Trans-European Plastics (TEP) is one of the largest manufacturers of plastic household items in England. (Slack, 2010) Their factories have the ability to ship products to its customers within one week. The manufacturing operation is based on batch production, employing 24 large injection-moulding machines.
TEP has recently been faced with declining delivery reliability and backlog. Apparently resulting from ‘split batches’ where only part of a planned production batch is produced to overcome immediate shortages. (Slack, 2010) The company employed consultants to carry out a complete review of operations. The backlog of work for planned stock replenishment currently averages two weeks because of current high demand for many products. All factory orders must be planned at least two weeks in advanced. Because of this backlog many shipments are received by distributor over several weeks. This causes those companies to increase their administrative and handling costs, and TEP’s haulage costs.
There are several reasons for TEP’s inability to deliver all its products reliably within one week. There are 24 machines which are working on a standard (non-overtime) week of 105 hours. As a result, there are 2520 machine hours available per week. There are also more than 500 plastic products, each requiring about 3 hours to set-up (costing Euro 500 per set up), and the minimum run length is 20 hours. Any batch takes at least 23 hours of machine time.
Hypothetically, the maximum number of plastic products per standard week is 2520/23 = 110. (Slack, 2010) On average, each plastic product could be made only after every 4.5 weeks (500/110 = 4.54) or even less often, because larger batches for popular items will occupy more machine time. (Slack, 2010) Such a situation clearly demonstrates that it would be impossible to make all the company products within the one-week delivery window. The company’s inventory levels are based on forecasts rather than actual orders.
The Homework on Calculation Of Contribution Margin Per Unit & Machine-Hour For Md Widgets
MD Widgets manufactures three different product lines, Model X, Model Y, and Model Z. Considerable market demand exists for all models. The following per unit data apply: Model X Model YModel Z Selling price $80 $90 $100 Direct materials $30 30 30 Direct labor ($10/hour) $15 15 20 Variable support costs $5 10 10 ($5 per machine-hour) Fixed support costs 20 20 20 a)For each model, compute the ...
Bibliography
Slack, N., Chambers, S., & Johnston, R. (2010).
Operations Management. Additional information. England: Prentice Hall.
