ENMG 606: Operations Management

Ski Company Manufacturing Plan

Prepared by:

Muhieddine Skafi 202002814

Georges Salgi 202473159

Mohamad Dali Balta 201900371

Submitted to:

Dr. Mirna Abou Mjahed

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Table of Contents

1. Introduction..........................................................................................................3

2. Demand Forecasting ............................................................................................4

3. Aggregate Planning .............................................................................................8

4. Material Requirements Planning (MRP) ...........................................................12

4.1 Lot for Lot ...................................................................................................13

4.2 Silver-Meal Heuristic ..................................................................................14

5. Conclusion .........................................................................................................16

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 1. Introduction

This report explores the strategic production planning for a new company that produces a line

of ski boots. The analysis covers demand forecasting, the implementation of an aggregate plan,

and a detailed Material Requirements Planning (MRP) strategy, aimed at optimizing the company's

production processes over the next two years. Given the complex dynamics of the ski boot market

and the variety of product models, understanding and anticipating customer demand was crucial.

Statistical methods were employed to forecast demand based on past sales data and seasonal trends,

providing a foundation for the following planning phases.

Following the demand forecast, an aggregate production plan was developed using linear

programing to match manufacturing outputs with market demand while considering constraints

such as labor availability and production capacity. This phase of planning was crucial in ensuring

that resources were allocated efficiently throughout the production cycle, avoiding both excess

inventory and potential lost sales due to underproduction.

The main focus of the operational strategy was then translated into a detailed MRP system. This

system facilitated the management of inventory levels, scheduling of production activities, and the

ordering of materials, ensuring that all components were available at the right time and in the

correct quantities to minimize production costs and meet the production requirements of the

aggregate plan. Special attention was given to cost minimization strategies in various facets,

including labor management, component stocking, and scheduling, to uphold profitability in a

highly competitive market.

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 The integration of these planning components—demand forecasting, aggregate planning, and

detailed MRP—forms a comprehensive approach to production management that aims to not only

meet customer demands efficiently but also enhance the company's operational efficiency and cost-

effectiveness.

2. Demand Forecasting

This section details the method and results of the demand forecasting done to predict future sales

of the multiple ski boots models. Accurate forecasting is essential for adapting production

schedules with market demands and ensuring resource optimization throughout the manufacturing

process.

The available data was for total sales in dollar value for the 32 past months. Using the data and

the fact that the company estimates that 40% of their revenue comes from the SRACE 130 model,

35% comes from the SRACE 130 RACE model, and 25% from the SRACE 130 CARBON model

while also knowing the retailing prices of the models to be $40, $60, and $80 respectively, the data

was converted to unit sales of each model giving the following graphs for demand.

Sales in Units Per Month

SRACE 130 SRACE 130 RACE SRACE 130 CARBON

9000.00
8000.00
7000.00
6000.00
Sales (in units)

5000.00
4000.00
3000.00
2000.00
1000.00
0.00
0 5 10 15 20 25 30 35
4
Month
 Looking at the data, and due to the lack of updates on the actual demand each month, any

forecasting method like the moving averages, exponential smoothing, or weighted averages would

lead to significant errors, the only method that would really allow for a forecast of two years into

the future is the trend analysis. In addition, due to the business nature (related to winter sports) and

to clear pattern in the data the trend was adjusted with seasonal indices for each month. Due to the

linearity that is available, it was enough to work on the forecast for the total sales and then

converting the numbers to units of each model.

First the data was arranged into three years, and then a seasonality index was calculated for each

month like shown in the table below.

After having these indices, the original data was plotted and the trend was determined with the

use of excel to be:

y = 12,470x – 48,535

where:

x represent the time in the future (in months) and y represents demand in dollar value.

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 y = 12470x - 48535
Sales in $ Per Month R² = 0.347
900000

800000

700000

600000

500000
Sales (in $)

400000

300000

200000

100000

0
0 5 10 15 20 25 30 35
-100000
Month

Now having both the trend equation and the seasonality factors, the forecast can be easily

calculated for the two years to come like shown in the table below.

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Now having these values and the percentages of contribution of each product, the demand per

unit can be easily determined and it is shown in the table below.

(Note: All unit values were rounded to the nearest integer.)

Last but not least, in order to see if the forecast looks similar to actual demand, both were plotted

on the same graph below, and obviously the forecast, did show very similar behavior with having

approximately the same seasonal cycles originating from the nature of the business, while also

showing the clear trend the demand is following.

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 Forecast
Actual Forecast

1600000

1400000

1200000

1000000
Sales (in $)

800000

600000

400000

200000

0
0 10 20 30 40 50 60

Month

3. Aggregate Planning

This section outlines the aggregate planning process used to convert the demand forecasts into

a major production plan that balances capacity and inventory levels with fluctuating demand. The

focus is on optimizing the overall operations to achieve minimal cost and maximum efficiency

over the two years of planning.

Knowing that using any of the chase or level methods to form the aggregate plan would not

yield optimal cost, the plan was done by formulating the correct linear program and solving it

using excel solver by using the net demand calculated in the forecast.

First, all the needed information concerning the manufacturing at the company were gathered

in a couple of tables shown below in order to help later on with the formulation of the problem.

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Know having all the information needed the linear program can be formulated as follows:

• Decision Variables:

Wt: Workforce level in period t.

Pt: Production level in period t.

It: Inventory level in period t.

Ht: Number of workers hired in period t.

Ft: : Number of workers fired in period t.

Ot: Overtime production in period t.

• Constraints:

𝑊𝑊𝑡𝑡 = 𝑊𝑊𝑡𝑡−1 + 𝐻𝐻𝑡𝑡 − 𝐹𝐹𝑡𝑡 (Conservation of workforce)

𝐼𝐼𝑡𝑡 = 𝐼𝐼𝑡𝑡−1 + 𝑃𝑃𝑡𝑡 − 𝐷𝐷𝑡𝑡 (Conservation of units)

𝑃𝑃𝑡𝑡 = 𝐾𝐾𝑛𝑛𝑡𝑡 𝑊𝑊𝑡𝑡 + 𝑂𝑂𝑡𝑡 (Production levels and workforce levels)

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Where:

Dt: Demand in period t

nt: Number of production days in period t

• Objective Function:

Minimize ∑56
t=33(cH Ht + cF Ft + c1I I1t + c2I I2t + c3I I3t + cR Pt + cO Ot )

Subject to all constraints for 33 ≤ t ≤ 56 and having all parameters ≥ 0.

Where:

1: Represent SRACE 130 holding cost and inventory level for one period of �me t

2: Represent SRACE 130 RACE holding cost and inventory level for one period of �me t

3: Represent SRACE 130 CARBON holding cost and inventory level for one period of �me t

As a note, initially the LP was formulated with no regards to the stock-out cost of $100 per sale

in order to make the LP run time smaller, and after checking the results there was no need to add

the stock-out cost since none occurred. The results for the aggregate plan were as follows.

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And the final values for the cost were:

Giving a total initial cost (will be modified in the MRP) of $1,253,856 of which $243,000 comes

from firing, $801,000 from salaries, $59,133 from overtime, and $159,723.25 from holding

inventory.

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 4. Material Requirements Planning (MRP)

This section delves into the implementation of the Material Requirements Planning (MRP)

system. MRP is essential for coordinating the components ordering and production schedules,

ensuring timely availability of all necessary materials, minimizing inventory costs, and fixed costs

related to production runs and also meeting the production timelines established in the aggregate

plan.

For the MRP the data collected from the aggregate plan related to production numbers needed

to be in weeks. So, an assumption was made, assuming that demand is linearly distributed during

the month, giving the same demand for each week. And all the months were assumed to have

exactly four weeks.

The MRP can be done using many methods, in this study, two methods were used and compared

for minimum cost; the lot for lot technique, and the Silver-Meal heuristic.

Knowing that any production run for any component including the ski boot would cost $100,

along with all the information already mentioned above and also having the number of number

units needed from each of the components and their lead times from the chart below the MRP

results were as follows.

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 4.1 Lot for Lot
The lot for lot method results were as follows

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This particular MRP would incur the company an additional cost of $76,800 to accommodate for

all the production runs needed

4.2 Silver-Meal Heuristic

For the Silver-Meal heuristic first the holding cost of each component was calculated and the

values were tabulated as shown below.

Note: for the shell, since it has no holding cost the heuristic cannot be applied and its production

will follow the lot for lot method.

Finally, the Silver-Meal heuristic gave an MRP as follows

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This plan gave an extra cost of $70,816 from the production runs and also the extra holding costs

for individual components. This plan gives lower cost compared to the lot for lot so this is what

should be adopted giving a final total cost of $1,324,042.

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 5. Conclusion

This report presented a comprehensive overview of the strategic production planning processes

for a new ski boot manufacturing company. Starting with demand forecasting, trend analysis

adjusted for seasonality was employed to predict future sales accurately. This forecast served as

the foundation for the subsequent planning phases.

In the aggregate planning section, the balance between capacity and inventory levels was

optimized through a linear programming approach, which significantly influenced the production

planning strategies. This preparation allowed for handling fluctuations in demand without

overextending resources.

The planning efforts concluded in the Material Requirements Planning (MRP) section, detailing

the coordination of material orders and production scheduling. Two methods were analyzed, lot

for lot and the Silver-Meal heuristic with the latter proving to be more cost-effective. The

implementation of these methods ensured that all components were available as needed while

minimizing both inventory and production costs.

The final total cost of operations, after applying the most cost-effective MRP method, was

$1,324,042. This figure reflects the effectiveness of the integrated planning approach in optimizing

the production processes and minimizing costs while ensuring that production capacities are fully

utilized to meet forecasted demand efficiently.

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