FoldRite is a company that has been able to maintain in a demand environment that has seen its share of issues. The goal of this report will be to assess the particular pros and cons associated with each model presented in the production schedule and present which is the best option for the new green chair design, which has been projected to be popular per forecast reports. Before a decision can be cast on which model will solve the dilemma presently playing out at FolRite, there must be an assessment of the structure of the problem.
FoldRite currently is facing monetary issues as it tries to promote the CloudChair heavily. As a result of this promotion, there are some financial details that have been unveiled such as the fact that in order to manufacture the new product, the company needs to use current funds available or pay a 12% per annum in interest for any borrowed capital. The "most common initial condition of the structure of a problem is a set of vague concerns, needs or opportunities and a sense of perplexity about how to find a sensible course of action that at least partially addresses them all" (von Winterfeldt and Edwards). FoldRite wants to create the Cloud Chair that has been designated the new item/product emanating from them. When examining a variety of quantitative models, there are several options that can be performed in order for the Cloud Chair to be a viable product in an otherwise declining environment. By examining each model, a decision can be made. The "need for a decision arises in business because a manager is faced with a problem and alternative course of action are available" ("Chapter 5 - Information for decision making"). The leadership values of the manager come into significant play here. The alternative courses of action include the base model, which follows a particular set of assumptions; the overtime model, which enforces that skilled and unskilled workers work overtime in order to fulfill the needed demand of the Cloud Chair; the subcontracting model, which has assumptions as well but will force the company to hire outside of its current staffed employees; and two models that propose hiring new workers given a certain timeframe.
The base model presents an interesting aspect for FoldRite. Under this model, there is a net opportunity cost of $7,414,788 overall and the company can expect to have total net revenues after manufacturing costs and workers are paid out of $14,073,123. FoldRite will not be able to pay any overtime and the initial inventory when examining all products for the company will equal the ending inventory from the previous month. This means that there will have to be exceptional financial details kept because of the monthly inventory costs and potential loss opportunity cost for each unit. Within the span of March to August, FoldRite will have serious demand for the CloudChair, with it fluctuating each month per forecasts. The month of July will be the largest with 86,400 being demanded. FoldRite management will have to ensure that the activities of manufacturing are done "efficiently and effectively with and through [all workers employed who are both skilled and unskilled]" ("Project Management Concepts Tutorial"). The overall assessment of this model is that it is good on the one hand as the demand for the CloudChair in particular is high, but with the rising demand, there is no ability to have overtime and with the current modus operandi in place with FoldRite giving their employees three days off after a four day work week, there is risk that the amount of chairs being demanded not being completed in a timely manner.
When looking at the overtime model, there does not appear to be serious issues with it. Under this model, the company can maintain its status quo and can expect to have net revenues of $15,779,742. There are overtime costs that will be associated with the manufacturing considering that is what is needed. Under this model, there is an assumption that all CloudChairs in particular will be used. There is also beginning inventory for certain months that was not present under the base model. FoldRite can also price the CloudChair well over their projected price given the market demand. "Market prices provide powerful incentives for exploiting profit opportunities" (Klein). Hence, FoldRite has the ability to make up for any losses over time by pricing the CloudChair as well as to compete with other chairs of this type in the market.
When examining the subcontracting model, FoldRite will incur the extra expense of subcontracting which will total $9,112,201. The projected net revenue for this particular model is $15,821.503. The same assumptions apply for this particular model as with the base model only this time, there is an emphasis on subcontracting production which is not a consideration in any of the other types of models that were examined. Under this model, there is no beginning inventory and the ending inventory is assumed to be 0 as FoldRite will forecast that all of their products will be sold.
With the hiring from March model, which will force new hires and overtime, it would appear on the surface that this is not a good model to consider because that will require additional money from FoldRite that they realistically do not have; but there is projected net revenues of $16,100,543, which is the highest projected net revenues of all of the quantitative models. Here, FoldRite will also add skilled and unskilled workers because unskilled workers can be paid less, so more money can be devoted to other potential shortfalls, although shortfalls are expected to be handled by the overtime production being put in on the CloudChair production. The risks here are that newly hired workers will not work out. Hiring new workers is an “expensive process and once a candidate comes on board, the time and cost required to train her can put a serious dent in your budget” ("Don’t Become a Stepping Stone Employer"). Retention may be high given the type of work. This needs to be a serious consideration for FoldRite despite the projected net revenue.
The last model is similar to the hiring from March model, only here the new workers are hired from April, so the net revenue projects to be about $16,089,691; which is slightly less than the prior model. Overtime is also incorporated into this model and the risks are the same here with newly hired workers not staying around to see the production of the CloudChairs through for a myriad of reasons. Under the last two models, FoldRite will have to work on ways to maintain new hires, by “engaging their passion and motivating them to remain” (Looi). Motivation is a pivotal force in keeping and maintaining staff, and building a positive morale (Looi; Padillo). The models will not work effectively if this is not executed.
The factors that need to be considered mostly for FoldRite include a new facility to build or an ability to call on workers to work on their days off. This will ensure that any demand that has not been forecasted can be accounted for. While this may take up some of their initial costs because if they build a new facility, there may need to be money borrowed; and if they have to bring in workers on their day off they have to provide incentives, but FoldRite needs to make certain that they can create the necessary demand that they have purported to want to create. Here, there is an initial business appraisal which is being done to "identify major parts, cost allocations and the competence to carry them out" (McIvor and Humphreys). FoldRite will have to consider their "make or buy decision at the onset in order to ensure an economical process" (Cao et.al). It is further suggested for FoldRite to create a multi-criterion analysis at the onset when weighing the pros and risks associated with each model. This allows them to “deal with the complexity of the decision-making process” (“DSS/GIS”). The best model for FoldRite to select is one that balances revenue with costs.
In examining all of the models, FoldRite should select the overtime model. This seems to be the best option. While revenues will not be where the hiring models are, FoldRite will be able to assess and make concrete decisions about future new products because they will undoubtedly have monitored the amount of demand as well as the risks associated with overtime. It seems to be a win-win scenario.
"Chapter 5 - Information for decision making." Food and Agriculture Organization of the United Nations. Agriculture and Consumer Protection, 2013. http://www.fao.org/docrep/W4343E/w4343e06.htm.
Cao, De-bi, Bongsung Chu, and Shyuhei Inada. "An Analysis on Make-or-Buy Decision Making in Serial Production System ." The Mediterranean Institute for Advanced Studies , Jan. 2013. http://www.medifas.net/IGLS/Papers2012/Paper032.pdf.
"Don’t Become a Stepping Stone Employer." Merritt Staffing, 2013. http://www.merrittstaffing.com/tag/retaining-new-employees/.
"DSS/GIS." Lecture 1.1.2: Multi-criterion decision analysis for site selection. SITG, n.d. http://gis.unige.ch/mutate_final/Lectures/Lect_1_1_2/Lect_1_1_2.htm.
Klein, Peter. "17. The Make-or-Buy Decision: Lessons from Empirical Studies." Online posting. C. Menard and M. Shirley (eds.), Handbook of New Institutional Economics. Springer Publications, 2005. http://web.missouri.edu/~kleinp/papers/KI140-17-433-464--KLEIN-x.pdf.
Looi, Pi Wen. "Proven Practices for Engaging New Employees." Novacrea Research Consulting, 15 May 2012. http://novacrearesearch.com/proven-practices-engaging-retaining-employees/.
McIvor, R T., and P K. Humphreys. "A case-based reasoning approach to the make or buy decision." Integrated Manufacturing Systems 11.5 (2000): 295-310.
Padillo, Jose M. "The Make-or-Buy Problem: A Review and Taxonomy." Online posting. University of Connecticut, n.d. http://www.business.uconn.edu/users/mdiaby/PAPERS/MOB_Review.pdf.
"Project Management Concepts Tutorial." tutorialspoint, 2013. http://www.tutorialspoint.com/management_concepts/.
Von Winterfeldt, Detlof, and Ward Edwards. "Defining a Decision Analytic Structure."Structuring Decision Problems. USC, n.d. http://www-bcf.usc.edu/~winterfe/document%201.pdf.
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