Case Study - Ontario Leisure Chairs

The Situation:

Harry Ralph, an entrepreneur from Gravenhurst, Ontario owns a company called Ontario Leisure Chairs that manufactures outdoor lounge chairs commonly referred to as 'Muskoka chairs'. These chairs are made from a very high quality composite wood and are considered a premium product in the outdoor furniture market. Each chair retails for $429 and is sold fully assembled.

Sales growth has been strong through the pandemic and his sales team has forecasted sales for the next 12 months to be 8000 chairs.

Ontario Leisure Chairs operates a seasonal store in Gravenhurst where they sell their chairs during the summer. They ship a majority of their chairs to various outdoor furniture retailers across Canada and the northern parts of the United States. They are currently dealing with three operational issues issue:

1. Some customers have recently been complaining to retail stores about small defects in the chairs. Mr. Ralph is worried that if he doesn't figure out the problem it may negatively affect sales especially given the quality expectations that his customers have.

1. Mr. Ralph believes he is wasting money by having too many employees in the production facility. He currently staffs an average of 8 full-time employees in the production facility who share the various tasks. He has been noticing recently that some of the production employees are often sitting around chatting and would like to reduce the number of employees to save money. However, he is worried that if he lays some employees off, Ontario Leisure Chairs might not be able to meet its yearly demand.
2. The sales staff at Ontario Leisure chairs has been pressuring Mr. Ralph to expand the size of his production and storage facilities as they have assured him that they will be able to continue to grow their overall sales. Mr. Ralph also feels this would allow the company to store more inventory of raw materials and finished goods on-site if needed but is not sure if an expansion will lead to a positive return on the investment.

Your Task:

You have been hired as a consultant by Mr. Ralph. He has asked for your advice in solving Ontario Leisure Chairs's operations and supply chain dilemmas. Mr. Ralph has collected data and done market research but he needs your help doing the analysis and deciding on the best course of action for his company. You will assess the information presented to you and give brief report for Mr. Ralph.

Prior to completing the report you are to complete the following analysis in Excel:

• A completed analysis of the defect rate using a process control chart.
• A precedent diagram, required cycle time, minimum # of workstations, recommended tasks assigned to workstation, and predicted utilization rate of your recommended system
• A decision tree outlining the possible expansion options and associated probabilities and expected values

Once you are through with quantitative analysis, you are to write brief report summarizing your findings and recommendations. Your report should be no longer than a page and include:

• A summary of your quantitative analysis on the expansions options and any qualitative factors that Mr. Ralph should consider

Defect/Quality Information:

From previous years Mr. Ralph knows that he would expect to see an average of 20 defects per month through quality inspections with a standard deviation of 6 defects each month (YOU DON'T NEED TO CALCULATE STANDARD DEVIATION). The facility uses an upper control limit and a lower control limit of 2 standard deviations.

He is not sure if any of the previous months went outside of the control limits but since customers have been complaining he wants to investigate possible causes. Mr. Ralph has identified only 3 major changes at the plant last year that could have caused any issues:

1. The supplier of composite wood was changed on August 1, 2022.
2. To cut down on inventory costs, the company's sales and operations plan was changed to a 'chase' strategy where temporary workers are hired during the summer months to meet increased demands.
3. A new production machine was installed February 1, 2022.

Production Information:

Mr. Ralph has provided you a table that shows all of the tasks involved in manufacturing a table in his facility:

Task	Task Time (minutes)	Description	Task That Must Precede
A	4	Loading of composite sheets from raw materials storage to production area	-
B	12	Cutting composite parts	A
C	18	Sanding of composite parts	B
D	12	Assembly of back rest	C
E	12	Assembly of legs	C
F	12	Assembly of seat	C
G	6	Attaching legs to seat	E, F
H	4	Attaching company nameplate (logo) to backrest	D
I	6	Attaching backrest to seat/legs	G, H
J	5	Final quality inspection	I
K	4	Transporting chair to finished goods storage	J

*The facility operates 20 days a month and for 10 hours per day.

Capacity Management:

Mr. Ralph is considering some different expansion options for 2024:

Option 1 - Small expansion of production and storage facilities

Option 2 - Large expansion of production and storage facilities

Option 3 - Keep production and storage facilities as-is

He is fairly confident in the long-term market research that his sales team has conducted which determined there are 3 possible scenarios for the level of demand. The estimates are that there is a 20% chance that demand will be low, a 40% chance that demand will be medium, and a 40% chance that demand will be high.

The small expansion would cost $5 million to build. If demand is low, he expects to receive an additional $3 million in discounted revenues (present value of future revenues) with the new facility. If demand is medium, he expects an additional $6 million. If demand is high, he expects an additional $6 million with the small facility.

The large expansion would cost $8 million to build. If demand is low, he expects to receive an additional $3 million in discounted revenues (present value of future revenues) with the new facility. If demand is medium, he expects an additional $6 million. If demand is high, he expects an additional $12 million with the large facility.

There is also a new government program that the Ontario Government is launching in 2024 to support the expansion of Ontario businesses through grants. Mr. Ralph believes that the large expansion could qualify for this program and that if Ontario Leisure Chairs applied for the grant there is a 50% chance their application would be successful. They would not know if the application is successful until after the facility is built but the grant is worth $2 million.

QUESTION:

Give a Quality Analysis and Written Report.