Operations an exploration of basic manufacturing operations, forecasting, budgeting and control

Your Task You will be running a factory unit for several months and this will involve: Forecasting sales demand Produce a budget for the year Deciding how much to produce Deciding how much raw materials to buy Deciding how many shifts to work Analyse your progress against budget

The Business Situation You are producing a single product The factory is currently working one shift But can work up to three shifts Provided you give two months notice of changes Each shift can produce 2000 units in normal time or 2400 including overtime Each unit of production requires one unit of raw materials

Costs All costs in a universal currency – the Account Unit Labour Costs Fixed Costs – 10,000 AUs per shift Variable Costs – 2 AUs per unit Overtime – 6 AUs per unit (in overtime) Raw Material Costs Below 2500 units – 6 AUs per unit Between 2500 and 6000 units – 5.75 AUs per unit Above 6000 – 5.5 AUs per unit Other Costs Overheads – 5,000 AUs per month Shift Changes – 10,000 AUs per change Stock Holding – 3 percent of value each month

Demand Forecast You have five years’ sales history There seems to be a long term trend Sales are seasonal Sales feel the trend will continue Accounts feel that this is too optimistic It is your responsibility to forecast demand and ensure that you produce enough to meet sales need as inventory shortages will loose sales

Your Decisions A team name of up to six letters Then each month decide: Target Production for the month Material Purchases (delivered at month end) Number of Shifts (for month after next) When making these decisions you should: Consider the impact on cost The long as well as the short term Consider your budget

Objectives Operate the business at lowest average cost Ensure that you meet sales demand During the ending review be prepared to explain and justify Your forecasts How you scheduled the factory Your results and the budget