Aggregate Production Planning in a Chinese Stamping

Facility

Author: Craig Seidelson

Pub. Date: 2021
Product: SAGE Business Cases
DOI: https://dx.doi.org/10.4135/9781529742831
Disciplines: Business & Management, Operations Management, Operations Management (general), Global
Operations Management, Production Management & Planning
Access Date: December 23, 2022
Publishing Company: SAGE Publications: SAGE Business Cases Originals
City: London
Online ISBN: 9781529742831

© 2021 SAGE Publications: SAGE Business Cases Originals All Rights Reserved.
SAGE SAGE Business Cases
© Craig Seidelson 2021

Abstract

Aggregate production planning is a critical skill for anyone studying operations and supply chain
management. Because most of the world’s manufacturing occurs in China, this case takes place
inside a Chinese factory. In this real-world scenario, students use sales, operations, and stan-
dard cost data to determine optimum inventory, production, and staffing levels for the plant. The
outcome is an aggregate production plan that maximizes on-time delivery, minimizes costs, and
abides by Chinese labor laws.

Case

Learning Outcomes

By the end of this case study, students should be able to:

• Calculate manufacturing capacity and cost under various production planning scenarios.
• Apply confidence intervals to operational planning.
• Realize that that production plans are not just about math.
• Understand that production plans must be consistent with labor laws in the countries where opera-
tions occur.

Company Background

The Bright Star Mold Company manufactures stampings in Yantai, China and has been in operation since
2006. Like many manufacturers in China, Bright Star is located inside an Economic and Technical Develop-
ment Zone.

Bright Star primarily manufactures fittings and couplings, most of which are used in the automotive sector.
Sales are evenly split between domestic Chinese accounts and exports.

Mr. Liu is the general manager of Bright Star. Under his leadership, sales reached a record RMB 60 million in

2018. 1 Most sales are made through wholesale distribution. Unfortunately, wholesalers typically pay very low
prices. To improve margins, Bright Star has started selling four high-volume stampings directly to retailers.

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Retail sales are now the fastest-growing part of the business.

The Challenge

Selling stampings directly to retailers is challenging. Compared to distributors, retailers require shorter lead
times and smaller lot sizes. To meet these demands, Bright Star has been filling more and more retail orders
out of inventory.

While Mr. Liu is pleased with the growth in retail sales, he questions the use of inventory to achieve it. In his
opinion, the RMB 0.002 spent per part per month holding inventory is a waste. He has asked his senior man-
agement team to come up with a more cost-effective aggregate production plan.

Production System

The current production plan proceeds as follows:

1. Stamping starts with coiled metal.

Figure 1. Stampings Are Manufactured out of Metal Coil

Source: Peng Zhi Qiang

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2. Metal strip is automatically unwound and fed into a press.

Figure 2. Stamping Press

Source: Peng Zhi Qiang

3. A series of dies inside the press progressively shape the metal strip.

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Figure 3. Progressive Forming Die

Source: Peng Zhi Qiang

4. The process results in finished, stamped parts.

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Figure 4. Stampings

Source: Peng Zhi Qiang

Bright Star employs 100 people across stamping, tool repair, measurement, warehousing, and finished prod-
uct inspection. On average, 10% of the workforce quits every month.

The four part numbers Bright Star manufactures for retailers come off a single stamping line (see Table 1).
This specialized line operates 20 days per month, 5 days per week, over three shifts per day. One operator
runs the line on each shift. After taking lunch and periodic breaks into account, each operator works 7 hours
per shift. It takes 1 week to train a replacement operator. Before stamping can begin, it can take anywhere
from 5 to 12 hours to set up a part number (PN). Once it is established, the stamping line produces parts
every few seconds.

Table 1. Stamping Machine Cycle Time, Set-up Time, and Standard Cost

PN 1 PN 2 PN 3 PN 4

Cycle time (strokes/min) 40 30 55 55

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Set-up time (hr) 8 6 12 5

Cost (RMB/piece) 0.5 0.7 0.6 0.4

During stamping, the constant pounding of the metal strip between hardened steel tools causes a number
of problems. For example, machine parts break and tooling wears. To stay ahead of these issues, the main-
tenance manager arranges preventative maintenance every month. Because preventative maintenance re-
quirements need to be balanced with production schedules, corrective maintenance and availability of parts
time for preventative maintenance varies. Table 2 summarizes last year’s preventative maintenance.

Table 2. Average Preventative Maintenance by Month Last Year

Planned maintenance (hr)

January 2

February 2

March 3.5

April 2

May 4

June 2

July 2

August 1

September 2

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October 3

November 1

December 1

Even with planned downtime, the stamping line experiences unexpectedly stoppages. The production super-
visor tracks unplanned downtime every month. Table 3 summarizes last year’s unplanned downtime.

Table 3. Percentage of Unplanned Downtime by Month Last Year

Unplanned downtime (%)

January 1.5

February 1.3

March 1

April 2

May 2

June 2.5

July 1.5

August 2

September 1

October 1.2

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November 1.5

December 2

Interestingly, per Figure 5, there is no relationship between time spent on preventative maintenance and un-
planned downtime.

Figure 5. Preventative Maintenance Versus Unplanned Downtime

In addition to planned and unplanned downtime, schedulers have to contend with scrap. The production man-
ager files a scrap report by part number every month. Table 4 summarizes last year’s scrap.

Table 4. Average Monthly Scrap Percentages by Part Number Last Year

PN 1 PN 2 PN 3 PN 4

January 6 9 3 5

February 8 8 1 3

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March 6 9 3 1

April 9 9 1 2

May 7 7 3 3

June 7 7 3 3

July 7 10 1 2

August 7 10 7 3

September 7 7 7 2

October 6 9 2 4

November 5 10 2 2

December 5 9 2 1

During the latest sales and operations (S&OP) meeting, the sales manager provided a sales forecast for the
upcoming year (see Table 5). As most of these numbers were backed by purchase orders, he was very con-
fident in the forecast.

Table 5. Retail Stampings Sales Forecast in Thousands of Pieces

January February March April May June July August September October November December

PN
100 110 120 130 130 130 140 150 160 170 170 170
1

PN 200 200 200 200 300 300 300 300 400 400 400 400

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PN
100 50 50 150 50 100 50 100 500 300 500 400
3

PN
150 160 170 180 190 200 190 180 170 160 150 150
4

Mr. Liu would like to make most retail sales to order. At the same time, he requires production planners to be
99.97% confident that there is enough capacity to meet monthly demand. If inventory is needed, he does not
want carrying costs to exceed 0.35% of the standard cost of production. If more capacity is needed, he has
approved weekend overtime.

In the S&OP meeting, both the production and planning managers were pleased to hear overtime was ap-
proved. The human resources manager reminded them that according to Chinese labor law, the standard
working week is 5 days, 8 hours per day. Per worker, overtime cannot exceed 3 hours per day or 36 hours
per month. Overtime must be paid at 50% over base wages. Base wages at Bright Star are RMB 14 per hour.

In addition to overtime restrictions, the HR manager explained that all existing employees hold labor contracts
with Bright Star. If the aggregate production plan calls for removing associates when demand is low, the HR
department, by law, would need to negotiate contract buyouts with individual employees. Mr. Liu has not ap-
proved this.

The production manager asked about using temporary labor. The HR manager cautioned temporary labor
could be used, but only for a few months.

The fixed nature of Bright Star’s labor costs do not apply to its product design. The logistics manager noted
PNs 1, 2, and 4 have all experienced frequent design changes over the last few years. She is still trying to
deal with obsolete inventory from last year’s changes. Only PN 3 is a mature product with no design issues.

Mr. Liu closed the meeting by asking his management team to come back next month with a cost-effective
aggregate production plan for next year.

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Discussion Questions

1. What aggregate production plan has a 99.7% probability of satisfying demand and meeting Mr. Liu’s
carrying cost requirement?
2. How do the carrying and labor costs of this plan compare against an alternative plan?
3. What weaknesses are associated with the production plan you designed?
4. How can you mitigate these weaknesses?

Note

1. For reasons of propriety, all figures in this case have been changed.

Further Reading

Ashkan H. , Samaneh C. , & Moradi, L. (2019). Cooperative aggregate production planning: A game
theory approach. Journal of Industrial Engineering International, 15, 19–37. https://doi.org/10.1007/
s40092-019-0303-0

Niknamfar, H. , Pasandideh, S. , & Hamid, R. (2015). Robust optimization approach for an aggregate pro-
duction–distribution planning in a three-level supply chain. International Journal of Advanced Manufacturing
Technology, 76(1-4), 623–634. https://doi.org/10.1007/s00170-014-6292-07

https://dx.doi.org/10.4135/9781529742831

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