Kool King Division (A)

1. Evaluate the company’s operations during fiscal year 1979.

a) What were the principal problems?
b) What strengths do you see?

Solution 1.
Principal Problems of the company’s operations during fiscal year 1979 were:

• Kool King incurred losses due to stock outs of 208 volt models
• They are facing an increasing number of quality complaints
• Maintaining market share in a growing market
• Deal with a seasonal trend in air conditioner demand
• Maintain a steady work force
• Deal with shutdowns

Strengths:

• Strategies adopted to increase the length of demand period of air conditioners. Eg. Early
order discount plan
• The planned production plan took all product mixes in account
• Flexible production schedule

2. What problems experienced in 1979, are likely to recur in 1980?

Product Quality: Increasing number of quality complaints.

• Strive to maintain the market share in a growing market
• Deal with seasonal demand trend for air conditioners
• Deal with shutdowns

3. Look carefully at Kool King’s use of capacity.

a) Can they meet the 1980 forecast?

The 1980 forecast can be met subject to meeting the labour enhancements.

Also, the capacity of the warehouse has to be increased to meet the production
requirements.

4. As an operations manager, establish an aggregate plan and describe operating policies to

revise production schedules.

(Hint: For developing the aggregate plan, you may exclude super and slimline from the
calculations. Aggregate all other products and choose an appropriate unit of aggregation.

In addition to evaluating the chase and level production strategies, develop a hybrid strategy
that takes into account inventory and the cost of changing capacity while meeting the
demands.)
 Solution:

KOOL KING - Fiscal year 1980

Mighty Breeze Breeze

Particulars Midget Islander Super Slim Line Sum Total
Midget Queen King
Estimated FY1980 Sales 46,500 11,000 41,000 8,000 5,000 1,500 10,000 1,23,000
Inventory Sept 1'1979 - 1,420 2,165 - 2,605 312 1,512 8,014
Inventory Sept 1'1980 8,014

Cost ($) 300 350 650

optimal Model Changeover 8,300 8,300 8,300 8,300 8,300 8,300 8,300 41,500
No. of change / year 6 1 5 1 1 0 1 13
Per change 6,000 6,000 6,000 6,000 6,000 6,000 6,000 30,000
Model makeover cost/change 30,000 6,000 24,000 6,000 - - 6,000 66,000
Shift lost in Changeover 12 2 10 1 1 1 26
Labor
Direct Labor Index / Unit 0.08 0.07 0.11 0.07 0.10 0.22 1
Direct Labor index / Model 3,720 770 4,510 560 500 330 - 10,390

Inventory Policy:

To minimize our inventory cost, we cannot go for all year fixed Production and Procurement method.

So we divided year into 3 parts:

a) Off Peak Season ( Sept – March)

b) Peak Season (April – July)

c) Shutdown Period (August – Sept)

Cumulative aggregate production for year 1980 is 123,000 units for 12 months between
September 1979 and August 1980.

In fixed rate of production

Production per month = (120,000/12) = 10,000 units.

But Shipping per month for the first 6 month is = (30000/6)= 5,000 units

Inventory (avg) per month = (10000-5000) = 5,000 units

 Means 50% of the production output is getting locked up (i.e. Inventory)

So, we can vary the production as per the off peak season and peak season

Maintaining produce 8300 units for first 6 months and 16250 for the next 6 months

This includes 15 days inventory buffer stock.

Monthly Cumulative Cumulative

Month
Production Production shipment
Sept 8300 8300 1196
oct 8300 16600 8967
nov 8300 24900 12554
dec 8300 33200 17934
jan 8300 41500 24510
feb 8300 49800 35868
mar 8300 58100 44954
apr 16250 74350 64681
may 16250 90600 84767
jun 16250 106850 103299
jul 16250 123100 123026

FISCAL YEAR 1980

Month Monthly Cumulative Shipment Shipment Cumulative Inventory Total

Production Production per month per month shipment per month Inventory
 (1979) (1980)
1979 carry 8013
September 8300 8300 1000 1196 1196 7104 15117
October 8300 16600 6500 7771 8967 7633 15646
November 8300 24900 3000 3587 12554 12346 20359
December 8300 33200 4500 5380 17934 15266 23279
January 8300 41500 5500 6576 24510 16990 25003
February 8300 49800 9500 11358 35868 13932 21945
March 8300 58100 7600 9086 44954 13146 21159
April 16250 74350 16500 19727 64681 9669 17682
May 16250 90600 16800 20086 84767 5833 13846
June 16250 106850 15500 18532 103299 3551 11564
July 16250 123100 16500 19727 123026 74 8087
August
(closing) 8013

30
FISCAL YEAR 1980 25000

25
d
n
u
h
o
T
a
s

20000

y =-472.86x +19442
20 R² =0.094
15000

15

10000
10

5000
5

0 0

Total Inventory Monthly Production

Shipment per month (1980) Linear (Total Inventory)

5. What should Mr.Lewis do?

 Mr Lewis should adopt a two phase production strategy. The cumulative productions in
both the phases will be fixed but differential. This will lead to accumulating inventory at
an optimum level in the off peak season. Production at demand level in the peak season
and use of accumulated inventory from the off peak season can be used to meet the
increased demands. This would mandate provisioning for the increased labour for
increased production in 1980.

Additional Information for analysing Kool King Case:

1. Assume the following cost structure when you are evaluating alternatives:
• Inventory carrying cost = $30/unit/year
• Cost of hiring = $284.50/worker
• Cost of layoff = $81/worker
• Regular wages = $6/hour
• Overtime Wages = $9/hour

2. Assume one shift operation of line would require 112 workers.

3. Assume that each shift is 8 hours long. Underproduction is permitted. However, the workers
get paid for the entire shift length.

4. Plant shutdown in fiscal 1980 is assumed to be one month (From August 8-Sept 7, 1980).
Previous year’s shutdown continues till September 7, 1979.

5. Assume that the level of ending inventory in August 1980 is same as that planned for August
1979 (i.e. 8013 units)

6. Assume that the shipment pattern given in exhibit 5 is representative of the requirement in
fiscal 1980 also.

7. Do not include super and slimline in your calculations.

8. Note that under the current operation, the plant works 5 days a week with one shift and the
regular holidays are observed as per exhibit 4.

9. Please note that each change over between the products (for example from Midget to Breeze
Queen) requires two shifts. This loss of production time is in addition to the $6000 cost
mentioned in the case.

Case Study Don’t Bother Me, I can’t Cope

Submission Date 3-Nov-2009

Class EPGP– 09-10

Subject SOM

Instructor Prof. N. Ravichandran

Prof. Rohit Kapoor
Submitted by
Rajendra Inani

Table of contents
Summary of Analysis and Results.....................................................................................................................7
Line A – Existing Production 315 Units / Day..................................................................................................8
Line A –Desired Production 420 Units/ Day.....................................................................................................8
Line B –Existing Production 140 Units/ Day.....................................................................................................9
Line B –Desired Production 210 Units/ Day.....................................................................................................9
 Summary of Analysis and Results

On analysis of the given case, as described in subsequent sections following is the

recommendations.
Line A: Solution 1 is suitable, if this order has to be continued for more than 91 working
days.
# Units Per Unit Per Day Regular # of Regular Over Wages / Contribution
Produced Contributio Contributio wages workers hours Time Day + / Day /
/ Day n (Rs) n (Rs) (Rs) Hours OverTime Worker
420 30 12600 18 9 8 0 1296 1256
(Desired)
420 30 12600 18 7 8 2 1428 1596
(Desired)
315 (Old) 30 9450 18 7 8 0 1008 1206

Solution 1: This recommendation requires hiring two additional resources, which involves Rs.
12000 training cost and per day wages is Rs. 1296.
Solution 2: This solution has continuing with 7 workers with 2 hours of overtime each day. The
differential wage per day including overtime is Rs. 132 in this case. (12000 / 132 = 90.90)
Line B: Solution 1 is suitable
# Units Per Unit Per Day Regular # of Regular Over Wages / Contribution
Produced Contributio Contributio wages workers hours Time Day + OT / Day /
/ Day n (Rs) n (Rs) (Rs) Hours +Rejection Worker
Expenses
210 30 6300 18 3 8 1 529.2 1923.6
(Desired)
210 30 6300 18 4 8 0 576 1431
(Desired)
140 (Old) 30 4200 18 2 8 0 288 1956

Solution 1: This recommendation requires hiring one additional resource, which involves Rs.
6000 training cost. In this case, the Efficiency of operation is maintained at 100%, but involved
overtime for 1 worker for 1 hour. (Actually making 16 extra unit consuming 36 minutes on 3rd
workbench), considering wages of Overtime and 1% rejection due to fatigue.

Solution 2: This recommendation requires hiring two additional resource, which involves Rs.
12000 training cost. But wages exceeds to Rs. 576, more than solution 1.
 Line A – Existing Production 315 Units / Day
Activity Activity Time (Sec) Immediate
Predecessor
1 30 None
2 50 None
3 40 1
4 50 1
5 20 2
6 10 3
7 10 4,5
8 20 2
9 10 6
10 40 9
11 20 7
12 30 7
13 50 9
14 50 10
15 10 11
16 40 8,12
Total Lead
Time 480

Cycle Time for 315 Units / Day = 420 Mins / 315 Units = 1.33 Minutes/ Unit = 80 Seconds / Unit
Nos of Work Station required = Lead Time x Prod Units / Available Time = 6 Work Stations

Presently, Mr. Sane is using 7 workstations against the needed 6 work Stations as following.

W/S Activities Time (Seconds) Time (Minutes) Idle Time (Minutes)

1 1,3 70 1.166667 0.163333
2 2,5 70 1.166667 0.163333
3 4,8 70 1.166667 0.163333
4 6,9,13 70 1.166667 0.163333
5 7,10,11 70 1.166667 0.163333
6 14,15 60 1 0.33
7 12,16 70 1.166667 0.163333

Available Time (Minutes) = 7 W/S x Cycle Time 1.33 Mins = 9.31

Idle time 1.31
Efficiency % = 8 Mins / 9.31 Mins = 85.93
Line A –Desired Production 420 Units/ Day

Cycle Time for 420 Units / Day = 420 Mins / 420 Units = 1 Minutes/ Unit = 60 Seconds / Unit
Nos of Work Station required = Lead Time x Prod Units / Available Time = 8 Work Stations
W/S Activities Time (Seconds) Maximum Production
Capacity (# of Units / day)
1 2 50 504
2 1,5 50 504
3 3,8 60 420
4 4,6,7 70 360
5 9,13 60 420
6 10,11 60 420
7 14,15 60 420
 8 12,16 70 360

With the given nature of certain tasks, we cannot group them in a way that each Work Station can have less
or equal to 60 Seconds (Cycle Time) of tasks. Thus, Work Stations 4 and 8 would have Bottleneck capacity
of 360 Units / Day, which is less then desired 420 Units/ Day.
With Work Stations = 9, following organization would be suitable.
W/S Activities Time (Seconds) Maximum Production
Capacity (# of Units / day)
1 1 30 504
2 2 50 504
3 3,5 60 420
4 4,6 60 360
5 10 40 420
6 7,11,12 60 420
7 9,13 60 420
8 14,15 60 360
9 8,16 60

Available Time (Minutes) = 9 W/S x 420 Mins each day 3780

Utilized time = Lead time 8 Mins x Units Producted 420 Units 3360
Efficiency % = Utilized Time / Available Time 88.89
Line B –Existing Production 140 Units/ Day
Activity Activity Time Immediate
(Sec) Predecessor
a 40 None
b 50 None
c 70 a
d 20 a
e 50 a
f 40 b,c
g 60 e
h 30 d,f,g
Lead Time 360 6 Minutes

W/S Activities Time (Seconds) Maximum Production

Capacity (# of Units / day)
1 a,b,c,d 180 140
2 e,f,g,h 180 140

Available Time (Minutes) = 2 W/S x 420 Mins each day 840

Utilized time = Lead time 6 Mins x Units Producted 140 Units 840
Efficiency % = Utilized Time / Available Time 100.00

Line B –Desired Production 210 Units/ Day

Cycle Time for 210 Units / Day = 420 Mins / 210 Units = 2 Minutes/ Unit = 120 Seconds / Unit
Nos of Work Station required = Lead Time x Prod Units / Available Time = 3 Work Stations
W/S Activities Time Maximum Production Production Capacity with 1 Hour
(Seconds) Capacity (# of Units / Overtime
day)
1 a,b, d 110 229 262 (Not used)
2 c,e 120 210 240 (Not used)
3 f,g,h 130 194 222 (Used for extra 16 Units only – 36
Minutes)

Available Time (Minutes) = 3 W/S x 420 Mins each day 1260

Utilized time = Lead time 6 Mins x Units Producted 210 Units 1260
Efficiency % = Utilized Time / Available Time 100.00