Lamson Case

Assignment Question: Prepare a production plan for your plant based on YOUR sales estimate? Also, estimate your total end-of-season costs. (100 points) Lamson Case Assignment Explanation: Lamson Case is an exercise for creating a basic production plan for two products i.e. 18 tiles and 36 tiles. Both products are manufactured in the same plant at the same time. You have to assume that the 'season' has not started yet. Your main task is to complete Exhibit 2 in the excel file (i.e. fill out rows for Period 1 to Period 12). The following will help you prepare your production plan for the season: - In order to create a production plan, you will need Exhibit 1 and 2. - Exhibit 1 has the nine production options for your plant and you can ONLY choose from the nine available production options. For example, if you choose Option 2 from Exhibit 1, you will produce 4,00018 tiles and 60036 " tiles. - Exhibit 2 has a template that will help you plan your production for the season. You job is to fill out the production numbers (using options from Exhibit 1) in Column A (for 18" tiles) and Column I (for 36" tiles) of Exhibit 2. (Both Columns A and I are highlighted in blue) - However, in order to complete the production plan, you will need sales numbers, which are NOT provided. Hence, YOU will have to ESTIMATE sales yourself. Use Figure 1 in the case and the following numbers to estimate sale for this year: Forecast for maximum no. of 18 " tiles sold =4,500 tiles Forecast for maximum no. of 36 tiles sold =2,000 tiles Helpful Tips: - The sales are NOT provided but I have provided you a forecast of the peak sales. You have to ESTIMATE the rest using your OWN judgment and using Figure 1. In a real-life scenario, the production of all products is carried out before actual sales. Fill out Column D (for 18" tiles) and Column L (for 36" tiles) of Exhibit 2 with your sales estimate. I have highlighted the two columns in Yellow. - You only need to read the first three pages of the case to complete this assignment. You ONLY have to submit the Excel file for this project and it has to be submitted on CANVAS before the class starts. In this game you will have the chance to try your skill at inventory and operations planning using the information similar in type to that available to Mr. Marino, the operations manager of Lamson Corporation, a large multi-plant manufacturer of sewer pipes. Every two weeks in the summer sales period, Mr. Marino had to decide how many tiles of each type and size should be produced during the coming two weeks. In doing this planning, he took into account sales trends, the time of the year, the capacity of Lamson's tile making machinery, the stock of the various sizes of tiles on hand, the cost of overtime production and the cost of missed deliveries. In this game you will be able to make similar decisions, although the game will be a simplified version of the actual situation. The most important feature of this simplification is that you will be dealing with only two sizes of sewer tile - the 18" diameter size and the 36" diameter size. Mr. Marino, in contrast, had to decide on production levels for 13 different sizes of tile and which plants would produce what mix. SALES PATTERNS Company sales, and industry sales in general, were very much influenced by general economic and seasonal factors. Since weather affected tile laying conditions and the number of construction starts, sales of sewer tiles exhibited a yearly sales trend of the following general shape (Figure 1). Sales were low for six months, from October to April 1, and rose rapidly in the spring to a summer peak and then tapered off again. About one-third of all annual sales were made in the two middle months of the year, while about three-quarters were made in the summer sales season. However, there was not necessarily a smooth rise and fall in sales in any particular year. The curve shown is only the average of the experiences of many years. In any given year, biweekly sales might vary \pm 25 per cent from levels they would assume if a smooth sales curve existed. Last year, the maximum number of 18 " tiles sold in any two week period between April and October was 4,500. The similar figure for 36 " tiles was 2,000. Major fluctuations in annual sales and mix levels were caused by economic conditions. Figure 1 In the game you are about to play, Period 1 refers to the first two weeks in April. Thus, company sales are just leaving the low part of the annual swing. The game culminates in Period 12, the last two weeks in September, when sales are reentering the low winter period. Between Periods 1 and 12, sales follow the general shape of the curve shown in Figure 1. All sales made by Lamson are booked for delivery within the period being considered. That is, there is no advance ordering. Mr. Marino has no idea what the sales for any coming period will be other than from judgement of the sales level of prior periods and from consideration of the general shape of the sales trend curve. PRODUCTION CONSTRAINTS The most popular sizes of concrete tile sold by Lamson were the 18 " diameter and the 36 " diameter sizes. Mr. Marino had found that together, these tiles accounted for a large part of tile sales; in fact, roughly one half of each period's production was devoted to one or other of these sizes. The other half of each period's production was used to manufacture the other sizes of tile produced by Lamson. In order to simplify the game, it has been assumed that Mr. Marino will continue to schedule the production of the less popular 11 tile sizes and that he will use half the production time each period for these sizes. Each participating group will be asked to schedule the number of 18 " and 36 " tiles to be produced during each period. Thus, each group will, in fact, schedule the production of a summer season's supply of 18 " and 36 " diameter tiles. There were nine possible volume combinations of 18 " and 36 " tiles. Four of these output values were based on the normal capacity output of the plants. The other five values represented the maximum output possible at Lamson, which required 50 per cent overtime. The nine production levels possible for 18" and 36" tiles in each two week period are shown in Exhibit 1. COST INVOLVED Inventory Costs In deciding on production alternatives, Mr. Marino bore in mind several costs which he knew were fairly accurate. For instance, storage costs of an 18 " tile for one period were an average of $2. This amount took into account interest on tied-up capital, insurance against breakage, and direct handling expense. The inventory carrying costs of each 36 " tile were higher and averaged $6 per tile per period. Mr. Marino had found that, over the period of a season, inventory carrying charges could be reasonably calculated on the basis of inventory on hand at the end of each period. Stock-Out Costs Stock-out costs also had to be considered by Mr. Marino. A stock-out occurred whenever sales in a particular period could not be filled because there were insufficient tiles of the required diameter on hand or in production during that period. For instance, if 100 tiles were on hand at the beginning of a period, 2,000 tiles were produced during the period, and sales during the period totalled 2,200 , then a stock-out of 100 tiles would occur. When such a stock-out occurred, there was a chance that a future customer of Lamson would be lost. Furthermore, Lamson lost the profit potential on the missed order. Mr. Marino had assessed the risks and costs involved and thought that a stock-out cost Lamson $20 for each 18 " tile and $60 for each 36 " tile. These figures took into account the fact that the larger the number of tiles that could not be delivered, the more apt the customer was to take future business elsewhere. Stock-outs could not be made up in subsequent periods. If a stock-out occurred, the sale was lost forever to the firm and the above costs were incurred. Overtime Costs If overtime was used in any period, a fixed charge of $20,000 was incurred, mainly to pay extra wages to the employees. The amount was fixed because the employees had been guaranteed a minimum amount each period overtime was used. HOW TO PLAY THE GAME In the actual conduct of this game, teams will make the production decisions normally made by Mr. Marino regarding the 18 " and 36 " diameter tiles. Before each period, each team will be required to decide on the production level that will be used in the plant. This decision will be made by the team by whatever means it chooses. Thus, a prediction from a plot of past period sales might be used by some teams, a pure guess by others. In making the decision, teams should consider both the possibilities of future sales and the inventories of tiles now on hand. Assignment Question: Prepare a production plan for your plant based on YOUR sales estimate? Also, estimate your total end-of-season costs. (100 points) Lamson Case Assignment Explanation: Lamson Case is an exercise for creating a basic production plan for two products i.e. 18 tiles and 36 tiles. Both products are manufactured in the same plant at the same time. You have to assume that the 'season' has not started yet. Your main task is to complete Exhibit 2 in the excel file (i.e. fill out rows for Period 1 to Period 12). The following will help you prepare your production plan for the season: - In order to create a production plan, you will need Exhibit 1 and 2. - Exhibit 1 has the nine production options for your plant and you can ONLY choose from the nine available production options. For example, if you choose Option 2 from Exhibit 1, you will produce 4,00018 tiles and 60036 " tiles. - Exhibit 2 has a template that will help you plan your production for the season. You job is to fill out the production numbers (using options from Exhibit 1) in Column A (for 18" tiles) and Column I (for 36" tiles) of Exhibit 2. (Both Columns A and I are highlighted in blue) - However, in order to complete the production plan, you will need sales numbers, which are NOT provided. Hence, YOU will have to ESTIMATE sales yourself. Use Figure 1 in the case and the following numbers to estimate sale for this year: Forecast for maximum no. of 18 " tiles sold =4,500 tiles Forecast for maximum no. of 36 tiles sold =2,000 tiles Helpful Tips: - The sales are NOT provided but I have provided you a forecast of the peak sales. You have to ESTIMATE the rest using your OWN judgment and using Figure 1. In a real-life scenario, the production of all products is carried out before actual sales. Fill out Column D (for 18" tiles) and Column L (for 36" tiles) of Exhibit 2 with your sales estimate. I have highlighted the two columns in Yellow. - You only need to read the first three pages of the case to complete this assignment. You ONLY have to submit the Excel file for this project and it has to be submitted on CANVAS before the class starts. In this game you will have the chance to try your skill at inventory and operations planning using the information similar in type to that available to Mr. Marino, the operations manager of Lamson Corporation, a large multi-plant manufacturer of sewer pipes. Every two weeks in the summer sales period, Mr. Marino had to decide how many tiles of each type and size should be produced during the coming two weeks. In doing this planning, he took into account sales trends, the time of the year, the capacity of Lamson's tile making machinery, the stock of the various sizes of tiles on hand, the cost of overtime production and the cost of missed deliveries. In this game you will be able to make similar decisions, although the game will be a simplified version of the actual situation. The most important feature of this simplification is that you will be dealing with only two sizes of sewer tile - the 18" diameter size and the 36" diameter size. Mr. Marino, in contrast, had to decide on production levels for 13 different sizes of tile and which plants would produce what mix. SALES PATTERNS Company sales, and industry sales in general, were very much influenced by general economic and seasonal factors. Since weather affected tile laying conditions and the number of construction starts, sales of sewer tiles exhibited a yearly sales trend of the following general shape (Figure 1). Sales were low for six months, from October to April 1, and rose rapidly in the spring to a summer peak and then tapered off again. About one-third of all annual sales were made in the two middle months of the year, while about three-quarters were made in the summer sales season. However, there was not necessarily a smooth rise and fall in sales in any particular year. The curve shown is only the average of the experiences of many years. In any given year, biweekly sales might vary \pm 25 per cent from levels they would assume if a smooth sales curve existed. Last year, the maximum number of 18 " tiles sold in any two week period between April and October was 4,500. The similar figure for 36 " tiles was 2,000. Major fluctuations in annual sales and mix levels were caused by economic conditions. Figure 1 In the game you are about to play, Period 1 refers to the first two weeks in April. Thus, company sales are just leaving the low part of the annual swing. The game culminates in Period 12, the last two weeks in September, when sales are reentering the low winter period. Between Periods 1 and 12, sales follow the general shape of the curve shown in Figure 1. All sales made by Lamson are booked for delivery within the period being considered. That is, there is no advance ordering. Mr. Marino has no idea what the sales for any coming period will be other than from judgement of the sales level of prior periods and from consideration of the general shape of the sales trend curve. PRODUCTION CONSTRAINTS The most popular sizes of concrete tile sold by Lamson were the 18 " diameter and the 36 " diameter sizes. Mr. Marino had found that together, these tiles accounted for a large part of tile sales; in fact, roughly one half of each period's production was devoted to one or other of these sizes. The other half of each period's production was used to manufacture the other sizes of tile produced by Lamson. In order to simplify the game, it has been assumed that Mr. Marino will continue to schedule the production of the less popular 11 tile sizes and that he will use half the production time each period for these sizes. Each participating group will be asked to schedule the number of 18 " and 36 " tiles to be produced during each period. Thus, each group will, in fact, schedule the production of a summer season's supply of 18 " and 36 " diameter tiles. There were nine possible volume combinations of 18 " and 36 " tiles. Four of these output values were based on the normal capacity output of the plants. The other five values represented the maximum output possible at Lamson, which required 50 per cent overtime. The nine production levels possible for 18" and 36" tiles in each two week period are shown in Exhibit 1. COST INVOLVED Inventory Costs In deciding on production alternatives, Mr. Marino bore in mind several costs which he knew were fairly accurate. For instance, storage costs of an 18 " tile for one period were an average of $2. This amount took into account interest on tied-up capital, insurance against breakage, and direct handling expense. The inventory carrying costs of each 36 " tile were higher and averaged $6 per tile per period. Mr. Marino had found that, over the period of a season, inventory carrying charges could be reasonably calculated on the basis of inventory on hand at the end of each period. Stock-Out Costs Stock-out costs also had to be considered by Mr. Marino. A stock-out occurred whenever sales in a particular period could not be filled because there were insufficient tiles of the required diameter on hand or in production during that period. For instance, if 100 tiles were on hand at the beginning of a period, 2,000 tiles were produced during the period, and sales during the period totalled 2,200 , then a stock-out of 100 tiles would occur. When such a stock-out occurred, there was a chance that a future customer of Lamson would be lost. Furthermore, Lamson lost the profit potential on the missed order. Mr. Marino had assessed the risks and costs involved and thought that a stock-out cost Lamson $20 for each 18 " tile and $60 for each 36 " tile. These figures took into account the fact that the larger the number of tiles that could not be delivered, the more apt the customer was to take future business elsewhere. Stock-outs could not be made up in subsequent periods. If a stock-out occurred, the sale was lost forever to the firm and the above costs were incurred. Overtime Costs If overtime was used in any period, a fixed charge of $20,000 was incurred, mainly to pay extra wages to the employees. The amount was fixed because the employees had been guaranteed a minimum amount each period overtime was used. HOW TO PLAY THE GAME In the actual conduct of this game, teams will make the production decisions normally made by Mr. Marino regarding the 18 " and 36 " diameter tiles. Before each period, each team will be required to decide on the production level that will be used in the plant. This decision will be made by the team by whatever means it chooses. Thus, a prediction from a plot of past period sales might be used by some teams, a pure guess by others. In making the decision, teams should consider both the possibilities of future sales and the inventories of tiles now on hand