Manufacturing & Service Operations Assignment:

New Age Electronics Limited Due date: June 26, 2022 New Age Electronics Limited 1 Bala Athreya, the director (operations) of a popular brand of electronic voltage stabilizer, was on the verge of finalizing the aggregate production plan for his manufacturing plant when he received a letter from his marketing director about a new marketing and promotional campaign that he plans to launch to boost the sales of voltage stabilizers. What is the implication of this to him? Should he re-plan the campaign, or should he convince the marketing director about the need to take another look at his plan?

1 Introduction

New Age Electronics Limited (NAEL) is a Hyderabad-based manufacturer that specializes in the manufacture of electronic voltage stabilizers. Electronic voltage stabilizers are increasingly popular on account of better performance, longer working life, light weight, and low cost. NAEL was promoted by Bala Athreya, an electronics engineer with about 15 years experience prior to starting NAEL with two other friends. NAEL manufactures three variations of voltage stabilizers, primarily differing on account of the type of application they are put to and the rating. These three can be designated as VS-TV, VS-RF and VS-IN. One unit of VS-TV requires two hours of labour. For the other two models VS-RF and VS-IN the labour hours required are 2.5 hours and 3.25 hours, respectively. Due to their early entry into the market, NAEL has been enjoying a good market share of the electronic voltage stabilizers. 1Operations Management: Theory and Practice, Mahavean, Pearson 1

2 Production of Voltage Stabilizers

The factory is currently working on a single shift with a capacity equivalent to 60,000 hours of labour. Over the last six months, the order inflow has been on the rise at NAEL, and Bala had to schedule overtime since the demand was in excess of 60,000 hours. The factory can increase the production up to 80,000 hours through overtime although it means paying more by way of overtime (OT) premium. By resorting to a second shift, NAEL can produce anywhere between 60,000 hours and 120,000 hours. A second shift has certain benefits. Instead of paying an OT premium of INR 15 per hour, it is enough if NAEL pays INR 3 per hour as shift allowance. After carefully analysing the demand trend in the past six months, Bala recently took a decision to operate the factory on a two-shift basis and made the change two months back. However, by changing over to two shifts from one, NAEL incurred a one-time shift change cost of INR 50,000. Henceforth, Bala plans to operate only on a two-shift basis for the coming year as the demand is likely to go up.

3 Costs Pertaining to Production and Inventory

NAEL incurs several types of costs, just as any manufacturer would. The first set of costs relate to inventory. As it manufactures an electrical product, NAEL does not wish to carry too much inventory of finished goods. There are frequent changes in the components that NAEL uses in its products. Therefore the cost of carrying inventory is INR 18 per hour of average inventory held. Shortage costs are double the average inventory carrying costs at NAEL. The second element of cost is the cost of changing the production level. Changing the production level (either up or down) requires NAEL to make several adjustments with its suppliers, the internal departments. It also calls for re-planning and manpower scheduling adjustments to suit the revised production plan. The costing department recently did an elaborate exercise and estimated the cost of change in production level to be INR 12 per hour.

2 Figure 1

Month	VS-TV	VS-RF	VS-IN
1	12,150	12750	6100
2	9,050	18700	5600
3	22900	15000	11000
4	6750	8900	4100
5	10750	11550	4200
6	10250	17500	6100
7	26550	19200	9200
8	6950	11200	6800
9	11250	12400	5700
10	9950	15500	7500
11	28750	20000	9100
12	7050	11000	7200

Production Planning

NAEL is currently in the process of developing an aggregate production plan for the next financial year. Detailed estimates of the demand were made and based on this a strategic planning exercise at the corporate level was done to arrive at the potential demand for the next year. During the strategic planning exercise the marketing department highlighted the increased competition as more players are bringing similar products to the market. According to some market information, a number of new players were planning to launch major marketing campaigns with a view to capture some share of the market. According to NAEL top management, these new entrants would not make significant inroads into their market share. The new competitors were most likely to take away the market from traditional voltage stabilizer manufacturers. After detailed discussions, the final projections for the next year were finalized. Figure 1 has the demand projection for the next year. Being an electrical product, the cost of carrying inventory was high, therefore the amount of inventory build-up they could do to meet the peak demand was a question that they needed to answer. After some discussions, 3 they came with two possible production plans: 1. To maintain a constant production level of 80,000 hours except during peak periods when it would be increased to 100,000 hours 2. To maintain the production at the level of the monthly demand, but to increase it to the peak production level of 120,000 hours during the peak months in order to meet the demand They were not clear about which one to choose as there are different implications for each of these choices. One of the major constraints for NAEL is the ability of their supply chain partners to respond to the changes in production plan. Up to 5 per cent increase or decrease is generally accepted without any discussion. Mere e-mail communication will do. Another 5 per cent change (both increase and decrease) requires that NAEL discusses this with them, have a mutual agreement, and give them at least 45 days notice. Any larger magnitude of change in excess of 10 per cent is generally resisted. It also requires a much longer time frame to respond. 5 Later Development While Bala and his team were working on finalizing the production plan for the next year, the marketing director informed them that they would like to launch a promotional campaign to counteract the new entrants. The specifics of the plans are as follows. The marketing plan would cost INR 2 million and the budget will be spent during Months 2 to 5. Due to this the increase in sales (across all the three variations) expected would be Month 3: 10 per cent; Month 4: 15 per cent, Month 5: 18 per cent, Month 6: 12 per cent and Month 7: 5 per cent.

Discussion questions

What are the implications of the marketing plans at NAEL?