LOUGHBOROUGH UNIVERSITY

MMC203: Manufacturing Planning & Control Coursework (Semester 2)

Guilherme Scandolara Rubio B310755

March 24, 2014

Introduction and Assumptions This report presents the analysis of an industrial scenario and the proposal of five different medium term capacity plans that ensure sufficient capacity to meet the projected customer requirements, comparing them and selecting the one that better fits the situation. In this section will be presented the assumptions for the performed study. These assumptions are: Analysing the actual orders for the first two months (in table 1) indicates that the forecast is a little conservative. Comparing these two months actual orders with their forecasts a correction factor was calculated and applied for the rest of the forecast. The new forecast is presented in the Appendix 1. It is assumed that there is no variation in the production process, and that the units produced by the workers meet the quality standards. It is assumed that the hired employees will have the same production rate as the older ones. It is assumed that when the overtime is required the operator will perform it all the working days of the month. It is assumed that when used the agency labor, the temporary worker will be hired for the whole month. The appendix 2 shows the production rates and costs of each type of working force. The cost of keeping finished products in inventory is 1,00 per unit per month.

Capacity Plans There are three main types of capacity plans: level capacity, chase demand and demand management. The level capacity plan consists in keeping the processing capacity constant through the planning period while the inventory levels are allowed to fluctuate to absorb the variations in market demand. In the chase demand plan the inventory levels are kept to a minimum and the capacity is constantly adjusted in line with the variation of the demand. These are called pure strategies, however they are only suited to very specific situations, and usually the best approach is a mixed strategy, using elements of both of them. In this report are presented one pure level capacity plan, two pure chase demand plans and two mixed plans. The plan considered being the most suited for the scenario was the plan 5, using mixed strategy. The data of the plans and the table comparing them is in the appendix 3 until appendix 8. Plan 1 Level Capacity

This strategy has some advantages compared to the others, like minimizing the changes to working force, that is kept constant, and simpler production scheduling and ordering system. However the inventory levels and costs are higher than in the other plans and it is unable to respond to sudden changes in the demand above the inventory level. In the plan tested for the scenario using this strategy the total cost of the plan was the higher among the five plans, 316,710, being 51,750 just the inventory holding costs. The average inventory level was of 2156 units with a maximum of 3090 in one month. Plan 2 and 3 Chase demand The chase demand strategy has the advantage of keeping the inventory levels to a minimum, maintaining only the safety stock, and being more responsive to demand changes. This is particularly used in industries with high stock costs. However the utilization of the resources in this strategy is lower than in the level capacity one, since the maximum production is almost never achieved, in order to avoid creating stock. Also the effort to schedule and recruit are higher and the moral is lower, due to the job insecurity and stress due overtime. The Plan 2 adopted the chase demand strategy manly by changing the production rates, while in the Plan 3 the tactic to chase demand was achieved by changing the workforce size. The Plan 2 had a considerable reduced total cost 301,206, since the inventory costs were only related to the 200 units in the safety stock. The direct labor costs were higher than the other plans, since three new employees were hired, however the costs of changing the workforce were not very high, since the capacity was adjusted by changing the production rate. The Plan 3 had the most changes in the workforce size, in 14 of the 24 months there was at least one change in the workforce, costing 42,500 for all of them. However this strategy was more efficient in chasing the demand and had the best cost of the pure strategies, 287,300. Plan 4 and 5 Mix Strategies These strategies used elements of both of the pure strategies. In the Plan 4 instead of leveling the capacity for the whole period of 24 months, this period was divided into two smaller periods, and the capacity was leveled for each of them independently. This resulted in smaller inventory costs by the end of the period than the pure level capacity strategy and a total cost of 298,466. The Plan 5 had some advantages comparing to the other plans, beginning with the total cost that was the lowest of the five, 280,147. This strategy was more similar to the chase demand strategies, however while in the pure chase demand strategies the actual production was almost never equal the capacity of the period (to avoid stock) in this plan it was allowed to form stock at the end of each period. This way the utilization of the workforce was always kept to a maximum. And although the stock costs were higher than in the chase demand strategies, the extra stock produced each period could be used in the next one, requiring less changes in the workforce than in the Plan 3. In the end only 4 months required changes in the working force and still the inventory levels were not as high as in the level capacity strategy, with an average of 851 units per period and a total of 20,427 of inventory costs. Conclusion

It was observed that the best-suited plan for this scenario was the mixed strategy plan 5. It had the lowest cost and some advantages compared to the others like higher utilization of the resources, low workforce changes and not so high inventory levels to deal with sudden changes in the demand. It is important to notice that if the demand continues to grow in the way presented in this scenario in the long term it must be necessary to make changes in the equipment in order to have extra capacity. The machinery was already with a utilization of more than 60% with 2000 units a month, and with a demand of 2900 units a month it is getting closer to its maximum capacity. Also since the demand is clearly seasonal, lower in the first months and higher in the last months of the year, some marketing strategies might be used to try to smooth the demand. Appendix 1 - Forecast

Forcasting Orders Forecast Month Received Requests Correction 1 1850 1800 1850 2 1430 1400 1430 3 1425 1400 1435 4 1875 1900 1947 5 1950 1998 6 1950 1998 7 2000 2050 8 2000 2050 9 2500 2562 10 2500 2562 11 2500 2562 12 2500 2562 13 1900 1947 14 1500 1537 15 1500 1537 16 2040 2091 17 2100 2152 18 2100 2152 19 2200 2255 20 2200 2255 21 2800 2869 22 2800 2869 23 2800 2869 24 2800 2869 Table 1: Forecast Correction

Appendix 2 - Workforce production rate and costs per month

Full Time N of employees 1 2 3 4 5 6 7 8 9 Overtime N of employees 1 2 3 4 5 6 Agency Labour N of employees 1 2 3

Production 333 666 1000 1333 1666 2000 2333 2666 3000

Cost Recruitment Cost 1600 3200 4800 6400 8000 9600 11200 2500 12800 5000 14400 7500

Additional Production 66 133 200 266 333 400

Cost 480 960 1440 1920 2400 2880

Additional Production

Costs 250 2000 500 4000 750 6000

Appendix 3 Plan 1: Level Capacity

Appendix 4 Plan 2: Chase demand changing production rate

Appendix 5 Plan 3: Chase Demand changing workforce

Appendix 6 Plan 4: Mix Strategy 1

Appendix 8 Total Costs Comparasion

Appendix 7 Plan 5: Mix Strategy 2