Elemental Electronics
Elemental Electronics assembles microcomputers and acts as wholesalers for some components. For the manufacturing business, they buy components from a number of suppliers and assemble them in a well-tried design. They do virtually no research and development, and are happy to use designs that have been tested by other manufacturers. They also spend little on advertising, preferring to sell computers through their website and a few specialised retailers. As a result they have very low overheads and can sell their machines at a much lower cost than major competitors. A typical component that Elemental buys is a standard motherboard. There are at least six suppliers of equivalent boards in America, Europe and the Far East. Elemental acts as a wholesaler for two of these - one in the Far East and one in South America. The boards are delivered in bulk and Elemental tests and repackages them to sell to a number of small manufacturers. Each board from the Far East takes 2 hours to test and 2 hours to repackage, while each board from South America takes 3 hours to test and 1 hour to repackage. Elemental has enough facilities to provide up to 8,000 hours a week for testing and 4,000 hours a week for repackaging. There are maximum sales of 1,500 a week for the board from the Far East and each board gives a profit of €20 when sold. On the production side, Elemental manufactures 4 models of computer (A to D). Each of these has 4 stages in manufacturing - sub-assembly, main assembly, final assembly and finishing. The following table shows the times needed for each stage, total availability each week and some related costs.
Fixed costs of production are r3 million a year and Elemental works a standard 48-hour week.
Question
1. Elemental Electronics works in a very competitive industry. Their operations manager has suggested that they should use linear programming more explicitly in their production planning. With the limited information about their operations, could you build a case to support the operations manager's position?