Date: 27/08/2010

Group Assignment for Operations Management-1

On Kool King Division (A)
Submitted By: Group 7 Bhavinkumar Parmar Deepak Yadav Jaswant Jonnada Kishore Basa Kunal Thakur Prakhar Gupta Sudhir Ambekar

Introduction
Kool King is room air-conditioner business arm of Chicago based TIA Corporation (Television Industries of America). In 1970 Kool King established a new plant in Melrose, Illinois and in last three years (197779) the sales growth has been phenomenal.

Sales History
140000 120000 100000 80000 60000 40000 20000 0 1976 1977 1978 1979 1980 (F)

Units Sold

Kool King manufactures seven varieties of air-conditioners, of which Midget and Breeze Queen accounted for nearly 72% of the sales in 1979. In 1979 the production of Slim Line was stopped till 1980 for a complete re-design, however its sales were made from the beginning inventory of 1979.

Sales (1979)
Slim Line Super Islander Breeze King Breeze Queen Mighty Midget Midget 0 10000 20000 30000 40000 50000 Units Sold

The marketing of Kool King Products was handled by TIA marketing team. TIA distributors also sold air conditioners as a part of full TIA product line. Mr. Tom Stanley (TIA employee for 4 years) was the marketing manager for Kool King Products. In a meeting with Vice-President and Kool King executives Mr. Stanley pointed out that there is a market share to be captured and the stock out of Kool King products is hurting the sales. He proposed the

increase in the forecast figure from 114000 to 120000. He also pointed out the quality issues with the air-conditioners. The production manager Mr. Irwin considered the quality issues to be insignificant and was concerned about the rise in demand forecast. He felt that with available resources they were producing to full capacity.

Production:
50000 45000 40000 35000 30000 25000 20000 15000 10000 5000 0 Midget Mighty Breeze Breeze Islander Super Slim Line Midget Queen King Production(1979) Production Required(1980)

Production Facilities:
Kool King has a single production facility in Melrose Park with a space of 100,000 sq. Feet space. Component parts of the air conditioners were not manufactured and were purchased from outside suppliers. An AC has around 200 parts with only a few parts accounting for the 85% of total material cost. Majority of models were assembled on the assembly line. Most of the parts were screwed or bolted to the chassis by hand or small machines. Few parts like motors, cooling compressors and cooling coils were purchased assembled and were directly mounted on to the chassis. Careful handling of compressed gas charge was important.

Plant Work Force:

In 1979, Kool King had a total of 150 employees out of which 100 were direct labors. The vice president of the division, the plant manager, accounting manager, materials manager, and the director of engineering formed the executive group of 6 within the total strength of 150. Apart from these there

were hourly employees and four groups of the plant formen (4 in number), planning materials and administration(4), the engineering and design group(16) and the clerical staff(8). Hourly employees were categorised in 8 groups with a total of 112 people into 8 Grades depending on skill and job done. Direct Labor were paid per hour with no incentives. Grade 1 employees were paid a competitive $4.8 per hour and were given regular pay increases. The contract also had provision for 30 day trial period during which an employee could be dismissed without consulting the union. Mr. Victor estimated that turnover of Grade 1 employees was large compared to unskilled labor. But this didnt pose much serious problem as new workers were able to peak within2 days because of carefully laid out assembly line.

Planning:
Planning earlier started in May. Meetings were conducted to lay out general guidelines for the divisions sales and presented production budgets and forecast for the next fiscal. After agreeing upon the forecast a chart was prepared to depict the production plan. Production plan was determined by 3 policies: 1) desire to minimize fluctuations in workforce size, 2) preference for a large lot size as model changeover required $6000 per change and 3) a finished goods inventory containing almost all the divisions products. The number of units in a given series that could be produced in a week at normal operations was determined from the production rates in Exhibit 3. Detailed master schedules listed the production schedule for a 12 week period. These schedules were reviewed and revised once a month to incorporate any changes in workforce etc. Any change from original plan called for change in pattern of component parts acquisition. Inventory for components were aimed at being one to two weeks but in some cases went up to one or two months ahead also. Mr. Frank hoped to plan schedules 12 weeks ahead. The minimum advance notice required to make changes in schedule was a function of the lead time of the suppliers of parts. If inventory was available then one or two week lead time caused no problems. But for major change a lengthy advanced warning was imperative.

Issues:
According to the forecast the company would be required to increase its production by 30% to hold on to the growing market. 1) This would cause a bit of overtime or perhaps a second shift as evaluated by Mr. Irwin. He also said that they had the space for a second assembly line they could have it running just in time by Christmas. 2) Second issue was that when they faced capacity constraints their finished goods inventory goes up. 3) Third issue was absence of work force after the shutdown period even though when they were given paid vacations.

Recommendation:
Use the seasonal sales and discount strategy:- Between October to February, the sales of Air conditional were recorded lower. To Woos sales Mr. Ervin suggested two approaches: 1 2 Early order discount plan: For order between September and November one, discount will be offered and delivery would be made on quarterly basis every month up to January. Deferred payment plan: Payment for any order placed before February will have an option of 3 equal installments in May, June, July.

This should encourage the supplier to book more orders in off pick season and also proportionally increase the production in off pick season to match the capacity the demand of peak season Level production strategy also helps in curtaining over time and maintaining uniform level of quality of the output. It also ensure than minimum stock out because average inventory is always maintained. The required output of 1, 20,000 units will be distributed more evenly than the current situation. Some of the stock will not be sold immediately and would be stored at holding cost of $ 0.18 per unit every week. Units with heavier wattage and greater cooling capacity would come in demand only towards the end of the production cycle. To begin with the lighter production unit like midget would be more frequently ordered. There is currently no inventory for midget and demand for midget is expected to rise by about 10000 units from 36000 to 46000 in 1980 by using the off peak booking Method Company should focus on building inventory for midget in first quarter of production. Distribution of the Production capacity of different products will be based on monthly demand forecast. This Level production method will allow the company to move faster to achieve its goal.