Question
Ota Crown Mirrors (Crown) was a well-known company manufacturing decorative lamps. Crown was set up by Felix Muyiwa (Felix), an electrical engineer. He acquired adequate
Ota Crown Mirrors (Crown) was a well-known company manufacturing decorative lamps. Crown was set up by Felix Muyiwa (Felix), an electrical engineer. He acquired adequate knowledge in manufacturing electrical components at various electrical manufacturing companies across several organisations in Nigeria. After gaining prolific work experience and holding lengthy deliberations with family and friends, Felix decided to set up his own business. Borrowing money from his wellwishers, Felix started Crown Mirrors in 2019. Initially, he provided a lot of promotional offers to his customers. Over some time, the demand for decorative lamps increased.
Though he followed the traditional method to forecast, due to irregular demand patterns, from 2010, Felix started following a current forecasting system that used data from past years to find seasonal factors and long-term trends. The current forecasting system also used data from past weeks to find recent trends. Felix used these forecasts for production planning. The company manufactured varieties of lamps, and the demand was aggregated across products and measured in Naira. Exhibit I presents the forecast demand for 2021 every month.
Exhibit I: Forecast Demand of Lamps (For 2021 every month) | ||
Month | Expected Demand (000) | Production Days |
April | 900 | 21 |
May | 700 | 22 |
June | 800 | 20 |
July | 1,200 | 21 |
August | 1,500 | 22 |
September | 1,100 | 21 |
October | 1,200 | 20 |
November | 1,500 | 21 |
December | 1,100 | 21 |
January | 900 | 22 |
February | 700 | 18 |
March | 900 | 21 |
Felix observed a great deal of seasonality/cyclicality in the demand pattern. Felix suggested his production-in-charge consider this in developing a production plan for the coming year. Felix estimated the costs of hiring or firing workers, using overtime, subcontracting, holding inventory or running out of the product. The holding cost for glass was N5 per unit.
The cost for each hire was N300 per unit (based on training costs and production rates per worker), and the cost for each fire was N600 per unit (based on unemployment compensation and loss of goodwill). Lamps manufactured during overtime cost N7 per hour, and lamps manufactured during regular time cost N5 per 1.6 labour hours were required to produce a unit. Lamps that were subcontracted cost N10 per unit. Felix could not determine whether demands not met in the current month could be completed later or whether the incomplete orders would be lost. He had to develop an aggregate plan.
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