Case Study: Covolo Diving Gear write background/ problem statement and write objectives of study

CASE STUDY COVOLO DIVING GEAR, PART 2 June 15, 2009.-It has been two weeks since their con- tentious semiannual planning meeting, and the senior staff members for Covolo Diving Gear are getting ready to start their first monthly S&OP meeting. Gina Covolo, CEO, gets the ball rolling: so we're going to start by planning for this September through the following August. I've had Patricia from mar- keting develop a sales forecast for these 12 months, and I've also had David from manufacturing estimate manufac- turing costs and labor requirements, as well as capacity in the plant. Mary from HR was also good enough to come up with some estimates of how much it costs to hire and train new workers, as well as the cost of laying off folks. Finally, Jack from purchasing was able to get the accounting folks to estimate the cost of holding a gauge set in inventory for a month. So let's see what we've got. I know it's been a busy two weeks for all of you, and I appreciate you working extra time to get ready for this meeting. Production is already set for the next two months, 434 PART IV Planning and Controlling Operations and Supply Chains Mary passes out the following information to all of the attendees: MONTH September 2006 October November December January 2007 February March April May June July August SALES FORECAST 30,000 gauge sets 31,500 35,000 37,000 22,000 18,000 17,500 27,000 38,000 40,000 42,000 40,000 QUESTIONS 1. Develop a level production plan for Covolo Diving Gear. What are the advantages and disadvantages of this plan? Could Covolo implement a pure chase plan, given the current capacity? Why? If sales continue to grow, what are the implications for production capacity at Covolo? 2. Patricia Rodriguez, vice president of marketing, states, "I've got to tell you all that I'm pretty comfortable with the forecasts for September through November, but after that, a lot could change. It's just very hard to forecast for four or more months out in this kind of market." How will a monthly S&OP update with rolling planning hori- zons help alleviate Patricia's concerns? Are there still advantages to S&OP, even though the forecasts may change? 3. After looking over the level production plan, David Griffin, vice president of manufacturing, speaks up: "This looks OK, but you know what bugs me about it? The assumption that if a worker is available, that worker has to be making gauge sets, even if we don't need any more, It might make sense in some cases to just have the worker not produce, rather than laying a worker off in one month and hiring someone else back the next." Do you agree? What are the holding costs associated with having an extra worker produce gauge sets for one month? How do these compare to the layoff and hiring costs? How might a strategy of keeping extra workers idle affect the estimated manufacturing costs for the gauge sets? (Hint: Labor costs have to be accounted for somewhere.) Manufacturing cost per gauge set: $74.50 Holding cost: $8 per gauge set per month Average labor hours required per gauge set: 0.25 hours Labor hours available per employee per month: 160 Plant capacity: 35,000 gauge sets per month Cost to hire and train a new employee: $1250 Cost to lay off an employee: $500 Beginning and ending workforce is 50 Beginning inventory is 10,000 REFERENCES Books and Articles Cox, J. F., and J. H. Blackstone, eds. APICS Dictionary. 10th ed. Falls Church, VA: APICS, 2002. Ling, R. For True Enterprise Integration, Turn First to SOP." APICS-- The Performance Advantage 10 no. 3 (March 2000): 40-45. Internet "S&OP Gives Caterpillar a Competitive Edge," Oliver Wight Case Study Series, www.oliverwight.com/client/ features/caterpillarna.pdf