OPS MGMT Ch 12 Mini Case – Farquhar Industries, Inc.

Farquhar Industries, Inc.Farquhar Industries, Inc., is a medium-size producer of custom metal products. The company recently got a contract to make the chassis for a well-known microcomputer. This part will be produced using dedicated, highly automated equipment. But the company frequently gets contracts to make special orders of custom products. These are usually produced on general- purpose equipment and involve a high degree of skilled labor. For medium-range planning purposes, the company divides its products according to the type of process required-job shop or line flow. Further, demand requirements for the job shop are stated in terms of hours because of the large number of different products produced, each requiring various amounts of processing time. On the other hand, the line-flow product demand is stated in teams of units because the production rate is relatively constant for these items. The forecasted demand in each area for the coming year is shown below.Month Manual Operation Demand Forecast (Hours) Automatic Operation Demand Forecast (Units)JanuaryFebruaryMarchAprilMayJuneJulyAugustSeptemberOctoberNovemberDecember 1,8001,5001,9001,6002,0002,2002,0001,8001,7001,8002,0001,500 6,0004,0005,0006,0005,0006,0007,0006,0005,0006,0008,0006,000Normally, both operations work eight hours per day, five days per week. The automatic operation produces at an average rate of forty units per hour. Any time that the process is operating, five employees who earn $12.50 per hour must be present. Work on products requiring manual operations is a little different. Each employee there earns an average of $16.00 per hour, and there are currently ten employees. Extra employees can be hired in that area, but the cost of advertising, interviewing, and so on is about $500 per employee hired. Any employees laid off receive one month’s pay as compensation. Overtime work is paid at a 50 percent premium and is limited to two hours per day on weekdays and four hours on Saturday.Bill Dixon is production manager for Farquhar. He is working on developing an aggregate plan for the coming year and has two major concerns. First, the company’s relations with its employees have been good, but there is some talk of unionizing. Too many layoffs could lead to more than talk. Second, the cost of carrying inventory has been increasing. Custom-made products are not inventoried, but high-volume products are inventoried at an average cost of $1.50 per unit per month. Carrying cost is a major concern with 2,000 units now in stock.Suppose you are Bill Dixon. Develop an aggregate plan that meets Farquhar’s company objectives, and determine the total costs associated with that plan.