Professional Documents
Culture Documents
Farid Ardika Dasum - 29120020 - Final Exam
Farid Ardika Dasum - 29120020 - Final Exam
OPERATION MANAGEMENT
29120287
OPERATION MANAGEMENT
BACKGROUND
Green Production Company is producent that sell a custom apparel in Bandung. Type of
product that they sell is high involvement product which already have their own target
market. Early, Green Production company is facing bad situation because of economic
recession in 2020 that happened for Covid-19 affects. According to this condition, there
is a decreasing number of selling that is very significant. Based on this, there are many
acts that company did in respond to this situation and also survive to maintain
healthiness of this company.
Along the effort of recovery in 2020, with the appearance of the important event such as
“PILKADA” in December 2020 and other events, it can be projected that the amount of
selling will increased and it will fully recover this company.
To fully recovery, it should be balanced with good performance of this company. So,
Green Production company want to reconsideration about production strategies based
on newest situation. To utilize opportunities for big incoming events, they plan to join
tender and personal approach in any potential market. From those efforts, it resulted
projection demand in 6 months period by Green Production company, as follows :
August: 1600
September 1800
October 1200
November 800
December 1000
January 1400
From the calendar, it obtained total working days for each period.
Green Production Company consider three strategies which the first one is to produce
exact monthly production requirements by varying workforce size. Second plan is
strategic production to meet expected demand by maintain constant workforce. Third
plan is to produce minimum expected demand by using constant workforce and
subcontracting to meet requirements. These alternative plan is being considerate which
already correspondence to the strategic of this company while running their business.
To decide strategy, there are several consideration, as follows :
Cost of materials for production is Rp 200.000 per unit
Cost of subcontracting for production is Rp 20.000 more expensive than produce
it their selves
Inventory cost is Rp 2500 per unit per month
Recruitment and training cost is Rp 250.000 for each worker
Lay-off cost is Rp 280.000 for each worker
Losses from out of stock is Rp 6500 per unit
Total amount of working hours in producing one unit is 6 hours
Rates for each hour in normal working hour is Rp 5.000
Over-time cost is Rp 7.000 per hour
Production rate estimated for 4 hours per unit per workers
Inventory left at the end of 2020 estimated as equal to 500 unit
PROBLEM STATEMENT
According to the problem that explained above, company should think about the most
efficiency production strategic to meet demand fluctuation. It needs to decide so that the
production process is not interrupted by changed situation, and the amount cost that they
will expense will not be bloated.
Based on the problem statement above, Green Production Company begin to create
planning to know which strategies that benefit the company the most. First thing that
they do is create production planning, because it can be the most important to plan
because most of expense of this company is belong to production. Production planning
strategies intentionally do for meeting their demand. its calculation involve workers
employed, work hours in the company, inventory in and out at the company and
shortage. In common company can use pure strategy that only includes just one strategic
approach. But, It can also can use mixed strategy that involve two or more strategies.
Planning technique in terms of aggregate planning is use Cut-and-try approach which
involve costing out its various production planning that have been mentioned above and
the decision will select one that will be best strategies that will benefit company the
most and bring most efficiency.
Before start to the main calculation to decide fix strategies, it should calculate the
aggregate production for next six months. According to the calculation of aggregate
production planning, it is obtained production requirement as follows:
August 1580
September 1860
October 1020
November 680
December 1060
January 1520
With total production requirements from August until January is 7720 units. The
complete calculation can be seen at Exhibit 1.
To describe first alternative plan which is produce exact monthly production
requirements with the adjustment of the total amount of worker correspondent to their
needs. Based on aggregate production planning, it is obtained several number of
production requirement, the total production requirements that multiplied with the
production rates which is 6 hours per unit will resulted working hours needed in each
period. From that multiplication, it is resulted the total working hours need as follows:
August 160
September 144
October 176
November 176
December 192
January 152
Total of working hours above multiplied by normal working hour each day which is 8
hours to obtain total amount of workers needed each period. Based on that calculation,
total workers needed in each periods are:
August 59
September 78
October 35
November 23
December 33
January 60
From total workers, it can be calculated the amount of worker that should be hired or
cut- off. After that the total cost that involved adjustment of the total workers can be
obtained with multiplying the amounts of workers hired with the cost of hiring new
workers and the cost of workers laid-off with laid-off cost. Thus, total cost of this plan
is Rp 255.06 million.
Second plan is strategic that uses constant workforce and varying inventory and
stockout policy. This plan is minimizing the inventory cost and stockout based on fixed
amount of workforce. Before we begin the production modelling, it should be first
decide the optimal number of workers for the model. From the calculation, it is obtained
that total optimum workers required as 46 workers. Then, we can use the production
requirement from the production aggregate to calculate inventory cost and stock out in
December. The complete calculation can be seen at exhibit 2. From the model, we can
conclude that there is shortage trough out September and October while there is an
overstock on December. The total of stockout cost is equal to Rp 4.89 Million while
total inventory cost is equal to Rp 753 Thousand. Also, there is straight time cost of the
workers which equal to Rp
235.65 million.
Third plan is to produce minimum expected demand by using constant workforce and
subcontracting to meet requirements. This plan is considering on minimum number of
workforce while transferring the unfilled demand to third party producer or sub-
contractor. To create modelling of the plan, it needs to decide first how much workers
should be used for this plan. The number of workers is based on the lowest demand
projection on the given case, which is on November 2020 has total production
requirement of 680 unit. The calculation of number workers on that periods obtained as
much as 23 workers. Using that minimum workers means that there is an unfilled
demand from the gap of production requirement and the actual production. That gap is
the number of units to be carried by sub-contractor with marginal cost of Rp 20
Thousand increase from inhouse production. From the explanation above, it can be
calculated the total sub- contracting cost of Rp 77.13 Million on 6 months period. Also,
from the total 26 number
of workers, we can find the total straight time cost which equal to Rp 115.91 Million.
So, the total cost for this alternative plan is equal to Rp 193.04 Million. The complete
calculation for this plan can be seen at Exhibit 3.
DISCUSSION
From the result and analysist at previously chapter, company need to find which
strategy that benefit them the most. In this case, it is tightly related to the cost in which,
what strategies that has the cheapest cost to meet production requirement in this bad
situation. From the model calculation, we find that the lowest total cost is on plan 3.
This plan is using minimum amounts of workers while transferring unfilled production
requirement to sub-contractor. This alternative plan resulted the total cost of Rp. 193.04
million which is 18% saving cost from plan two and 24% saving cost from plan one.
The summarize of the total cost in each alternative plan can be seen at Exhibit 4.
CONSLUSION
From the explanation in the previous chapter, Green Production Company should use
plan 3 as their strategy in next 6 months periods which are from august until January.
This strategy is choosen because it provides the cheapest cost in compared to plan 1 and
plan 2 which will give most beneficial to the company. For sustainability needs, it is
suggested to creat good relation with subcontractor with aim to surpress the marginal
cost.
SCHOOL OF BUSINESS ADMINISTRATION
OPERATION MANAGEMENT
Operation and supply chain management fifteenth edition, F.Robert Jacobs, Richard B. Chase.
Exhibit 1 : Calculation of Plan 1
PRODUCTION PLAN 1 : EXACT PRODUCTION; VARY WORKFORCE
Hourse per mont per worker (Working days / 8 hr.day) 160 144 176 176 192 152
Straight-time cost (production hourse require x $5 Rp 47,400 Rp 55,800 Rp 30,600 Rp 20,400 Rp 31,800 Rp 45,600
Rp 255,059
workers 46 Rp 235,648
Exhibit 3 : Calculation of Plan 3
Plan 3: Constant Low Workforce; Subcontract
workers 23 Rp 193,036
Exhibit 4 : Summary of Total Cost in Each Plan