CASE Study:

FOLDRITE FURNITURE COMPANY

Submitted to:

Submitted by:

Dr. P.K Dash Professor, Operations Management

Japkirat Singh Oberai Roll no : 012 PGDM 2102

FoldRite Furniture Company

FoldRite Furniture Company spent the last two years improving manufacturing quality and efficiency and now they produce stylish, environmentally friendly folding and stackable chairs and tables. Sales interest in the new products is higher than the forecast and a new plan is needed to meet its high demand while controlling manufacturing and inventory costs and mitigating risk.

1. What are the Manufacturing Options available with Mr. Martin Kelsey ? (10 marks)
Ans :

There can be many options available with Mr Martin Kesley . Some of them are:Ask the staff to work an extra shift (10 Hours) on Fridays, increasing staff temporarily to take the advantage of the idle production capacity.
Increasing the amount of inventory by maintaining a constant level of production

i.
ii.

iii. iv. v.

Change in Design of assembly line Hiring of new employees Hire all workers needed and ask them to work overtime . and by making use of the hired persons make extra amount of production in april. Subcontracting part of the work, such as the manufacture of seats for stackable chairs. Though this option would add an extra 20% to the cost of labour for the products, but given the current economy, FoldRite would not need to pay a set-up fee or commit to minimum orders.

2.What are the financial implications of each option ? What is the impact on lead-time ? (50 marks) Ans : Financial implications of these each options are as follows:
Wages (Skilled) = 19 + 33% of 19 = 25.27 Wages (Unskilled) = 9 + 10% of 9=9.9

Continued overtime is expensive as the overtime wage rates are 1.5 times the normal rate. Which come out to be: Full time: Wages (skilled): (19+33% of 19)*1.5=25.27*1.5=37.90 Wages (unskilled): (9+10% of 9)*1.5=9.9*.15=14.85

So an extra wages of 17.58 would be incurred for every Friday. Subcontracting strategy at 20% extra cost of labor will also be expensive:

Subcontracting cost (unskilled) = 120% of wages = 11.88 Subcontracting cost (skilled) = 120% of wages = 30.324. Change of design of assembly line: o A change in design would cost the company a onetime cost of $15000 and would take one month time to be fully operational on the factory floor. o But these changes would not affect the durability of the product. Hiring of New employees: o A new skilled worker would cost $1500 in recruiting and administrative expenses. o Two supervisors interviewed the unskilled the workers, each spending one hour on one worker, supervisors earned $25 per hour plus 33% benefits. o All newly inducted staff showed an efficiency of about 80% in the first week. Lead time will definitely improve if more skilled people start working extra hours but for the subcontracting strategy lead time will increase as inexperienced people with less knowledge will impact the operations initially as what happened in 2006 when lead time increased to 6-8 weeks.

3.What are the risks ? How does each of the options accommodates changes in economy and environment ? (20 marks) Ans: The risks are enormous in this process. To highlight certain pressing issues :

Under the overtime working conditions, overtime wages were 1.5 times higher than the normal wage rates, which includes the benefits. Similarly hiring new employees was a costly affair and will require management and supervision resources. Overtime also introduced fatigue, leading to declines in quality and yield. If demand did not materialize, laying-off these new workers would demoralize the remaining workforce and cost the company in added unemployment insurance. In any case, given the scarcity and expense of credit, the cost of carrying inventory beyond the normal two weeks demand would be a major concern.

4.Weighing options in term of non-financial implications. (20 marks)

Ans : If we weigh the options in terms of the non-financial implications we can say that:
If demand did not materialize, laying off new workers would Demoralize the remaining workforce Added unemployment insurance The cost of carrying inventory beyond two weeks would be major headache

Some of the options would be Using the green technology Using degradable plastic material. Giving emphasis to optimum efficiency.

Overtime Strategy effects: Advantages: o No need to lay off the superfluous labours and thus suffer from the demoralization and high unemployment insurance after the surge in demand. o Flexibility: can make change according to the change of the demand Disadvantages: High cost: overtime wages were 1.5 times the normal fully loaded rates. Decline in quality and yield: overtime may lead to labours fatigue Potential risk: may not able to meet the demand if the demand continues to increase Negative effect on potential labours: the long-lasting overtime may discourage other labour join in the company.

Subcontracting Strategy effects: Advantages: Least manufacture cost Save of its labour force and administrative resource Flexibility: can have relatively flexible change according to the demand Disadvantages: Inventory cost would be Extra 20% to the cost of labour for the product . No guarantee of the quality for product