Problems Identification

PROBLEMS IDENTIFICATION

In the early of January 1994, Jack McClintock, president and part owner of Toy World, Inc., was considering to adopted level monthly production for the coming year. In the past, the company’s production schedules had always been highly seasonal, reflecting the seasonality of sales. Mr. McClintock was aware that a marked improvement in production efficiency could result from level production, but he was uncertain what the impact on other phases of the business might be.

The company’s production processes were not complex. Plastic molding powder, the principal raw material, was processed by injection molding presses and formed into the shapes desired. The toy sets were then assembled and packaged in cardboard cartons or plastic bags. All runs begun were completed on the same day, so that there was virtually no work in process at the end of the day.

Toy World Inc.’s practice was to produce in response to customer orders, or also called seasonal production. This meant only a small fraction of capacity was needed to meet demand for the first seven months of the year. The first sizable ordered for the Christmas business arrived around the middle of August. Toy World Inc.’s was greatly expanded and put on overtime, and all equipment was used 16 hours a day in August to December. In 1993 overtime premiums had amounted to $185,000. Overtime premiums reduced profits; seasonal expansion and contraction of the workforces resulted in recruited difficulties, high training, and quality control costs. Machinery stood idle for seven-and-a-half months and then was subjected to heavy used. Accelerated produced schedules during the peak season resulted in frequent setup changes on the machinery. For these reasons, the company then wanted to adopt a policy of level production in 1994.

We can then breakdown the problems as below:

1. What are the advantages and disadvantages of each production method (seasonal and level)?

2. How will the level production affect the company’s net profit? This will affect the company’s decision of which production method they will use.

PROBLEMS ANALYSIS

PROBLEM 1

First, we need to see what the meanings of each production method are:

- Seasonal production

A strategy of production planning which the manufacturer produce goods at adjusted level of production to meet with the quantity of demands.

- Level production

A strategy of production planning which the manufacturer produce goods with stable production level and workforce number.