Mr. Alex is the head of operations at TractParts Pvt. Ltd., a well known Indian

Question

Mr. Alex is the head of operations at TractParts Pvt. Ltd., a well known Indian manufacturer of pumps, engines, electric motors and transformers. The company is one of India’s earliest industrial groups established in the 1980 which has grown to be a big player in the Indian manufacturing industry. TractParts under the supervision of Mr. Alex has been supplying modern tractor engines to the leading tractor manufacturing firms like Sonalika and John Dear. The bulk of demand for tractors comes during the months from October to March. As a result of this seasonality in demand, the demand for the tractor engines also keeps fluctuating throughout the year as shown in Exhibit 1. Exhibit 1 shows the orders placed with TractParts by the firms Sonalika and John Dear in advance based on their own forecasting models.

Exhibit 1:

To meet the demands, the company can follow chase strategy or level strategy In the chase strategy, the monthly production takes place as per the total demand in that month and to follow this strategy, the company can hire new employees during higher demand and fire the employees during lower demand. This strategy basically saves on the inventory carrying cost and hence the total cost. In the level strategy, the company produces the average demand in a month and the excess units are stored as inventory and all stock outs are backlogged and supplied from the following month’s production. This strategy particularly saves on the employee hiring and firing cost. Moreover, the backorder quantity is also directly proportion to the demand placed by the tractor manufacturing firms in order to give equal treatments to them.

At the beginning of the period, there are 100 workers in the TractParts manufacturing facility and a total of 200 working hours (8 hours/day * 25 days/month) are available per worker per month. Due to the strict government policies, the company canny allow overtime.

Mr. Alex is concerned about the fluctuating demand and understands that these companies can change their demand pattern based on the promotion and discount offered to them. In order to enhance the total profit, Mr. Alex wanted to optimize costs while meeting the demand pattern. He had therefore asked to one of his associates to find out the associated costs and the cost structure. The associate presented cost structure for the engine manufacturing line as is shown in Exhibit 2.

Exhibit 2:

Mr. Alex had asked the associate to find out the possibility of discount that could be offered to the tractor manufacturers. Mr Alex was informed that at max 10% discount could be given to them and as per company policy, discount would be offered for only one month. The associate also pointed out that whenever such kinds of discounts are offered, the tractor manufacturers have a tendency to order more in that month. However, the order size for following months is significantly reduced compared to the previous month.

After going through some previous data, Mr. Alex has made some observations. For Sonalika, 10% decrease in price for a particular month results in 45 % increase in the demand for the same month followed by 15% decrease in demand for the next two months. And in the case of John Dear, 10% decrease in price for a particular month results in 80% increase in the demand for the same month followed by 25% decrease in demand for the next two months. However, Mr. Alex also observed that if the TractPart offers a discount in the last 2 months of the financial year, there is no change in the demand pattern since there is a very fixed demand of tractors in the end of season.

Mr. Alex faced a unique problem as the TractParts had proven itself over the years and was considered a symbol of quality, reliability and accountability. Being a part of this value system, Mr. Alex knew that any unfair treatment with the tractor manufacturers would not be tolerated. Mr. Alex has a meeting with the company’s Sr. VP the next morning. He is concerned about the production policy to be adapted and discount to be given offered to increase the total profit. Please help Mr. Alex to take the decision focusing on the following questions.

Questions:

1. Estimate the profit made by TractParts when it follows the level strategy and no discount is offered to the tractor manufacturing firms.

2. Estimate the profit made by TractParts when it follows the chase strategy and no discount is offered to the tractor manufacturing firms

3. Estimate the profit made by TractParts when it follows the level strategy and a 10% discount is offered to the tractor manufacturing firms in October.

4. Find out the month having the peak demand in which 10% discount can be offered to the tractor manufacturing firms, when TractParts follows the level strategy. (Hint: Estimate the profit made by TractParts when it follows the level strategy and a 10% discount has been offered to the tractor manufacturing firms in various months.)

5. Estimate the profit made by TractParts when it follows the chase strategy and a 10% discount is offered to the tractor manufacturing firms in October.

6. Find out the month having the peak demand in which 10% discount can be offered to the tractor manufacturing firms, when TractParts follows the chase strategy. (Hint: Estimate the profit made by TractParts when it follows the chase strategy and a 10% discount has been offered to the tractor manufacturing firms in various months.)

I REALLY NEED HELP WITH 4 AND 6. PLEASE INCLUDE EXCEL SHEET. THANK YOU IN ADVANCE.

Month Sonalika John Dear Total April 500 400 900 May 300 200 500 June 100 150 250 July 125 100 225 August 200 150 350 September 300 350 650 October 1500 1450 2950 November 3000 3200 6200 December 3200 3500 6700 January 3800 3500 7300 February 2200 2150 4350 March 2200 2400 4600

Explanation / Answer

Formula

Formula

Please comment if having any doubt

Chase Strategy Month Demand Units requied Labour hour required Hiring cost Firing cost Total recrutiment cost Material cost Regular Labor cost Total cost Total Revenue April 900 150 600 0 72750 72750 21000 2400 96150 252000 May 500 500 2000 3150 0 3150 70000 8000 81150 140000 June 250 250 1000 0 3750 3750 35000 4000 42750 70000 July 225 225 900 0 375 375 31500 3600 35475 63000 August 350 350 1400 1125 0 1125 49000 5600 55725 98000 September 650 650 2600 2700 0 2700 91000 10400 104100 182000 October 2950 2950 11800 20700 0 20700 413000 47200 480900 826000 November 6200 6200 24800 29250 0 29250 868000 99200 996450 1736000 December 6700 6700 26800 4500 0 4500 938000 107200 1049700 1876000 January 7300 7300 29200 5400 0 5400 1022000 116800 1144200 2044000 February 4350 4350 17400 0 44250 44250 609000 69600 722850 1218000 March 4600 5000 20000 5850 0 5850 700000 80000 785850 1288000 5595300 9793000 Available hours 20000 Profit 4197700 Profit after discount 3777930

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