Question

CASE STUDY Smartphone Production at QuickTronics Rudy Hartono, general manager at QuickTronics, a con- tract manufacturer for consumer electronics, was headed TABLE 8-13 to the annual planning meeting. He had the demand fore- cast for the next 12 months and the goal of the meeting was to develop an aggregate plan. Historically, Rudy had Month Demand Forecast for Smartphones (in '000s) Demand 8,000 10,000 11,000 11,000 11,000 12,000 13,000 14,000 15,000 17,000 19,000 19,000 maintained a steady workforce of 667 teams in the plants and built inventory in the first half of the year for use in the second half. While this approach made workforce management easy. it led to a large buildup of inventory. As Rudy walked into the meeting, he wondered whether January February March April was better to hire and fire workers as needed in order to reduce the amount of inventory held. M ay June July August QuickTronics Production Planning QuickTronics set up a large assembly factory in Batam, Indonesia, that focused on the assembly of smartphones. The Indonesian government had offered incentives lead- October ing many manufacturers to locate their factories in Batam. Many component suppliers were located close tuo the QuickTronics plant and sent small batches to the tory on a regular basis. Assembled phones were stored in demand in this market, each unit delayed in this manner a warehouse from where they were shipped in response cost 100,000 Rupiah in discounts offered to customers to to customer orders from Asia, Europe, and America. The keep them happy. The company had a policy of ensuring supply chain team at Qu customers to develop a monthly forecast of demand, as year started out without any unfilled orders. The material shown in Table 8-13. Demand for smartphones peaked cost for each phone was 500,000 Rupiah. in the fourth quarter of the year December ickTronics had worked with its that there were no stockouts in December so the new The factory ended December with 667 assembly Smartphone assembly was handled by teams of 10 teams and a million phones in inventory. The produc tion plan at the factory attempted to meet demand in workers each. Each team had the capacity to assemble 125 phones per hour. The capacity of each factory was Table 8-13 at the lowest possible cost while ensuring determined by the number of assembly teams deployed. that the factory ended December of the coming year Each factory operated for 20 days a month, 8 hours a with the same labor and inventory as the previous day. Assembly workers were paid 4,000 Rupiah/hour December. during regular time. They could be asked to work up to an additional 10 hours per month as overtime. Overtime Questions as paid at the rate of 6,000 Rupiah/hour. If QuickTron- ics chose to layoff workers, each layoff cost the companymaintains a workforce of 667 throughout the year? How 800,000 Rupiah and each hiring cost 400,000 Rupiah. Itmuch should the factory produce each month? What is the cost 50,000 Rupiah to carry a phone in inventory frommaximum inventory under this plan? one month to the next. Quicktronics could also choose to 2. How much can Rudy reduce cost by if he gives himself the delay a customer order by stocking out in a given month flexibility of hiring and firing teams as desired? H and filling the stockout from next month's production h should the factory produce each month? What is the Given the importance of keeping up with customer 1. What is the annual cost of the current plan where Rudy maximum inventory under this plan?

Answer 1

1. The number of workers remains static through out the month, hence number of units produced each month is the same as well, it is 13,340,000. The maximum inventory under this is 80,000 phones. Cost of the same is provided below.

Cost of Materials
Phones sold during the year	160,000,000
Materials cost per phone	500,000
Cost of Materials	80,000,000,000,000
Labor cost
Phones assembled during the year	160,080,000
Wages for the year	51,225,600,000
Cost per phone	320
Phones sold during the year	160,000,000
Labor cost (of phones sold)	51,200,000,000
Cost of holding phones	6,872,000,000,000
Total Cost	86,923,200 Millions

Notes:

1. Assumptions made - No overtime as the number of phones produced during the year with normal working hours, meets the demand

2. Cost of inventory holding is arrived as follows:

Demand forecast
Month	Phone sales	Phones assembled	Ending inventory	Cost of holding Inventory
Jan	8,000,000	13,340,000	5,340,000	267,000,000,000
feb	10,000,000	13,340,000	8,680,000	434,000,000,000
Mar	11,000,000	13,340,000	11,020,000	551,000,000,000
Apr	11,000,000	13,340,000	13,360,000	668,000,000,000
May	11,000,000	13,340,000	15,700,000	785,000,000,000
Jun	12,000,000	13,340,000	17,040,000	852,000,000,000
Jul	13,000,000	13,340,000	17,380,000	869,000,000,000
Aug	14,000,000	13,340,000	16,720,000	836,000,000,000
Sep	15,000,000	13,340,000	15,060,000	753,000,000,000
Oct	17,000,000	13,340,000	11,400,000	570,000,000,000
Nov	19,000,000	13,340,000	5,740,000	287,000,000,000
Dec	19,000,000	13,340,000	80,000
	160,000,000	160,080,000		6,872,000,000,000

Cost of december inventory is not considered as it will be incurred in the next year

Workings:

Number of workers
Teams	667
Workers per teams	10
Total workers	6,670
Wages for the year
Total workers	6,670
Number of hours worked in a year (=20*8*12*6,670)	12,806,400
Wages per hour	4,000
Wages for the year	51,225,600,000
Phones assembled
Phones assembled by a team per hour	125
Number of teams	667
Number of hours worked in a year per team (20*8*12)	1,920
Phones assembled	160,080,000
Phones assembled per month	13,340,000

2. If the company adopts the policy of hiring and firing employees based on sales projected, the cost of materials and labor will not change. However, since the company does not hold any inventory, this cost will not be incurred. Instead, the cost of hiring and firing employees will be incurred.

Cost of materials	80,000,000,000,000
Wages	51,200,000,000
Hiring cost	2,200,000,000
Cost of laying off	2,264,000,000
Total cost	80,055,664 Millions

Workings:

Month	Phone sales	Number of hours required per team (Phone sales / 125)	Number of teams (Number of hours / (20*8)	Number of employees (Teams*10)	Number of employees to be hired	Cost of hiring
Jan	8,000,000	64,000	400	4000	0	0
feb	10,000,000	80,000	500	5000	1000	400,000,000
Mar	11,000,000	88,000	550	5500	500	200,000,000
Apr	11,000,000	88,000	550	5500	0	-
May	11,000,000	88,000	550	5500	0	-
Jun	12,000,000	96,000	600	6000	500	200,000,000
Jul	13,000,000	104,000	650	6500	500	200,000,000
Aug	14,000,000	112,000	700	7000	500	200,000,000
Sep	15,000,000	120,000	750	7500	500	200,000,000
Oct	17,000,000	136,000	850	8500	1000	400,000,000
Nov	19,000,000	152,000	950	9500	1000	400,000,000
Dec	19,000,000	152,000	950	9500	0	-
	160,000,000					2,200,000,000

1.Cost of hiring = number of employees to be hired*400,000

2.Number of employees laid off is considered for December, the month at the end of which employees will need to be let go. There are 9,500 employees in December. If the company decides to retain the original number of 667 teams (6670 employees), the number of employees to be laid off is 2,830, cost is 2,830*800,000 = 2,264,000,000

3. We have not considered other facts such as : Availability of machinery, factory space needed to assemble the required number of phones each month. It is assumed that the factory does have the excess capacity needed especially in the last quarter of the year.