OM Assignment
Kool King Division(A) ( Aggregate Capacity Planning )
Section F
Group 11 Group Members: AKHIL KUMAR BHASKAR KUMAR GHANENDRA SINGH KIRAN BENNY MANISHA SANGMA NITIN NAGORI VARUN SINGH BOTHIYAL
Executive Summary The Kool King air conditioners company had it’s corporate headquarters in Chicago and plant in Illinois . Mr. James Lewis was the Vice President and Mr. Tom Stanley the Marketing Manager had to decide the latest forecast of production for fiscal 1980 in consultation with the other stake holders. Tom Stanley was responsible for marketing planning and advertising .The company suffered considerable loss due to the stock outs of 208 volt models in1978-1979 . Hence , Stanley raised the forecast of production from 1114,000 units to 120,000 units stating forecasts hurt more than the team realizes and informs about the quality complaints . However most of the quality issues were minor issues and less than 0.5% of the production was returned for repair on warranty. Tom Stanley suggests that increase in market share is required along with the growing market and for that better quality standards need to be in place. Other official feel that additional warehouse may be needed to support the forecast . Kool king started in 1930 as radio manufacturer and diversified into electronic products after world war II and was acquired by TIA corporation in 1953. TIA expanded Kool King’s product range to include oil and gas burners , air conditioners and cooling systems . Selling the rest of the company TIA retained the room air conditioner with the brand name and it’s growth was a source of pride to TIA executives .
The division had seven model lines of air conditioners with Cooling capacity ranging from 4000 to 24000 BTU , voltage ratings of 115 to 230 volts with one to three different designs of mounting hardware option available with the models . Slim line model were frequently used for double-hung windows too narrow for regular ones. The Breeze Queen series was capable of being operated as a heater . Kool King marketing was done by TIA marketing people and was sold as part of full TIA line having good distributor network and field sales force in large cities . Production facilities for Kool king had a modern one storey building with 100,000 square feet of floor space . The facilty was used for assembling on a single assembly line , of all 200 parts purchased from outside suppliers . Super units were assembled on a separate assembly line . 10% parts were common to all models and in a given series 75% parts were common . 85% cost was due to a few parts . The line could be used only one chasis type at a time . On the chasis ,the parts were bolted or screwed . Also motors , compressors and cooling coils were easily mounted and wired to the chasis . Sale year which was earlier from June 1 to July 31 lengthened with the industries development . To broaden production year substantial discounts were offered to distributors if they took delivery between October to February rather than March to June. Discount and deferred payment plans included ,
1. Early order discount plan on order made between September 1 and October 31 with delivery of one quarter each in October , N ovember , December and January . 2. The deferred payment plan for orders before february 1, 1980 allowed three installment payment in 1980 on May 10,June 10 and July 10. 16000 units were ordered in fiscal 1979 under early order discount plan and 24,000 were estimated for fiscal 1980 . One half of homes in US had at least one air conditioner and replacement sales were on the rise which were made from early April to early September. The midget unit of 4,000 BTU unit was sold for $300 and 24,000 BTU unit was sold for $950 and was sold in April or May . Extreme variations in weather influenced the sale season. Kool King employed 150 people having 100 “direct labour”. It had 6 people in executive group. Other four group of employees apart from hourly employees were plant foremen (4) , planning ,material and administration (4), engineering and design group (16) and clerical staff (8) . The hourly employees were: Type Grade1 Grade2 Grade3 Grade4 Grade5 Grade6 Grade 7 Grade8
Number 70 10 14 1 8 5 3 1
Description Assembly line workers , required two day training . Inspectors , Janitors and spare worker to work at any position in line For repair of defective units , drivers, clerks and shipping employees Stock room group leader Refrigeration, tubing sealing ,mechanical inspection employees Maintenance and quality control employees Line supervisors Machinist and model maker .
Rate of payment for Grade1 was $4.80 and a regular pay increase to $6.00 per hour till 18 months . 30 day trial period for new employees was in effect . Skilled production employees Grade2 to Grade8 were vital to product quality and plant efficiency , hence varying rate of production was avoided as it involved laying off and rehiring. The cost of hiring a new worker is $284.50 and the unemployment cost and good will lost , indicate the requirement for steady work force. The plant was shutdown for 30 days in 197 . Planning that decided sales and production budget for next fiscal started in May. In 1979 started with forecast of air conditioner sales . Sales of Mighty Midget was expected to cannabalize smaller Midget sales and increase total sales volume where as some felt it had a separate market . Super Line units could be produced only in late fiscal 1980. According to forecast , a chart to facilitate production plan was made . The number of units of a given series which could be produced in a week at normal work force level was determined by production rates . The 3 policies used to determine production plan were minimize fluctuations in size of work force , large lot (10000 units was considered
optimal )of production for each model at one go as model changeover coast was $6000 and a finished goods inventory with all model and variants for the distributors to purchase . The production schedule was not the same as the production plan which were for aggregate groups of product .The detailed schedule was issued by the materials manager and had production schedule for 12 week period of the number and type of each model to made each week . These were reviewed every month . Any change required change in planned pattern of component parts acquisition . Kool king in 1979 processed $11 million of purchased parts and inventory for component parts were maintained for two weeks , products on assembly line had it only for two days and at the maximum for two months for an extreme change in schedule during September and October . The purchasing of steel required planning 4 months in advance . The minimum advance notice for a change in schedule was dependent on the lead time of suppliers of the parts . Motors and compressors suppliers required orders much in advance . Material orders during September and October were based on previ ous year’s production schedule plus a growth factor and for materials were made in late spring before finalization of next year’s production plans .
The company needs a plan to accommodate a 30% forecasted increase in sales of Midget and aggressive forecast for other models ,which may increase production beyond one shift and also quite a bit of overtime . A second assembly line could also be made operational by beginning of January 1980 . The increased finished goods inventory cost was high . In fiscal 1979 at 10% capital cost the expenditure was $108,000 . The inventory provides for a relief when work force changes due to attrition which is high among workers and sometimes skilled workers .
Model
Production in 1979
Midget Mighty Midget Breeze Queen Breeze King Islander Super
36482 9166 34649 5327 4770 989
Direct Labour Hour Index (DLHI ) Used Approx 1840 425 3015 420 430 50
Rate of production/DLHI 20 22 12 13 11 20
Problem Description The production plan for the forecast for fiscal 1980 has to be decided and the necessary changes needs to be done to accommodate the required increase in capacity . This has to be finalized keeping in mind the companies policy of minimizing fluctuations in size of work force , large lot (10000 units of considered optimal ) of production for each model at one go ,inventory with all model and variants for the distributors to purchase .
Analysis Production required for fiscal 1980 as per forecast Model
Forecast Sales FY 1980
Closing Inventory FY 1979 0 1420
Required Production in units 46500 11000
Direct Labour Hour Index (DLHI ) 2325 450
Midget Mighty Midget Breeze Queen Breeze King Islander Super Slim Line
46500 11000 41000
2165
41000
3250
8000 5000 1500 10000
0 2604 312 1512
8000 5000 1500 10000
615 450 90 450
DLHI for slim line is approximated between Midget and Mighty Midget . Total DLHI required approximately 7650 including the requirement to accommodate a need for balance inventory for next fiscal .
Solution 1. The average DLHI per week required for 48 weeks period of production is approximately = 7650/48 = 159 approx 2. The company should maintain a level production so that the labour fluctuation is minimized thus employing the number of direct labour that is capable of supporting 159 DLHI per week. This also reduce the high cost on hiring and firing .
3. It should promote the sale of Breeze queen i n the winter season as it can be used as a heater and accordingly a production plan to reduce inventory 4. Even if the cost of holding the inventory is high because it would help the company supply the desired product mix to the distributor
Conclusion The aggregate product requires a DLHI of 159 per week. The production schedule should be such that it considers the peak period from June 1 to July 31 , 24,000 BTU unit was sold in April or May , Super Line units could be produced only in late fiscal 1980 and all other production components must incorporate the growth factor in the plan .
