Introduction
Present day businesses are run very smoothly and are very fast changing. The organization must deal with many issues that emanate from time to time. These issues are overcome by intelligence and hard work of the employees. The introduction of the new technologies and developments affect the well being of the organization. Every organization is in business because it has products, services and in some cases a combination of both.
Operation management is the process which transfers inputs such as raw materials, labour and know-how into output in the forms of finished goods and services. It is the carrying out of responsibilities towards conversion of raw materials through a manufacturing or transferring process into a finished product. Operation management is production of good quality goods and service and the management of resources. It involves the responsibility of ensuring that business operations are well-organized and useful. It is the management of resources, the distribution of goods and services to the customers.
Definition of operation management: “The maintenance, control, and improvement of organizational activities that are required to produce goods or services for consumers. Operations management has traditionally been associated with manufacturing activities but can also be applied to the service sector. The measurement and evaluation of operations is usually undertaken through a process of business appraisal. Efficiency and effectiveness may be monitored by the application of ISO 9001 quality systems, or total quality management techniques.” (Business definition for: operations management 2009).
Background study
Newmarket International Manufacturing Company (NIMCO) is founded by Marcia Blakely. It produces three major custom products. Each product is unique and is processed through four different work centres. Currently 75 employees are working full time in the company and each employee is scheduled to work minimum 40 hours per week. Work beyond 40 hours envisages overtime at determined rates @$21/hour. Due to mass customization there is no finished goods inventory. The company is now facing the following problems:
- Poor customer service
- Stock out for some components and production inefficiencies.
The company decides to implement one of the three plans for improving the situation.
The Proposed three plans are
- Using the level workforce without allowing back orders in any period.
- Using the original full time workforce supplemented by the use of overtime to avoid back orders.
- Adjusting the workforce in each period to satisfy all the demands by hiring and firing employees.
Analysis
The analysis is done by calculating the cost associated with each plans. The regular time wage rate is $14 per hour, overtime is $21 per hour, hiring costs are $500 per employee and firing costs are $750 per employee.
- Plan 1: Use the level workforce without allowing back orders in any period
Cost incurred = total labour hours required X regular time wage
= 41,952 x 14 = $587,328
- Plan 2: By using the original full time workforce supplemented by overtime to avoid back orders.
Cost incurred = (total working hours x regular wage rate) + (overtime required x overtime rate)
= (39,000 x 14) + (2,952 x 21) = $607,992
Plan 3: Adjust the workforce in each period to satisfy all the demands by hiring and firing employees.
Cost incurred = (total working hours x regular wage rate) + (total hiring cost + total firing cost)
= 546,000 + 7,000 + 9,750 = $562,750
Recommendation
Aggregate capacity planning helps in planning the ideal quantity to produce in the time period and the lowest cost method. Some of the strategies in capacity planning are as follows: By varying the workforce size according to the demand by hiring and firing, maintaining the level of workforce and including idle time or by the capacity utilization in par with the demand. From the above analysis we can see that the cost incurred for the plan three i.e. adjusting the workforce in each period to satisfy all the demands by hiring and firing employees is low as compared to others.
Plan 1: total cost = $587328; Plan 2: total cost = $607992; Plan 3: total cost = $562750
Conclusion
Choosing the appropriate strategy depends upon the time and cost associated with each strategy. As the quick performance review of the past two quarters proved disappointing to the Newmarket International Manufacturing Company (NIMCO) due to the poor customer service, and stock outs of some components which resulted in production inefficiencies, we can give prior importance to plan three by considering the cost, customer service and operations working smoothly.
Please refer the Attachment 2 for detailed scheduling.
Appendix A
Appendix B: Cost of hiring and firing workers
Appendix C: Computation of labour, working hours and overtime required
From the analysis of the above, the following facts could be gleaned:
- Using Plan I, using the level workforce without allowing back orders in any period the total costs involved is $587,328
- Using Plan 2, using the original full time workforce supplemented by overtime to avoid back orders, costs work out to $ 607,992
- Using Plan 3, adjusting the workforce in each period to satisfy all the demands by hiring and firing employees, the costs work out to $562,750
Thus, if the best alternative is to be considered by the management Plan 3, at lowest costs would be the ideal plan for implementation. This would not only ensure optimum use of workforce but would also be lowest in costs when aspects of meeting production targets are concerned.
References
Business definition for: operations management, 2009, BNET Business Dictionary. Web.