Discuss Company’s capacity and forecasting techniques that the company applies in its manufacturing processes.
Introduction
Capacity and forecasting are utilized when determining the optimum production levels and utilization of resources. These factors play a crucial role in decision making processes for instance when making decisions to expand the existing factory premises or during planning and modification of product lines or during the introduction of new product lines.
Any company’s long-term capacity is based on other design capacities like production and sustainable capacity and effective capacity. The design capacity of a plant is the maximum total output that the plant can produce in particularly ideal situations. Mantis Network Solutions (MNS) utilizes modern techniques of forecasting methods to estimate its returns and growth expansion strategies and also to determine its throughput. The Company has three major departments which deal with different products. The server’s manufacturing department, the soft ware development and design department and the storage devices production department. This paper re-evaluates the capacity and forecasting techniques that MNS utilizes in its manufacturing processes in the storage devices department. The maximum possible throughput for the storage devices is five units per hour for a maximum of fourteen hours (Besanko, Dranove, Shanley, and Schaefer, 2010).
The following is the Company’s capacity and forecasting techniques that the company applies in its manufacturing process.
The company manufactures the storage devices from a store house that has been converted as a manufacturing unit. The plant has an adjacent building that’s serves as the company’s warehouse for the storage devices that has a capacity of storing up to 52 pallets of 1000 units per pallet. The company must sell as much of the products as possible because it can only store a maximum stock of 52,000 units at a time. If the sales team fails to meet their monthly targets then the company has to stop production due to limitation of space. Alternatively the company can hire storage facilities at a variable cost of $15 per unit. Currently the demand for the power storage devices is very high and the market is very promising (Rosenablatt, 1997).
However, one of the major customers has given notice that it would temporarily stop its orders due to its expansion strategy for three months. The company is a major customer and its orders amount to about 50% of the plant’s production. The company has already placed its usual orders for the remaining part of the year including the accumulated order quantity and any extra quantities that the company will manufacture.
MNS department of storage devices is also planning to expand its production by about 20% from the third month of year but its greatest challenge is that each employee must have a machine that moulds and clumps the plastic with the storage memory chip inside the element fixed inside. This machine can only manufacture five units per hour while the maximum hours that the employees can work is twelve hours with one-hour break for lunch and two breaks of half an hour for tea breaks.
The costs of purchasing the new machines are to be ignored as per the owner’s instructions but the other costs are applicable normally. The company manufacturing details are explained below. The operators are paid $5 dollars per day while each machine costs $2 per day to maintain and service. The company operates for twenty-six days in a month and while the employees are allowed to work a maximum of four hours overtime per day. The employees are currently not utilizing any overtime that the employees have been allowed to or authorized to work
The company sells each unit in the market for $80 per unit while the fixed costs are $500,000 per month. Other variable costs per month amount to $30 per day (Stock & Lambert, 2001).
| MNS Department of Storage Devices | Other Costs | Machine | Labour | |
| a | Total available hours per day/machine/person | – | 12 | 12 |
| b | Rates per day per person | – | 5 | |
| c | Production per hour/units | – | 5 | 5 |
| d | Machine maintenance costs per day average | – | 2 | |
| e | Fixed Costs/monthly | 500,000 | ||
| f | Selling price per unit | 80 | ||
| g | Number of machines and staff available | 20 | 20 | |
| h | Idle time (hrs) | 2 | 2 | |
| i | Total days available in a month | 26 | 26 | |
| j | Maximum overtime allowed by the company per day | 4 | ||
| k | Other variable costs per unit | 30 | ||
| l | Maximum number of hours per day (a-h) | 10 | 10 | |
| Maximum production per day | 1,000.00 | |||
| Total production per month | 26,000.00 | |||
| Total variable costs per month | 962,000.00 | |||
| Total sales | 2,080,000.00 | |||
| Monthly Profit | 618,000.00 |
The following is the company’s forecast for the following five years. The profits for the first year will drop drastically due to the hiring charges of the extra storage facilities due to delayed orders. The company’s expansion strategy should also be limited to the percentage proposed or the increase orders would result in the need for extra storage facilities that’s very expansive.
The managers of MNS have incorporated regression analysis to forecast and determine the need and the rate of growth that the company requires by carefully correlating and analyzing the consumers buying trends and spending behaviors, competition and demographic changes.
| MNS Five Year Forecast | Year 1 | Year 2 | Year 3 | Year 4 | Year 5 |
| 000 | 000 | 000 | 000 | 000 | |
| Total production per year | $ 374 | $ 374 | $ 374 | $ 374 | $ 374 |
| Total variable costs year | $ 13,852 | $ 13,852 | $ 13,852 | $ 13,852 | $ 13,852 |
| Fixed Costs per year | $ 6,000 | $ 6,000 | $ 6,000 | $ 6,000 | $ 6,000 |
| Cost (delayed order) | $ 1,170 | – | – | – | – |
| Cost (expansion) | $ 78 | $ 78 | $ 78 | $ 78 | $ 78 |
| Sales | $ 29,920 | $ 29,920 | $ 29,920 | $ 29,920 | $ 29,920 |
| Profit | $ 8,820 | $ 9,990 | $ 9,990 | $ 9,990 | $ 9,990 |
The five year forecast shows that the company can meet its expansion capacity for a 20% expansion. The rate of production in the first year will increase by 20% which will lead to an extra charge of $15 per unit for a month while the storage for delayed order will cost the company 1.17 million for the three months (Jay & Barry, 2006).
To conclude, MNS will manage to go through the three month difficult period where its sales will drop by 50% besides the huge extra storage costs due to the suspension of the orders from their main client. However, the company will recover all the losses incurred in subsequent financial periods for the storage devices manufacturing department.
References
Besanko, Dranove, Shanley, and Schaefer (2010). Economics of strategy, 5th ed. Wiley.
Jay, H., & Barry, R. (2006). Principles of Operations Management. 6th Edition. New Jersey;
Pearson Prentice Hall, Eduation Inc.
Rosenablatt, B.S. (1997). Modern Business – A System Approach. (2nd edition.) Boston:
Houghton Muffin Co.
Stock J.R. & Lambert, D.M. (2001). Strategic Logistic Management. New York: McGraw-Hill.
