Abstract Aggregate production planning is a critical skill for anyone studying operations and supply chain management. Because most of the world's manufacturing occurs in China, this case takes place inside a Chinese factory. In this real-world scenario, students use sales, operations, and standard cost data to determine optimum inventory, production, and staffing levels for the plant. The outcome is an aggregate production plan that maximizes on-time delivery, minimizes costs, and abides by Chinese labor laws. Case Learning Outcomes By the end of this case study, students should be able to:  Calculate manufacturing capacity and cost under various production planning scenarios.  Apply confidence intervals to operational planning.  Realize that that production plans are not just about math.  Understand that production plans must be consistent with labor laws in the countries where operations occur. Company Background The Bright Star Mold Company manufactures stampings in Yantai, China and has been in operation since 2006. Like many manufacturers in China, Bright Star is located inside an Economic and Technical Development Zone. Bright Star primarily manufactures fittings and couplings, most of which are used in the automotive sector. Sales are evenly split between domestic Chinese accounts and exports. Mr. Liu is the general manager of Bright Star. Under his leadership, sales reached a record RMB 60 million in 2018. 1 Most sales are made through wholesale distribution. Unfortunately, wholesalers typically pay very low prices. To improve margins, Bright Star has started selling four high-volume stampings directly to retailers. SAGE  Craig Seidelson 2021 SAGE Business Cases Page 2 of 12 Aggregate Production Planning in a Chinese Stamping Facility 1. Retail sales are now the fastest-growing part of the business. The Challenge Selling stampings directly to retailers is challenging. Compared to distributors, retailers require shorter lead times and smaller lot sizes. To meet these demands, Bright Star has been filling more and more retail orders out of inventory. While Mr. Liu is pleased with the growth in retail sales, he questions the use of inventory to achieve it. In his opinion, the RMB 0.002 spent per part per month holding inventory is a waste. He has asked his senior management team to come up with a more cost-effective aggregate production plan. Production System The current production plan proceeds as follows: Stamping starts with coiled metal. Figure 1. Stampings Are Manufactured out of Metal Coil Source: Peng Zhi Qiang SAGE  Craig Seidelson 2021 SAGE Business Cases Page 3 of 12 Aggregate Production Planning in a Chinese Stamping Facility 2. 3. Metal strip is automatically unwound and fed into a press. Figure 2. Stamping Press Source: Peng Zhi Qiang A series of dies inside the press progressively shape the metal strip. SAGE  Craig Seidelson 2021 SAGE Business Cases Page 4 of 12 Aggregate Production Planning in a Chinese Stamping Facility 4. Figure 3. Progressive Forming Die Source: Peng Zhi Qiang The process results in finished, stamped parts. SAGE  Craig Seidelson 2021 SAGE Business Cases Page 5 of 12 Aggregate Production Planning in a Chinese Stamping Facility Figure 4. Stampings Source: Peng Zhi Qiang Bright Star employs 100 people across stamping, tool repair, measurement, warehousing, and finished product inspection. On average, 10% of the workforce quits every month. The four part numbers Bright Star manufactures for retailers come off a single stamping line (see Table 1). This specialized line operates 20 days per month, 5 days per week, over three shifts per day. One operator runs the line on each shift. After taking lunch and periodic breaks into account, each operator works 7 hours per shift. It takes 1 week to train a replacement operator. Before stamping can begin, it can take anywhere from 5 to 12 hours to set up a part number (PN). Once it is established, the stamping line produces parts every few seconds. Table 1. Stamping Machine Cycle Time, Set-up Time, and Standard Cost PN 1 PN 2 PN 3 PN 4 Cycle time (strokes/min) 40 30 55 55 SAGE  Craig Seidelson 2021 SAGE Business Cases Page 6 of 12 Aggregate Production Planning in a Chinese Stamping Facility During stamping, the constant pounding of the metal strip between hardened steel tools causes a number of problems. For example, machine parts break and tooling wears. To stay ahead of these issues, the maintenance manager arranges preventative maintenance every month. Because preventative maintenance requirements need to be balanced with production schedules, corrective maintenance and availability of parts time for preventative maintenance varies. Table 2 summarizes last year's preventative maintenance. Set-up time (hr) 8 6 12 5 Cost (RMB/piece) 0.5 0.7 0.6 0.4 Table 2. Average Preventative Maintenance by Month Last Year Planned maintenance (hr) January 2 February 2 March 3.5 April 2 May 4 June 2 July 2 August 1 September 2 SAGE  Craig Seidelson 2021 SAGE Business Cases Page 7 of 12 Aggregate Production Planning in a Chinese Stamping Facility Even with planned downtime, the stamping line experiences unexpectedly stoppages. The production supervisor tracks unplanned downtime every month. Table 3 summarizes last year's unplanned downtime. October 3 November 1 December 1 Table 3. Percentage of Unplanned Downtime by Month Last Year Unplanned downtime (%) January 1.5 February 1.3 March 1 April 2 May 2 June 2.5 July 1.5 August 2 September 1 October 1.2 SAGE  Craig Seidelson 2021 SAGE Business Cases Page 8 of 12 Aggregate Production Planning in a Chinese Stamping Facility Interestingly, per Figure 5, there is no relationship between time spent on preventative maintenance and unplanned downtime. Figure 5. Preventative Maintenance Versus Unplanned Downtime In addition to planned and unplanned downtime, schedulers have to contend with scrap. The production manager files a scrap report by part number every month. Table 4 summarizes last year's scrap. November 1.5 December 2 Table 4. Average Monthly Scrap Percentages by Part Number Last Year PN 1 PN 2 PN 3 PN 4 January 6 9 3 5 February 8 8 1 3 SAGE  Craig Seidelson 2021 SAGE Business Cases Page 9 of 12 Aggregate Production Planning in a Chinese Stamping Facility During the latest sales and operations (S&OP) meeting, the sales manager provided a sales forecast for the upcoming year (see Table 5). As most of these numbers were backed by purchase orders, he was very confident in the forecast. March 6 9 3 1 April 9 9 1 2 May 7 7 3 3 June 7 7 3 3 July 7 10 1 2 August 7 10 7 3 September 7 7 7 2 October 6 9 2 4 November 5 10 2 2 December 5 9 2 1 Table 5. Retail Stampings Sales Forecast in Thousands of Pieces January February March April May June July August September October November December PN 1 100 110 120 130 130 130 140 150 160 170 170 170 PN 200 200 200 200 300 300 300 300 400 400 400 400 SAGE  Craig Seidelson 2021 SAGE Business Cases Page 10 of 12 Aggregate Production Planning in a Chinese Stamping Facility Mr. Liu would like to make most retail sales to order. At the same time, he requires production planners to be 99.97% confident that there is enough capacity to meet monthly demand. If inventory is needed, he does not want carrying costs to exceed 0.35% of the standard cost of production. If more capacity is needed, he has approved weekend overtime. In the S&OP meeting, both the production and planning managers were pleased to hear overtime was approved. The human resources manager reminded them that according to Chinese labor law, the standard working week is 5 days, 8 hours per day. Per worker, overtime cannot exceed 3 hours per day or 36 hours per month. Overtime must be paid at 50% over base wages. Base wages at Bright Star are RMB 14 per hour. In addition to overtime restrictions, the HR manager explained that all existing employees hold labor contracts with Bright Star. If the aggregate production plan calls for removing associates when demand is low, the HR department, by law, would need to negotiate contract buyouts with individual employees. Mr. Liu has not approved this. The production manager asked about using temporary labor. The HR manager cautioned temporary labor could be used, but only for a few months. The fixed nature of Bright Star's labor costs do not apply to its product design. The logistics manager noted PNs 1, 2, and 4 have all experienced frequent design changes over the last few years. She is still trying to deal with obsolete inventory from last year's changes. Only PN 3 is a mature product with no design issues. Mr. Liu closed the meeting by asking his management team to come back next month with a cost-effective aggregate production plan for next year.  

Questions:

1. What aggregate production plan has a 99.7% probability of satisfying demand and meeting Mr. Liu's carrying cost requirement?

 

2. How do the carrying and labor costs of this plan compare against an alternative plan?

3. What weaknesses are associated with the production plan you designed?

4. How can you mitigate these weaknesses?

Answer rating: 100% (QA)

1 To determine the aggregate production plan that has a 997 probability of satisfying demand and meeting Mr Lius carrying cost requirement you would n... View the full answer