FoldRite Furniture Co. is a furniture manufacturing company that specializes in the manufacture of three main product categories. In 2010 the company had just one product in each of these categories namely, Al Strong, Green Comfort and Cloud Chair. Al Strong is a folding table with recycled aluminum at the top replacing the plastic one in order to adhere to company policies of eliminating the use of material having environmental hazards. This product is built for both outdoor and indoor purposes and encompasses almost 42% of the company's revenue.
Green Comfort is a chair that is both stackable and washable that utilizes a washable fabric replacing the environmental unfriendly plastic (PVC). It was expected in 2008, when this product was launched that it would cover 34% of the company's revenues. And Cloud Chair is folding chair that won many awards for its design and conforms to a wide variety of body shapes and sizes providing comfort and generating a large amount of revenue for the company.
The case analysis aims to help making decision by choosing an optimal solution for the manufacturing project that the recently hired product manager - Martin Kelsey, is presented with. The purpose of this analytical study is to evaluate the given options for production optimization in order to meet the present high demand for the products using forecasting for the next six months. The critical issue is the opportunity grasping drive in the recessional phase and only the most optimal choice of production would help Kelsey pull through this challenge.
In 2006, company faced financial turmoil, which according to the management was brought upon by the high turnover rate of the workers and the high proportion of unskilled workers as compared to the skilled ones. This incurred the problems of ineffectiveness of labor and inefficiency in the production line that increased the lead time from an average of 4 to a lead time of 6-8 weeks. Furthermore the on-time delivery record dropped from an almost perfect 90% to as low as 30 to 40 % which induced lost in customers, demand and thus production volume.
The company was rolling down the hill when, in 2007, group of private investors decided to take over it and invest new capital and managerial skills and techniques to revive the company from its potentially destructive slumber. The investors recruited a new CEO - Marshal Epstein, who had exceptional marketing and management skills with international work experience to help put the cherry on top. He quickly discerned the need for innovation and restructuring of hiring and production related operations' schedule.
He hired a new VP manufacturing, Jose Ramos, with the help of whom he succeeded in training the four major goals to re track the company's itinerary. It included the achieving innovation in production and operations both, delivering high quality products, Lean Manufacturing and stable and well trained work force with minimum turnover. This required reducing the products and focusing on enhancing quality of the fairly limited product line and reducing the overall cost and increasing overall productivity.
The case has to analyze the decision making options for Kelsey to meet a high demand that calls for optimization of burdened production management. FoldRite generated 62% of its sales from hospitality markets which include rental companies and large event organizers as hotels and function halls. 29% of its sales were generated by the governments, schools corporate offices, hospitals and clinics while only 9% of the sales catered to the individual consumers. The company also maintained direct sales force to service channels of distributions.
The demand for the products manufactured at FoldRite was seasonal. The chairs were popular around summers and spring and the tables were mostly sold during the holiday season. However, the new trend "green" products that are environmental friendly was quickly adopted by the firm taking into consideration the potential growth in the mentioned market. According to Epstein, the growth in the market was expected to be 20% on yearly basis thus investing in it seemed like a profitable move.
The company also catered to the production efficiency by investing in partially assembling product line for room for customization. Also reducing the product variety helps concentrate and focus on the given products, enhancing the quality and specialization in customization of products. Moreover the operation management was restructured focusing on reducing turnover of workers to reduce cost of training new ones while also increase productivity by employing trained and skilled labor that does not get replaced.
Furthermore, work policies were tightened in order to keep from delay in delivery of product and reducing the lead time and fixing it at a maximum of two weeks and increasing the yield of the company to an average of 95%. The production used similar material which reduced suppliers and increased quality that was standardized. The operation resources were managed carefully keeping in mind, the room for quality assurance and as well as customization while keeping all the production lines completely centralized.
Kelsey is faced with issue that he needs to confront regarding the options that are in front of him to choose from. The end result required of this choice is to cater the abnormal demand and increasing productivity but this can only be achieved if the made among the given proposition is the one the optimized the production of the company utilizing the resources to their maximum effectively and efficiently.
The company operates four days in a week with a 10 hour shift each day and working on Fridays only for overtime or maintenance works. In 200 working days per year the company's annual volume for Al Strong is 524280, for Cloud Chair it is 306916 and for Green Comfort folding chairs it is 253570. Keeping the sequence in mind of Cloud Chair, Al Strong and Green Comfort, the Average manufacturing cost per product are $30, $90 and $88 respectively. The cost for skilled labor per product is $0.84, $5.39 and $5.48 respectively and for unskilled labor it is $1.49, $4.62 and $5.12 respectively.
The Raw materials' price per item is $11.73, $49.70 and $50.24 respectively while minutes required per item by labor is 2, 12.8 and 13 respectively for skilled and 9, 28 and 31 respectively for unskilled labor. After detailed calculations of exhibit 2, we find that it takes the skilled labor to 8.738 working days to fulfill the demand for Cloud Chair on annual basis and 39.321 wording days for unskilled labor to complete the same task.
Similarly if calculate for Al Strong and Green Comfort, to fulfill the annual demand for production it takes skilled worker 32.7377 working days and unskilled labor 71367 working days to fulfill the task for Al strong and 27.47 days for skilled labor and 65.51 days for unskilled labor to complete the demand for Green Comfort on annual basis respectively.
However this would require extra cost per worker for both over time or extra hiring. The overtime pay is 1.5 times the normal rates and where skilled labor earns minimum of $19 per hour unskilled is paid only $9 per hour. 1.5 time of skilled makes $28.5and for unskilled it is $13.5 for over time. So even though skilled workers will take less time but they cost more for working overtime. Thus a cost effective option would be to pay unskilled for over time.
Another option rests of hiring new labor is that hiring skilled labor gets the work done fast so it would require less of skilled labors but also it is more costly and paying more of workers unskilled workers less would rather seem appropriate. The productivity of hiring new workers skilled is nevertheless undeniably great thus even though paying unskilled workers for over time may have looked better but in the long run getting fewer skilled labors over time is a better option and hiring more workers skilled temporarily at half rate seems even more efficient and effective.
Since starting to hire in March gives us another day of production it may incur a day's more cost but in the long run it would provide with increased productivity. However another option the Kelsey analyzed was to change the design so that would take one minute less in assembling with no change in quality or durability but increased productivity at a fixed cost of just $15000 of just a onetime charge and take only a month to be implemented on the floor.
Based on all the evaluated options that have been presented a more attractive and productive option would be to adopt the design change. In all other options we incur a variable cost that no doubt with fulfill the demand for product but at a cost that minimizes the profits and effects the productivity of such manufacturing lottery. With a onetime cost incur of $15000 we see that production line save itself with one minute per each item. This would save us a lot of time in the long run and give the existing labor time to complete the task without having to pay them for over tie or for any administrative expenses for training or hiring.
Overall the decision that is made is based upon personal judgment and experience of the decision maker. Like Epstein who took major managerial and operational decisions based upon his experience only to turn the track of a sinking company and running it to generate not just revenue but also profits for the company and getting it back on the track being more productive than before.