000 USD

Retrenching Unskilled Worker is equal to 800 USD

Each Product must be manufactured separately

The number of Skilled/ unskilled workers required =

The production hours = The time is taken by a skilled/unskilled worker to produce x The total output/ month

For instance, following the products’ data for Cloud Chair, AlStrong and Green consecutively, the calculation for both skilled and unskilled workers is as shown in the table below.

Time in Hours/ month for a single worker = working hours (10) x working days per month

Production hours for a skilled worker needed = Time for one unit (2/60) x the requirement

Production hours for an unskilled worker = Time to produce a single unit (9/60) x requirements

Hiring cost for skilled worker = New employees x the expenses (66.5)

Straight time = (Production hours for skilled labour x wages (9.9)) + (production hours for non-skilled x wages (25.7))

CloudChair

AlStrong

Green Comfort

Total

Number of Hired Skilled workers

15

18

11

44

Number of unskilled workers

83

38

25

146

Laid off Skilled Worker

13

20

12

45

Laid off Unskilled Worker

58

42

29

129

Cost of Hiring Skilled Worker

$1,500

$66,000

Two Supervisorinterviewing a skilled workercost $ 66.50 Lay off cost is an assumption.

Cost of Hiring Unskilled Worker

$66.50*

$ 9,709

Cost of Laying off Skilled Worker

1000**

$ 45,000

Cost of Laying off Unskilled Worker

800**

$103,200

Total Cost

$ 223,909

By using case strategy, FoldRite will have a total cost of $223,909, a value that includes straight time cost, and the cost of hiring and retrenching workers.

Subcontracting

Likewise, the company may choose to employ subcontracting strategy. It can do so by contracting out either skilled or the unskilled workers, a decision that comes with a price (Jansen, Spink and Taksa 2009, p. 302). For the purpose of this analysis, however, subcontracting is based on both workers.

Subcontracting cost for skilled workers =

Subcontracting cost for unskilled laborers =

Cloud Chair

Minimum skilled workers = 1

Minimum unskilled workers = 5

Subcontracted skilled worker =

Subcontracted unskilled worker =

Production time for Skilled/ unskilled workers = production days x 10 x labor

Straight time cost = [skilled production time x wages (25.27)] + [Production time for unskilled x wages (9.9)]

Ending inventory = actual production + opening inventory – Forecast

Subcontracting Cost = Time for producing one unit x expenses x units subcontracted.

AlStrong

Minimum skilled workers =24

Minimum unskilled = 52

Subcontracted skilled =

Subcontracted unskilled =

Production hours for skilled workers = 10 (hours per day) x days in a moth x number of skilled workers= 33

Production hours for unskilled workers = 10 x days x unskilled workers= 72

Units subcontracted = the shortfall (Jansen, Spink and Taksa 2009, p. 301)

Straight time cost = (wages (25.27) x skilled production hours) + (wages (9.9) x unskilled production hours

Cost of subcontracting = time taken x units subcontracted x charges

Ending inventory = (actual production x beginning inventory) – forecast

Green Comfort

Minimum skilled workers needed = (orders per month x production time (labor)) ÷ work days over 10 days = 22

Minimum unskilled = 52

Subcontracted skilled =

Subcontracted unskilled =

By subcontracting skilled workers, the company will have a total cost of $4,950,287. Contrariwise, by subcontracting unskilled, have a full cost of $5,259,460 inclusive of expenses and straight time cost.

Overtime

Notably, this strategy can only apply on Friday when production exceeds the required time (Türkay, Saraçoğlu and Arslan 2016, p.150-152). As a result, the labor cost will rise to 1.5 times the normal cost. Assumptions include

Overtime hours = Fridays/ month x 10

Safety stock = 0.25 of a moths demand

Overtime safety stock = units excess

Skilled / unskilled workers = production time x labor/unit x working days x constant workers

Skilled/ unskilled worker = production hours per unit of labor x regular shifts (Prenhall.com, 2017)

Constant skilled/unskilled workers = number of employees to produce each Friday

Cloud Chair

Constant skilled workers =

Constant unskilled workers =

Overtime cost (skilled) =

Overtime cost (unskilled) =

AlStrong

Number of constant skilled workers needed =

Number of unskilled workers required =

Overtime cost of skilled worker =

Overtime cost of unskilled =

Green Comfort

Constant skilled workers =

Constant unskilled workers =

Overtime cost (skilled workers) =

Overtime cost (Unskilled worker) =

Summary of the strategies

Recommendations

Based on both the analysis and the summary of the strategies, it is evident that the demand surge for FoldRite can be addressed. However, the best among all strategies becomes a subject of discussion. Nonetheless, the following is advisable to Martin Kelsey with the entire production unit. Importantly, FoldRite can apply the subcontracting strategy. It can do so by subcontracting both the skilled and unskilled workers, especially when there is a shortfall in production (Kamekichi, Rodovalho and Cardoso 2000, p. 207). That is the time when the demand for products is significantly low. As a result, the technique will help the company in maximizing its available inputs as well as maximizing the profits from the low demand. Characteristically, therefore, it will not only grow but also save substantially (Olsen and Porter 2011, 69). Moreover, by adopting this methodology, the company will focus more on the primary activities of production rather than the welfare of workers (Mahadevan 2010, p.85). The plan will also reduce the company’s overhead costs, operational costs and even make human resource control more flexible. Nonetheless, even supposing, it is worth noting that this strategy comes with some shortcomings. For instance, due contracting out some workers, the quality of the product may be affected. The managerial control may be influenced as well (Kolli 2012, p. 53). There is also a considerably high risk of losing the firm’s confidentiality, a matter that prone FoldRite to its incumbents.

Conversely, although subcontracting carries more weight, I would advise FoldRite to try out the Chase Strategy as well(Olhager 2013, p. 6839). It can yield significantly regarding labor force. For instance, from the 2010 predicted report (covered in the analysis), the labor cost would drop from $ 7,201,947 to $7,345,000 with the Chase Method. The financial difference ($143,053) will as such benefit the company, rather than when it would have incorporated the level and the overtime strategy. However, on the contrary, chase strategy has qualitative implications. It affects the morale of the workers due to the dilemma of being laid off (Prenhall.com 2017).

All the same, I would not advise FoldRite to adopt the level or the overtime strategy while trying to meet the surge in demand. Typically, both strategies will require a higher cost of production than the forecasted cost. Besides, the level strategy solely depends on the inventory cost rather than focusing on the fundamental objectives (Chase and Jacobs 2006, p.38). Over time, on the other hand, increases the working hours, regardless of the requirements of Fridays. It, as such, demands more labor inputs as well as production costs over the estimated values (Flynn, Morita and Machuca, 201, p. 141). Quantitatively, in fact, overtime wages will rise to 1.5 times the estimated inputs. As a result, it will influence the productivity of the workers (both skilled and unskilled), a factor which affects the overall quality of the products as well (Flynn, Morita and Machuca 2011, p. 144). In fact, if the workers are overworked, they may not meet the market demand, a state that may even discourage other laborers from working for FoldRite.

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