CASE STUDY: Covolo Diving Gear
June 15, 2017-It has been two weeks since Covolo Diving Gear's contentious semiannual planning meeting, and the senior staff members for Covolo Diving Gear are getting ready to start their first monthly S&OP meeting. Gina Covolo, CEO, gets the ball rolling:
I know it's been a busy two weeks for all of you, and I appreciate you working extra time to get ready for this meet-ing. Production is already set for the next two months, so we're going to start by planning for this September through the following August I've had Patricia from marketing de¬velop a sales forecast for these 12 months, and I've also had David from manufacturing estimate manufacturing costs and labor requirements. as well as capacity in the plant. Mary from HR was good enough to come up with some esti¬mates of how much it costs to hire and train new workers, as well as the cost of laying off folks. Finally Jack from purchas¬ing was able to get the accounting folks to estimate the cost of holding a gauge set in inventory for a month. So let's see what we've got.
Mary passes out the following information to all of the attendees:
|
MONTH
|
SALES FORECAST
|
|
September 2017
|
30,003gauge sets
|
|
October
|
31,500
|
|
November
|
35,000
|
|
December
|
37,000
|
|
January 2018
|
22,000
|
|
February
|
18,000
|
|
March
|
17,500
|
|
April
|
27,000
|
|
May
|
38,000
|
|
June
|
40,000
|
|
July
|
42,000
|
|
August
|
40,000
|
• Manufacturing cost per gauge set $74.50
• Holding cost: 1.8 per gauge set per month
• Average labor hours required per gauge set: 0.25 hours
• Labor hours available per employee per month: 160
• Plant capacity: 35,000 gauge sets per month
• Cost to hire and train a new employee: $1,250
• Cost to lay off an employee: $500
• Beginning and ending workforce 50
• Beginning inventory: 10,000
Questions
1. Develop a level production plan for Covolo Diving Gear. What are the advantages and disadvantages of this plan? Could Covolo implement a pure chase plan, given the cur¬rent capacity? Why? If sales continue to grow, what are the implications for production capacity at Covolo?
2. Patricia Rodriguez, vice president of marketing, states, I've got to tell you all that I'm pretty comfortable with the forecasts for September through November, but after that, a lot could change. It's Just very hard to forecast for four or more months out in this kind of market:* How will a monthly S&OP update with rolling planning horizons help alleviate Pakkia's concerns? Are there still advantages to S&OP, even though the forecasts may change?
3. After looking over the level production plan, David Grif-fin, vice president of manufacturing, speaks up: This looks okay, but you know what bugs me about it? The as-sumption that if a worker is available, that worker has to be making gauge sets, even If we don't need any more. It might make sense in some cases to just have the worker not produce rather than lay off a worker in one month and hire someone else back the next." Do you agree? What are the holding costs associated with having an extra worker produce gauge sets for one month? Flow do these compare to the layoff and hiring costs? How might a strategy of keeping extra workers idle affect the estimated manufac¬turing costs for the gauge sets? (INA Labor costs have to be accounted for somewhere.)