1. FlexMan, an electronics contract manufacturer, uses its Topeka, Kansas, facility to produce two product categories: routers and switches. Consultation with customers has indicated a demand forecast for each category over the next 12 months (in thousands of units) to be as shown in Table 8-10. Manufacturing is primarily an assembly operation, and capacity is governed by the number of people on the production line. The plant operates 20 days a month, eight hours each day. Production of a router takes 20 minutes, and production of a switch requires 10 minutes of worker time. Each worker is paid $10 per hour with a 50 percent premium for any overtime. The plant currently has 6,300 employees. Overtime is limited to 20 hours per employee per month. The plant currently maintains 100,000 routers and 50,000

switches in inventory. The cost of holding a router in inventory is $2 per month, and the cost of holding a switch in inventory is $1 per month. The holding cost arises because products are paid for by the customer at existing market rates when purchased. Thus, if FlexMan produces early and Table 8-10 Demand Forecast for FlexMan holds in inventory, the company recovers less given the rapidly dropping component prices.

a. Assuming no backlogs, no subcontracting, no layoffs, and no new hires, what is the optimum production schedule for FlexMan? What is the annual cost of this schedule? What inventories does the optimal production schedule build? Does this seem reasonable?

b. Is there any value for management to negotiate an increase of allowed overtime per employee per month from 20 hours to 40? What variables are affected by this change?

c. Reconsider parts (a) and (b) if FlexMan starts with only 5,900 employees. Reconsider parts (a) and (b) if FlexMan starts with 6,700 employees. What happens to the value of additional overtime as the workforce size decreases?

TABLE 8-10

Month           Router Demand            Switch Demand

January                 1,800                               1,600

February               1,600                               1,400

March                   2,600                               1,500

April                      2,500                              2,000

May                        800                                1,500

June                      1,800                                900

July                       1,200                                 700

August                  1,400                                800

September          2,500                                1,400

October               2,800                                1,700

November            1,000                                 800

December            1,000                                 900