Case: Italia Marble, Ltd.
Early this year, Italia Marble, Ltd. (IML) experimented with producing a new line of 18x18 inch marble tiles on a pilot project and sampling it in limited quantities to the market. Following a very favorable response by the market to the new marble tile, IML management has decided to rollout the product as part of its full line of product offerings. Based on the experience with the pilot project, the production department has determined that regular monthly production capacity is equivalent to an output of 60 crates of 18x18 inch marble. Further, they have assessed costs for various production options, inventory holding, and back-ordering associated with this product, as noted in below table.
Costs
Regular production costs, ($ / crate) 1000
Overtime production costs, ($ / crate) 1600
Subcontract production costs, ($ / crate) 1800
Holding costs, ($ / crate / month) 200
Back-ordering costs, ($ / crate / month) 5000
The marketing department has assessed the demand for next Jan-June months and prepared an aggregate forecast, as shown in the following table.
Period 2009 Demand Forecast, (crate)
Jan 50
Feb 60
March 70
April 90
May 80
June 70
Total 420
1. The operations manager would like to determine which of the following three strategies would be best to adopt. These are: a) level regular production, supplemented by up to 10 crates a month from overtime production; b) Using overtime for up to 15 crates per month, along with inventory to handle variations; or c) a combination of overtime (up to 10 crates a month), inventory, and subcontracting.
2. IML has also decided to offer two other products in limited quantities for next year. These are 3x3 inch and 5x5 inch marble tiles. Producing these tiles requires two steps: dicing and glazing. Producing one box of 3x3 inch marble requires 0.2 hour of dicing, and 0.1 hour of glazing. Producing one box of 5x5 inch marble requires 0.07 hour of dicing, and 0.12 hour of glazing. Assuming that both the dicing and the glazing departments work an 8-hour shift per day, 7 days a week, how many dicing and how many glazing stations are required to meet the demand for 400 boxes of the 3x3 inch and 600 boxes of 5x5 inch marble tiles per week?