Case Analysis: Wilkins, A Zurn Company: Aggregate Production Planning

Case Questions

Q1. Explain the nature of Wilkins business and major challenges?

Ans. Nature of Wilkins business:

 Wilkins is in the business of high quality water control products which are Pressure Vacuum
Breakers (PVB) and Fire Valves (FV).
 PVB has seasonal market, with the highest demand in the third quarter. Fire Valves is a
product with a high degree of market volatility.
 PVBs are made to stock and 54% of the PVB inventory is finished goods. Fire Valves are
made to order and 85% of the fire valve inventory is raw materials
 The finished product inventory is distributed through 52 places in the United States. As a
result, it had a decentralized delivery system.
 Demand for the company’s product is growing
 Due to seasonal demand, current production capacity has constraints during peak season
and surplus capacity during other seasons.
 Low labor cost

Major challenges of Wilkins business:

 PVB's seasonal demand triggers production capacity constraints during peak season and
surplus capacity during the rest of the year.
 Irregular demand of fire valves
 Excess inventory at plant
 No inter supplier transfer

Q2. Considering that management has given a target to reduce the inventory by 30%, how can you
achieve it for pressure vacuum breakers (PVB) for the year 2005? (For Safety Stock Calculations,
use the formula Safety Stock = Z.δt..√L , where L is the Lead Time and δ is the standard deviation.
Make the following Assumptions for the year 2005.

a) δq1 = 1877, δq2 = 3361, δq3 = 3851, δq4 = 8154. (where q1 –quarter 1, q2-quarter 2, q3 –
quarter 3, q4 – quarter 4)
b) Customer Service Level of 99% and Lead Time of 2 weeks.
c) 6 Employees of PVB cell manage both Dept 101 which supplies Machine Castings to the
PVB cell and Dept 104 which produce PVB cell.

Ans. Safety stock = Z*SD*(L)^(1/2)

Z value = 2.326347874

Lead time = 2 weeks = 2/13 quarter

Customer service level = 99%

Quarter 1: SD = 1877 Safety Stock = 1712.703765

Quarter 1: SD = 3361 Safety Stock = 3066.807328

Quarter 1: SD = 3851 Safety Stock = 3513.916995

Quarter 1: SD = 8154 Safety Stock = 7440.269846

Weeks in a quarter = 13

Production cost per unit = $25.65

Initial number of employees = 6

Holding cost = 20%

Hiring cost per employee = $580

Inventory value = $1523789

Initial inventory = inventory value/production cost per unit = 1523789/25.65 = 59407 units

Holding cost = 20% of production cost = 0.2*25.65 = $5.13 per unit per year = 1.2825 per unit
per year

Production rate = 100 units (per day per employee) * 5 days * 13 weeks = 6500 units per quarter
per employee

Labor usage = 82.4%

Production rate = 0.824*6500 = 5356 units per quarter per employee

Level Strategy

 Normal Production Rate for every quarter

 Min Inventory or Safety Stock necessary in the time period

Forecast (units/week) 4120 7480.00 9341 5983

Forecast (units/quarter) 53560 97240 121433 77779
Safety stock 1713 3067 3514 7440
Regular production (per
quarter) 74984 74984 74984 74984
Ending inventory (in units) 59407 80831 58575 12126 9331
Number of employee 6 14 14 14 14
New employee 8 0 0 0
Cost of hiring (in $) 4640 0 0 0
Cost of regular production (in 192334
$) 1927980 1923340 0 1923340
103665. 75122.4 11967.0
Holding cost (in $) 8 4 15551.6 1
193889
Total cost (in $ per quarter) 2031645 1998462 1 1935307
Annual total cost 7904305
 Average Inventory in Level Strategy = (80831+58575+12126+9331)/4 = 40216 units per quarter

Chase Strategy

 Production levels vary periodically based on demand

 Maintain min Safety stock which is variable throughout the time periods

Column1 Initial Q1 Q2 Q3 Q4
Forecast (units/week) 4120 7480 9341 5983
Forecast (units/quarter) 53560 97240 121433 77779
Safety stock 1713 3067 3514 7440
Regular production (per
quarter) 0 96408 123188 80340
Ending inventory (in units) 59407 5847 5015 6770 9331
Number of employee 6 0 18 23 15
New employee -6 18 5 -8
Cost of hiring (in $) 10440 2900
Cost of firing (in $) 1800 2400
Cost of regular production (in
$) 1800 2483305 3162672 2063121
7498.77 6431.73 8682.52 11967.0
Holding cost (in $) 8 8 5 1
9298.77
Total cost (in $ per quarter) 8 2489737 3171355 2075088
Annual total cost 7745478

Average Inventory in Chase Strategy = (5847+5015+6770+9331)/4 = 6741 units per quarter

Q3. How the planning would be different if you use the “Chase” and “Level” strategy.

Ans.

 Changes in demand are handled by inventory, overtime subcontracting, and other strategies
in the level strategy, while in the chase demand strategy, the workforce level or production
rate is adjusted to satisfy demand.
 The decision on which approach to use is based on which expense is higher: the cost of
recruiting and firing or the cost of subcontracting
 In level strategy, we can handle with two shifts as the maximum number of employees at the
PVB cell in a single shift is seven. We can continue with no lay-off policy.
 As part of the chase strategy, we'll need to prepare for both recruiting and firing, as well as
opting for 3 shifts per day.