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QoSIT uses various qualified sub-contract manufacturers to produce the majority of components
and sub-assemblies required to build each unit. However, due to complexity in testing and the need
Advantages:
2. Product configurability
4. Base unit has 12 solid state drive (SDD) slots and 32 optical ports.
5. Configuration options include: # of SDDs, # of optical ports and the software image
6. Each slot or port must be fully tested with an SDD or optical module, regardless whether
7. Typically, less than 50% of units sold are configured with all ports and SDDs installed.
About the Work Conditions:
Process types:
Since each unit is custom configured according to customer order, the management team decided
to divide the processes into two parts (for which different process layout and aggregate plan will
be made):
monthly rate, and kept in environmentally controlled storage units. One assumption made
for this process is that the shelf life of these unfinished regular units is high enough such
that it could be used still next year as the product serviceable life is 10 years.
2. Process B: This process involves steps from customer configuration all the way to
packaging. The production rate for this process will vary on monthly forecast demand.
2019 Forecast:
We were provided with the actual sales for Q1, Q2 and Q3 for 2018. We were also provided with
the Q4 forecast for 2018 by the Sales and Marketing team. Historically, the forecast for the coming
quarter provided by the Sales and Marketing team was quite reliable. This point will be taken into
consideration when we compare the marketing forecasts errors to the production forecasts.
In order to obtain the 2019 forecast, the Sales and Marketing team is predicting a 10% increase in
unit sales and at this point is expecting this formula to be uniformly spread over each month in
2019 (10% increase in January from prior Jan). The table and figure below illustrate the actual
sales and forecast sales provided by the Sales and Marketing team. Figure 1 illustrates the plotted
Figure 1: Actual sales for 2018 and Marketing forecast demand for 2018 and 2019.
In order for the Production team to produce a Forecast for Q4 of 2018 and for 2019, a technique
for Seasonal Demand Trend Variation (every 3 months) was followed. The results for the forecast
are illustrated in Table 2 below. Figure 2 illustrates the plotted Actual sales and the Production
demand forecast. See Appendix A for full calculations of the Forecast results.
Actual Sales Production Seasonal Production Seasonal
(2018) Forecast (2018) Forecast (2019)
Jan 142 200
Q1 Feb 174 236
Mar 711 963
Apr 157 214
Q2 May 191 252
Jun 777 1026
Jul 171 228
Q3 Aug 208 268
Sep 818 1090
Oct 186 242
Q4 Nov 220 284
Dec 899 1154
Table 2: Actual sales of units in Q1, Q2 and Q3 of 2018 and forecast sales of Q4 in 2018 and all of 2019.
Figure 2: Actual sales for 2018 and Production forecast demand for 2018 and 2019.
In order to calculate the accuracy of the followed formula, the Production seasonal forecast model
was compared to the Actual sales in 2018 and the Marketing and Sales forecast values for Q4 of
2018. The Marketing team forecast for a following quarter was deemed to be very reliable.
Therefore, the values of the Marketing forecast values were assumed to be Actual Sale values for
calculating the error values of the Production teams forecasting method. A judgement of the
accuracy of the Production team’s method for forecasting was obtained by calculating the MAPE
The Production Seasonal Demand forecast exhibited very low error values. Therefore, the model
Although both demand forecasts, Marketing and Production, follow a seasonal-variation trend, the
two demand forecasts exhibited some significant differences (approximately 1000 units in 2019).
demand in Q1 of 2019 from Q4 of 2018. The demand forecast model built by Production shows a
continuous increase in trend from Q4 in 2018 to Q1 of 2019. Table 3 illustrates a summary of the
Actual Sales, Marketing demand forecast and the production demand forecast. Figure 3 illustrates
Difference in Demand
Actual Marketing Production between
Sales Forecast Forecast Production & Marketing
Jan 142
Q1 Feb 174
Mar 711
Apr 157
Q2 May 191
Jun 777
2018
Jul 171
Q3 Aug 208
Sep 818
Oct 190 186
Q4 Nov 227 220 -10
Dec 898 899
Jan 156 200
Q1 Feb 191 236 269
Mar 782 963
Apr 173 214
Q2 May 210 252 255
Jun 855 1026
2019
Jul 188 228
Q3 Aug 229 268 269
Sep 900 1090
Oct 209 242
Q4 Nov 250 284 233
Dec 988 1154
The production team CANNOT simply justify building an extra 1027 units than what the Sales
and Marketing team is predicting. There’s a problem with both Forecasting models:
1. The marketing model assumes a constant increase of 10% in demand for each month which
2. The Production model assumes a continuous increase in demand from Q4 2018 to Q1 2019.
The assumption by marketing that the demand will decrease in Q1 of 2019 is very
plausible.
Therefore, we decided to build a new adjusted model which will assume a decrease in demand
from Q4 in 2018 to Q1 of 2019 and the model will use the trend model from Production. In order
to develop this model, we used the same slope of the previous regression model (10.401), however,
we assumed that the production in January of 2019 will be similar to Marketing’s forecast (156
units). These assumptions will lead to this regression model for the de-seasonalized forecasted
The adjusted production demand and the previous Marketing demand are illustrated in Table 4.
Figure 4 illustrates the plotted data comparing the Marketing Forecast to the ADJUSTED
Production forecast.
Production Demand
Reassessment
Difference Difference
between between
Initial Adjusted
Production Production
Initial Forecast Adjusted Forecast
Marketing Production and Production and
Demand Demand Marketing Demand Marketing
Forecast Forecast Forecast Forecast Forecast
Jan 156 200 44 156 0
Q1 Feb 191 236 45 185 -7
Mar 782 963 180 758 -24
Apr 173 214 42 170 -3
Q2 May 210 252 42 201 -9
Jun 855 1026 172 822 -33
Jul 188 228 40 184 -5
Q3 Aug 229 268 39 217 -12
Sep 900 1090 190 886 -14
Oct 209 242 33 197 -12
Q4 Nov 250 284 34 233 -17
Dec 988 1154 166 949 -39
To conclude, the team decided to proceed with the ADJUSTED PRODUCTION DEMAND
FORECAST (shown in Table 4). This model was chosen since it takes into account the
predictions made by the Sales and Marketing Team. The model also takes into consideration the
There’s a risk that may occur in following the proposed production plan. The assumption was that
demand will decrease in Q1 of 2019 from Q4 of 2018; which could be a false assumption.
Therefore, in order to overcome this risk; the production team will follow a reactive plan to adjust
capacity in January of 2019. Considering that customer orders have a one week of lead time; also,
since the orders are customized by the customers, the production team cannot finalize a product
until the receipt of a customer order. If customer orders increase dramatically, then the production
One of QoSIT completive factors is their fast delivery times as customers expect deliveries to be
Due to the seasonality of demand, a seasonal Inventory plan will be followed in order to
smooth/manage seasonal demand patterns on production. Build inventories in low demand periods
and sell during high demand to keep production output delivery relatively stable. This method will
also be used for managing seasonality in raw materials and inputs. A more precise inventory plan
As mentioned earlier, due to the complexity of testing each unit; the final assembly and testing is done
within the facility. To perform the tests, the following machines are used in the production line:
(mins)
configuration test
NOTE: The processes highlighted are customer configured processes (where constant monthly
production is impossible)
To calculate the required number of machines, the following equation (derived from Operations
Where,
I. For non-custom process steps: The yearly forecast demand for such steps can be the sum
of all the monthly demands since the company can have a constant monthly production
(which can be kept in inventory and used when needed for custom processes)
II. For custom process steps: As mentioned earlier, each unit is custom configured according
to the customer order. Due to this, such processes cannot have a constant production
(since each month will produce different units which differentiate in number of SSDs,
number of optical modules, and the software image). To find the required number of
machines, the least and highest forecast demand is used. Ordering machines based on
these demands will help the management get a minimum and maximum number of
machines needed.
2. Total Operating time for each machine per 1 unit can be found in table 6.
3. Total production time and capacity cushion:
Labor related production time determines the operating time for PCBA testers, power supply tester,
continuity testers, imaging system, and final testers as each of these machines requires a technologist. For
traffic chambers (which are computer controlled chambers) only need technologist for loading and
unloading units. The procedure to find the total production time can be found in Appendix x.
1. The Total Operation Time is the time the capital equipment takes to perform an operation on a
unit.
I. The operating time is considered to be the amount of time equipment is running under the
II. For traffic chambers (special case), it involves the time the machine is running without
any supervision.
3. It is assumed that the technologist are well trained to use the equipment and will not need any
4. QoSIT currently operates 1 shift in production (for 8 hours/day) and runs for 250 days per year.
There are two paid 10 min breaks and a paid 30 min lunch break each day.
5. No overtime or hiring of temporary workers (each demand is met within the regular hours).
6. The Executive team has mandated a 15% capacity cushion to respond to any unplanned customer
demands.
7. A 5 minute additional time is given between loading and unloading unit in traffic chamber (to
8. Total production time does not take into account idle/maintenance time that can occur during the
process.
9. The processes are placed parallel to each other and involves 0 idle time (machine will never run
Machines required:
The table below shows the machines required under ideal conditions, Appendix x2 will
show sample calculations for the machine requirements for traffic chambers, and imaging system.
Equipment Machines
Required
The imaging system (which costs $55,000 and has a life expectancy of 5 years) is needed for the
generic imaging and customer imaging processes. As both process has different forecast demands,
two different cost analysis will be done. For generic imaging, the cost analysis will be based on
yearly forecast demands (4956 units); while for customer imaging, cost analysis will be performed
for the 4 months with high demand values ( March, June, September, and December).
Manufacturing equipment are depreciation assets that can be written off as business expense yearly based
on their depreciation rate. The imaging system is assumed to have a life expectancy of 5 years after which
its salvage value is assumed to be $0. To determine yearly expense of imaging system, straight-line
0 0 0 55000
5 11000 55000 0
$11000/𝑦𝑒𝑎𝑟
𝑀𝑜𝑛𝑡ℎ𝑙𝑦 𝐷𝑒𝑝𝑟𝑒𝑐𝑖𝑎𝑡𝑖𝑜𝑛 𝑐𝑜𝑠𝑡 = = $ 916.67
12
Operation time to meet demand = 25 minutes X 4956 units/year = 123900 minutes/year = 2065 hrs/year
𝑇𝑜𝑡𝑎𝑙 𝐸𝑥𝑝𝑒𝑛𝑠𝑒 = 𝐷𝑒𝑝𝑟𝑒𝑐𝑖𝑎𝑡𝑖𝑜𝑛 𝐸𝑥𝑝𝑒𝑛𝑠𝑒 + 𝑅𝑒𝑔𝑢𝑙𝑎𝑟 𝐿𝑎𝑏𝑜𝑟 𝐶𝑜𝑠𝑡 + 𝑂𝑣𝑒𝑟𝑡𝑖𝑚𝑒 𝐿𝑎𝑏𝑜𝑟 𝑐𝑜𝑠𝑡
Looking at the two costs above, it can be seen that for the management team should look to buy only 1
machine for generic imaging process. In addition, it would be suitable for them to follow a reactive strategy
where they can buy additional machines for next year if they expect a dramatic increase in demand.
Operation time to meet monthly demand of 758 = 50 minutes X 758 units/month = 37900 minutes/month
= 631.67 hrs/month
Operation time to meet monthly demand of 822 = 50 minutes X 822 units/month = 41100 minutes/month
= 685 hrs/month
Operation time to meet monthly demand of 886 = 50 minutes X 886 units/month = 44300 minutes/month
= 738.33 hrs/month
Operation time to meet monthly demand of 758 = 50 minutes X 949 units/month = 47450 minutes/month
= 790.8333 hrs/month
Total regular labor time available in a month = 91375/12 = 7614.58 mins/month = 126.91 hrs/month
Overtime per day (hrs) 24.2 18.1 12.0 6.0 0.0 0.0
For Each Machine
Table 11: Imaging systems needed to meet 758 units for part B of production
Number of
Imaging System 1.0 2.0 3.0 4.0 5.0 6.0
Machines to
Purchase
Total Machine
Running Time 127.0 254.0 381.0 508.0 635.0 685.0
(hr/month)
Regular Labour
Costs in 2018 3048.0 6096.0 9144.0 12192.0 15240.0 16440.0
($/month)
Total Overtime 558.0 431.0 304.0 177.0 50.0 0.0
(hr)
Overtime per day
(hrs) For Each 26.8 20.7 14.6 8.5 2.4 0.0
Machine
Overtime Costs in 20088.0 15516.0 10944.0 6372.0 1800.0 0.0
2018 ($)
Depreciation 916.7 1833.3 2750.0 3666.7 4583.4 5500.0
Charge per month
Total Costs on
imaging processes 24052.7 23445.3 22838.0 22230.7 21623.4 21940.0
in 2018
Table 12: Imaging systems needed to meet 822 units for part B of production
Number of
Imaging System 1.0 2.0 3.0 4.0 5.0 6.0
Machines to
Purchase
Total Machine
Running Time 127.0 254.0 381.0 508.0 635.0 739.0
(hr/month)
Regular Labour
Costs in 2018 3048.0 6096.0 9144.0 12192.0 15240.0 17736.0
($/month)
Total Overtime 612.0 485.0 358.0 231.0 104.0 0.0
(hr)
Overtime per day
(hrs) For Each 29.4 23.3 17.2 11.1 5.0 0.0
Machine
Overtime Costs in 22032.0 17460.0 12888.0 8316.0 3744.0 0.0
2018 ($)
Depreciation 916.7 1833.3 2750.0 3666.7 4583.4 5500.0
Charge per month
Total Costs on
imaging processes 25996.7 25389.3 24782.0 24174.7 23567.4 23236.0
in 2018
Table 13: Imaging systems needed to meet 886 units for part B of production
4. Cost analysis of 949 demand:
Number of
Imaging
System 1.0 2.0 3.0 4.0 5.0 6.0 7.0
Machines to
Purchase
Total
Machine
Running 127.0 254.0 381.0 508.0 635.0 762.0 791.0
Time
(hr/month)
Regular
Labour
Costs in 3048.0 6096.0 9144.0 12192.0 15240.0 18288.0 18984.0
2018
($/month)
Total
Overtime 664.0 537.0 410.0 283.0 156.0 29.0 0.0
(hr)
Overtime
per day (hrs)
31.9 25.8 19.7 13.6 7.5 1.4 0.0
For Each
Machine
Overtime
Costs in 23904.0 19332.0 14760.0 10188.0 5616.0 1044.0 0.0
2018 ($)
Depreciation
Charge per 916.7 1833.3 2750.0 3666.7 4583.4 5500.0 6416.7
month
Total Costs
on imaging
27868.7 27261.3 26654.0 26046.7 25439.4 24832.0 25400.7
processes in
2018
Table 14: Imaging systems needed to meet 949 units for part B of production
Total cost for the 4 months if 5 machines are bought = 19751.4 + 21623.4 + 23567.4 + 25439.4 = $
90381.60
Total cost for the 4 months if 6 machines are bought = 20688.0 + 21940 + 23236.0 + 24832.0 = $
90696.60
Looking at the calculations above, the management should buy 5 machines based on the demands from the
selected four months. In addition, the management should employ an expansionist strategy and buy all the
equipment start of the year. Using an expansionist strategy will ensure, the total cost will be less (as seen
above), and will provide adequate overtime for workers (buying fewer machines results in overtime which
are not practically applicable in real life, for instance having 4 machines to make 849 units will require 11