Question

Chapter 9 Sales and Operations Planning: Planning Supply and Demand in a Supply Chain 245 CASE STUDY Mintendo Game Girl It is late June, and Sandra Huchim, head of operations at Mintendo, and Bill Smith, head of sales of We "R" Toys, are about to get together to discuss production and mar- keting plans for the next 6 months, Mintenda is the man- ufacturer of the popular Game Girl handheld electronic game that is sold exclusively through We "R" Toys retail stores. The second half of the year is critical to Game Girl's success, because a majority of its sales occur dur- ing the holiday shopping period. Sandra is worried about the impact that the upcom- ing holiday surge in demand will have on her production line. Costs to subcontract assembly of the Game Girls are expected to increase, and she has been trying to keep costs down, given that her bonus depends on the level of Costs for Mintendo/We "R" Toys TABLE 9-8 Cost Item Material cost $12/unit $2/unit/month Inventory holding cost Marginal cost of a stockout $10/unit/month Hiring and training costs $3,000/worker Layoff cost Labor hours required $5,000worker 0.25/unit Reqular-time cost $15/hour $22.50/hour Overtime cost $18/unit Cost of subcontracting production costs. Bil is worried about competing toy stores gaining overtime per month. The various costs are shown in share in the handheld electronic game market during the Table 9-8. Christmas buying season. He has seen many companies lose their share by failing to keep prices in line with the performance of their products. He would like to maxi- mize the Game Girl market share in the handheld elec- Sandra, concerned about controlling costs during the periods of surging demand over the holidays, pro- poses to Bill that the price be lowered by $5 for the month of September. This would likely increase Septem ber's demand by 50 percent due to new customers being attracted to Game Girl. In addition, 30 percent of each of the following two months of demand would occur in September as forward buys. She believes strongly that this leveling of demand will help the company. Bill counters with the idea of offering the same promotion in November, during the heart of the buying season. In this case, the promotion increases Novem ber's demand by 50 percent, owing to new customers being attracted to Game Girl. Additionally, 30 percent of December's demand would occur in November as for- tronic game market Both Sandra's and Bill's teams produce a joint forecast of demand over the next six months, as shown in Table 9-7 We "R" Toys sells Game Girls for $50 apiece. At the end of June, the company has an inventory of 50,000 Game Girls. Capacity of the production facility is set purely by the number of workers assembling the Game the end of June, the company has a workforce of 300 employees, each of whom works 8 hours of regu lar time at $15/hour for 20 days each month. Work rules require that no employee work more than 40 hours of ward buying. Bill wants to increase revenue and sees no better way to do this than to offer a promotion during the peak season. Questions Demand for Game Girls TABLE 9-7 1. Which option delivers the maximum profit for the supply chain: Sandra's plan, Bill's plan, or no promotion plan at all? Assume starting and ending inventory of 0 2. How does the answer change if a discount of $10 must be given to reach the same level of impact that the $5 discount Month Demand Forecast 100,000 July 110,000 August 130,000 September received? October 180,000 3. Suppose Sandra's fears about increasing outsourcing costs come to fruition and the cost rises to $22/unit for subcon- November 250,000 tracting. Does this change the decision when the discount December 300,000 s $5?

Answer 1

1. We have the formula: Σ(15*8*20)Wt +Σ22.5Qt +Σ1000Ht +Σ5000Lt +Σ4It +Σ10St +Σ12Pt+Σ18Ct • Applying the formuar, we have Bill’s plan $37,679,375

Sandra’s plan $36,584,000

No Promotion $36,010,000

• Based on results, we can see that Bill’s plan is the most profitable at a $5 discount.

2. The impact of offering the discount of $10 in September according to Sandra’s idea. The optional aggregate plan is shown in Table below. Total Cost = $17,184,437.5 Revenue = $53,510,000 Profit = $36,325,563 • The impact of offering the discount of $10 in November according to Bill’s idea. The optional aggregate plan is shown in Table below. Total Cost = $19,032,410.71 Revenue = $55,100,000 Profit = $36,067,589 • If there is no promotion, the optional aggregate plan is shown in table below. Total Cost = $16,062,415.02 Revenue = $53,500,000 Profit = $37,437,584.98

• Observe that a price promotion in September results in a higher profit than a promotion in November, whereas no promotion results in a highest profit. As a result, if offering the discount of $10, Mintendo should not offer any price promotion

3. Promoting in November ( bill plan) continuous to be most profitable even if subcontracting cost rise to $22/unit.