SOLUTION FOR FOLDRITE FURNITURE CASE
Service level is 95% (5% of output is defect)
Wages skilled / labor hour = 19 + 33% * 19 = $25.27
Wages unskilled / labor hour = 9 + 10%*9 = $9.9
Hiring cost per worker (skilled) = $1,500/worker
Hiring cost per worker (unskilled) = 25*2*1.33 = $66.5/worker
Training cost per unskilled to be skilled (4 weeks with full wage) = 4*9.9 = $39.6/worker
Production requirement = demand forecast = Sum of (daily demand * production days)
Production hours required (skilled) = Sum (Production requirement * time to produce one unit)
Production hours required (unskilled) = Sum (Production requirement *time to produce one unit)
Hours per …show more content…
Description: the company may require current workers to work overtime in peak season. This alternative will enable the company to meet unexpected increase in demand in peak seasons. Also, it won’t have superfluous workers after peak seasons.
Pros: The company doesn’t need to lay off redundant workers. Consequently, the company can maintain its image and avoid demoralization or suffer from high unemployment insurance. In addition, the company will have more flexibility in production.
Cons: Overtime working hours incur higher cost than usual at 1.5 times. Moreover, excessive increase in working hour may result in decrease of quality and generate negative impacts on workers. After all, there are certain limitations on the magnitude of production increase. Based on our estimation above, this alternative alone isn’t enough to meet demand in peak season
Description: the company can outsource production to subcontractors in peak seasons
Pros: the company will save manufacturing, labor and administrative cost. Also, the company has a greater flexibility
Cons: the company will incur more inventory cost and increase extra 20% to the cost of labor for the product. The quality of products manufactured by subcontractors is not guaranteed. Also, excessive inventory over 2 weeks will result in cash flow issues.
3/ Hiring skilled labors:
Description: the company employs