Delta Plastics, Inc.
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The director for Delta Plastics, Inc. had to make a decision as pertains to which material to use in the productions of products produced by the company. His decision is based on the defects that happens on the products that are produced using two different types of materials, that is, ‘Super Plastic’ and standard material. Super plastic products are good over the standard materials product following their resistance to high temperature. The company has been using the standard material in producing its products for many years compared to super plastic that was just introduced.
The company started to use the super plastic in manufacturing its products one month ago. The director of manufacturing noticed that the use of super plastic brought about many defects compared to the standard materials that the company has been using for a longtime. The main decisions that the manufacturing director is expected to make is on whether of continue manufacturing using standard materials or change to the use of super plastic materials.
The paper take an assumption that the occurrence of defects implies a loss to the company as these are raws material that are wasted and has an impact of adding costs to the company on which no revenue is realized. There is also a loss in the machine hours and labour hours used on working on this products. This is reinforced by the reason that, defect products are not certain to be sold in the market, and if sold then they are certain to fetch less than the other perfectly finished products.
On making a decision on whether to use the new material or standard material, it requires one to evaluate the possibility for occurring a defect on using either of the materials. In relation to the defects, the market condition for each product that is produced using each material should be considered. On evaluating the defects, the 3-sigma control chart is used. The parameters that are monitored include the various defects that include uneven edges, cracks, scratches, air bubbles and thickness variation with respect to each type of materials. This is done using the data provided below as attained from the real production statistics of the company. The data covers four weeks of the company’s operations.
The 3-sigma control chart is provided as below:
The key for identifying the various defects is as follows as given in the 3-sigma control chart;
Row 4: Uneven Edge
Row 5: Cracks
Row 6: Scratch
Row 7: Air bubbles
Row 8: Thickness Variation
Row 12: Uneven Edge
Row 13: Cracks
Row 14: Scratch
Row 15: Air bubbles
Row 16: Thickness Variation
From the analysis of the 3-sigma control chart provided in the diagram above, a number of aspects can be deduced with regard to various types of defects as provided in the diagram. In general, the super plastic material products can be perceived to be having more defects than the standard material products. This implies that the company is likely to experience more losses in terms of defects from products that are made of the new material, superior plastic. For a profit maximizing company, the utilization of standard material becomes a right choice. However this choice is valid on the assumption that consumers of the products produced by the company are indifferent between the products produced on using either of the materials.
However this is not necessarily the case because the products made of the super plastic material are resistant to high temperature which is certain to make the consumers to develop a preference in one of the products produced from some materials. This is valid on the assumption that the consumers are aware of the qualities for the products produced from either of the materials, and the consumers are assumed to be rational on making choices (Lewis, and Slack, 2002). This situation calls for the director to evaluate the benefits in terms of increased sales level that imply profitability of the company and the costs that occur as a result of defects. If the benefits from sales are greater than the costs incurred due to defects, the company should turn to utilizing the super plastic material in manufacturing their products. If the costs incurred in defects are more than the benefits attained from the increased sales, then the company should quite using Superior plastic materials and otherwise continue using standard materials.
Therefore, an informed decision on whether to use standardized material or superior plastic material will depend on first evaluating the market condition for the products produced using each material. If the return from sales benefits are more than the costs incurred due to defects then the utilization of that material should be enhanced. This is based on the assumption that the prices for the materials are also equal.
Exercise Two: Portfolio
Great Northwest Outdoor Company
Great Northwest Outdoor Company engages on selling outdoor recreation clothing. It operates using the catalogue sales. The demand for its products vary over seasons, where high sells are reported during holidays and in the spring season. The data for its sales for five years is as provided below:
The company intends to carry out a sales forecast for the year 2005. The uncertainty arises on the best method that a company should use on carrying out the sales. On carrying out this activity, the company intends to use the seasonality adjusted forecast that will be compared developed exponential smoothing forecast with the value of ‘a’ being equal to 30%.
The seasonality adjusted forecast can be done by the use of a spread sheet ( Lewis, and Slack,2002.. The process of doing the forecast involve various steps that include the seasonal adjusting of data, generate a seasonally adjusted data by the use of the linear exponential smoothing, and lastly ‘reseasonalize’ the seasonally adjusted forecasts on attaining the original series. The whole process takes the first six columns of the spread sheet. An illustrated is carried out using the data provided above.
It first requires one to calculate the centered moving average, which is done in column C of the spread sheet. The process involve the taking of an average for the two years where the second year is offset by one season ( Lewis and Slack, 2002). This is followed by determining the ratio to the moving average, which is attained by finding a quotient for the moving average and the original data in each season. The results for ratio moving average are presented in column D of the spread sheet. The Estimated Seasonal Index is then calculated for each season. The seasonally adjusted data is calculated by finding the quotient between the original data and the estimated seasonal indices. The expected results on running the data on the spread sheet is provided as below in the table below as obtained from the spread sheet.
Creating an extension for the the similar spread sheet as the ones used in estimating the seasonally adjusted data, a linear exponential smoothing model can be obtained.
Professional Video Management.
The case involves the making of a decision as pertains to which supplier is best following the associated supplying condition that are attached to each supplying contract. Steve, the producer of the a Video system wishes to make an integrated video system, and the advantage with the system is the competitive price that its offered at in the market. He had a wide range of of suppliers to make a choice from on which he has decided to consider two of these many suppliers. The two suppliers under consideration include Toshiki and Kony. Toshiki is a Japanese company whose operations are located in Japan. The company offers a quantity discount at varied levels of quantities supplied. The company supplies at a price of $ 250 for the supply that ranges from 0 to 2000 units. The price decline to $230 for the supply quantity in the range of 2000-8000 units. For the range 8000-20000, the company charges a price of $220. A price of 210 is charged when the quantity is over 20000 units.
In contrast to the Toshiki, Kony is located all over the world with operations in the United States although having a Japanese origin. In has operations in over 90 countries. Kony offers a quantity discount just like Toshika, however at varied rates. For the quantities ranging between 0 to 1000, the company charges a price of $240 per unit. The quantity range of 1000-5000, the company charges $ 230 per unit supplied, and for the quantity that is above 5000, the company charges a price of $210.
Following the location of Kony in the United States, the company becomes a convenient supplier to Steve on the reason that there is less time that is required to place an order and have the goods supplied, that is the lead time. The cost for making an order per unit with Kony is $40 compared to $90 for making an order with Toshiki, that is located in Japanese. The delivery time from Japan is three months compared to the two weeks for Kony that is located in the United States.
The reorder points for the companies
The demand for the products is sometimes uncertain, that is, it is likely to vary from time to time. The variation in the demand for goods have an adverse impact on the production of the products. During a low demand the company is expected to reduce its output that will also affect the amount of raw materials that will be supplied by the suppliers of the company. In the situation where the demand it relatively constant, it is easy for the company to be able to establish the amount the amount of raw material that is requires to be supplied with at a given period of time ( Lewis and Slack, 2002). Under such condition a reorder point that is accurate can be calculated.
On calculating a reorder point, one is required to determine the safety stock which mainly imply the level of stock that has to be kept with the company to avoid the damages that are likely to arise following a shortage. Shortages are likely to disrupt the smooth running of the company’s operations. Delivery time of stock is also considered that simply mean the stock that is required during the lead time. Lead time mean the time taken for the stock to be delivered at the premises of the company after making an order ( Lewis and Slack, 2002). Therefore, reorder point can be perceive as being the sum of consumption during during the lead time and safety stock. It is expressed both in terms of quantity and time.
Toshiki company has a lead time of three months. On average, the demand for the Systems is 8000 units per month. This means that the company has to order (8000*2), that is, 16,000 units in every order before the next delver in every three months. An assumption of there being no safety stock safety stock is held following the certainty of the demand. The company will only order for the material that will meet the demand as the uncertainties for demand variations that may cause shortages are catered for following he certainty in demand. The company will make an order of (16,000/15), that is, 1067 units per day. Therefore the reorder point for Toshika is equivalent to 1067 units per day on meeting the market demand of 8000 units per month. Kony has a lead time of two weeks. The demand for two weeks is equivalent to 4000 system. This imply that Steve will require to make an order of (4000*2), that is, 8000 units in every two weeks.
The company to supply the tapes.
The supplier that will enable Steve to minimize the costs of ordering is Kony. This follows from the low costs and convince that is associated with making an order with Kony. In the first instant, the company’s quantity discount is greater than Toshika at all level of the quantities supplied. This will lessen the costs of producing each system that will enable Steve to charge a less price in the market on maintaining the desired level of marginal profit. There is less of paper work and lead time on making an order with Kony compared to Toshika. This makes it a right choice following the convenience level that is created on the reason that Steve is likely to attain the stock at the shortest time possible and at the lowest cost.
Impacts of the strategies on Steve’s inventory control.
The strategies of either selling the components separately or modifying the control box to accommodate other video tape systems has an impact on how inventory control is done and the reorder point. The reorder point will be affected following the change in the demand for the system as the consumers’ desire for the products is likely to be affected by the change in the quality of the product and the purposes that it can perform. Selling the components separately will imply that the consumers will be having varied demand for each component depending on their desires, therefore, the reorder point will change in relation to the demand level for each component. Selling of the system by modifying the control box to accommodate all the components will boast the demand for all the components at a uniform, meaning that the reorder point will be affected following the change in demand, on the assumption that Steve is likely to adjust on meeting the market demand.
New Market International Manufacturing
The company managers are required to evaluate the three plans that are likely to implemented on controlling the level of the work force that will produce the goods that are likely to meet the market demand and at the same reduce the costs of the company on improving the company’s profitability. The company produces three products, that is, A ,B and C. Each product require a specified level of labour hour. It is the demand for the products that determined the amount of products produced because the company does not keep either inventory of materials or finished goods. Averagely, each employee work for 40 hour per week. The labour hours requirement for A is 0.24, B is 0.38, and C is 0.29.
From the first plan, that is the utilization of the current employees and no back orders are allowed imply that the company will only utilize (40*75 employees), 3000 labour hours per week. From the schedule given below, it is evident that there are some weeks in which the company is unlikely meet the market demand, however not by a big margin as it may be considered. This will cost the company a total of (3000*$14), $42000 every week. Plan two involves the using of the 75 full time employees and having them to work for overtime to avoid back orders. The overtime value will vary from one week to the other but it is an average of 200 hours per week. Plan three involve the hiring and firing of employees, where hiring and firing comes with a heavy cost.
Plan two is the best for the company to adapt following the fact that, it is less costly and certain to enable the company to meet the market demand for its products. Plan One will limit the company from satisfying the market demand as in some weeks the the demand will be higher than the ability for the company to meet the demand implying forgone profits that the company could have realized on meeting the demand. Plan three can be perceived as being costly to the company following the expenses that are involved in hiring and firing. The costs arise following the fact that there is no job security for the employees of the company. The third plan will also have a negative impact on the employees morale as they are at work with anticipation of leaving soon, thus the possibility of them having diversified minds that will affect their performance negatively. The company should therefore try to keep a good relationship with the 75 full time employees
Lewis, M. and Slack, N. Operations management. Critical Perspectives on Business and Management. Routledge. 2002.