Assignment 2021-2022: Sales & Operations Planning – Star Tech

Star Tech, a major European Tech phone manufacturer, is making production plans for the coming
year. Star Tech has worked with its customers (the service providers) to come up with forecasts of
monthly requirements (in thousands of phones) as shown in Table 1 below.

Manufacturing is primarily an assembly operation, and capacity is governed by the number of

people on the production line. The plant operates for 20 days per month, eight hours each day.
One person can assemble a phone every 10 minutes. Workers are paid €20 per hour and a 50%
premium for overtime. The plant employs 1,250 production workers and Star Tech currently has a
no-layoff policy in place. Component cost for each Tech phone totals €20. Given the rapid decline
in component and finished-product prices, carrying inventory from one month to the next incurs a
cost of €3 per phone per month. Overtime is limited to a maximum of 20 hours per month per
employee but management is considering the negotiation of an increase in overtime.

A third party has offered to produce Tech phones as needed at a cost of €26 per unit, this includes
the component costs of €20 per unit. Star Tech has a starting inventory of 50,000 units.

Joe Biggins, the production manager, has asked you to study the sales forecast for the coming year,
the production costs and capacity in order to help him prepare a production plan for the coming
year.

Table 1: Monthly Demand for Tech Phones, in Thousands

Month Demand Month Demand
January 1000 July 1500
February 1000 August 900
March 1000 September 1100
April 1200 October 1000
May 1400 November 1500
June 1600 December 1500

You are required to write a short report for Joe Biggins.

Your report must include the following:

1. An introduction, outlining the current situation and what you plan to present in the body of
the report.

2. A level production plan, that holds regular monthly production constant, while having no
backorders, no subcontracting, and no new hires. Overtime production may be used.
Include the total cost of this production plan and highlight any advantages and
disadvantages of following this level plan.

3. An alternative production plan that has a lower cost while still satisfying the no backlogs, no
subcontracting, no new hires. Include the total cost of this production plan. Clearly
explain the rational for any choices you make in changing the initial plan from part 2.
4. An assessment of the overtime situation by examining if there is any value for management
in trying to negotiate an increase of allowed overtime per employee per month from 20
hours to 40 hours? Produce the appropriate production plan, including the total cost of this
plan to verify your answer.

5. The firm is considering the option of changing its workforce size with demand instead of
using overtime and inventory to satisfy monthly demand. This option will require union
agreement and intensive training of new employees so that they will have the same
productivity as permanent workers. The cost of hiring and training a new employee is
estimated to be €6,500 and the cost of a layoff is estimated to be €4,000. Also, the
maximum capacity is 1,450 workers, so some overtime may still be necessary. Assuming
new employees have the same productivity as long time employees due to the intensive
training they receive, what is the optimum production, hiring and layoff plan? What is the
cost of this plan? This option may require overtime production in anticipation of high
demand for some months, otherwise unsatisfied demand will result in a stock-out cost of
€22 per unit. Produce an appropriate production plan to illustrate the most efficient use of
these new proposed conditions. Include the total cost of this plan.

6. An examination of Star Tech’s potential use of the third party at their current cost of €26 per
unit. Produce the appropriate production plan to substantiate your answer, include the
total cost of this plan. Clearly explain the rational for any choices you make.
Should Star Tech still use the third party if the unit price is €28 (including component costs)?

7. The average cost per unit of in-house production including inventory holding and overtime
cost if the third party is not used?

8. A clear explanation of why Star Tech should/should not use the third party even if the per-
unit cost of the third party is higher than the average per-unit cost (including inventory
holding and overtime costs) for in-house production?

9. A conclusion, summarising your results and recommending a production plan for Star Tech
to follow. Clearly outline the advantages and disadvantages of your recommended plan.
Instructions for the presentation and submission of the report:
The excel file for the first plan must be submitted by Wednesday 24 th of November using the
trunitin link on blackboard. (behind the Assignment/Assessment button)

The report must be typed using size 12 font and 1.5 line spacing.

The report should include a title page with your name and the assignment title.

Production plans must be integrated into the report. (The production plans and calculations must
also be included in the report as well as clear explanations of the rational for decisions made in
formulating the production plans).

All tables should be presented on a white background.

The excel file should contain the relevant formulas used.

Marks will also be deducted for untidy, poorly presented work and failing to comply with the above
instructions.

Submission:

The final report is to be submitted on or before, the 16th of December using the available links
behind the Assignment button on blackboard. Marks will be deducted if the assignment is
submitted after class on the 16th of December. (Marks will be deducted on the basis of 10% of
grade per day late)

The Production plans and subsequent calculations should be completed using Excel and a copy of
the excel file must also be submitted using the link on blackboard.

If you have problems submitting your report and/or excel file you may email a copy to me at
[email protected]