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Case Study #4 (Optional) Background WeRFast is a specialty bicycle manufacturing firm located in Northern California. They make all kinds of bicycle computers including those for road bikes, mountain...

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Case Study #4 (Optional)
Background
WeRFast is a specialty bicycle manufacturing firm located in Northern California. They make all kinds of
icycle computers including those for road bikes, mountain bikes, and e-bikes. Scooter Jones is the
president of WeRFast and is becoming concerned about the production policy for the company’s best-
selling street bike computer with GPS. Annual demand has been steady at 10,000 units each year.
Because WeRFast sells to retailers throughout the United States and online, demand is constant
throughout the year.
Production capacity at the WeRFast factory is 250 units per day. For each production run, it costs the
company $120 to change the assembly line for a new computer including moving raw materials and
changing dies. The holding cost for the bicycle computers, which sell for $150 per unit retail, is $50 per
year in a secure storage area at the factory.
Part 1
Scooter notes that the cu
ent production plan calls for 500 computers to be produced in each assembly
un. Knowing that there are 250 working days per years (and over 100 days for bicycling!), please address
the following questions.
Questions
1. What is the daily demand for this product?
2. If WeRFast continues to produce 500 units each time an assembly run starts, how many days does
production continue?
3. Under the cu
ent policy, how many production runs are needed per year? What is the annual
setup cost?
4. If the cu
ent policy continues, how many computers would be in inventory when production
stops? What would the average inventory level be?
5. If the company produces 500 bicycle computers at a time, what would the total annual setup and
holding cost be?
6. If Scooter Jones want to minimize the total annual inventory cost, how many computers should
e manufactured and assembled in each production run? How much would this save the
company in inventory costs compared to the cu
ent policy of producing 500 units in each run?
Part 2
Luke Smith is the manufacturing manager at WeRFast. One of his concerns is that the machine used to
form the plastic cases for the bicycle computers is aging. Luke wants to convince Scooter to purchase a
new plastic forming machine. He has documented the probabilities of
eakdowns in the table below.
The cost per
eakdown is $10. What is the expected
eakdown cost of the machine? If you are Scooter
Jones, how would you respond to Luke’s request for a new machine?
Number of Breakdowns XXXXXXXXXX
Daily Frequency XXXXXXXXXX
Part 3
Monica Breeze is the Director of R&D at WeRFast. She has a few designs of new bicycle computers that
she would like to prototype and test. One is the “X-V-5” new road bike computer and the other is a
modification of the best-selling mountain bike computer which she calls the “Hardy-2”.
WeRFast will sell the prototypes directly to customers with a 10% discount from the normal retail price to
obtain the design and testing information. Additionally, the marketing team at WeRFast wants to
maximize the profit from the prototype computers.
The X-V-5 computer uses 3 computers chips for monitoring speed and 1 chip for GPS. The Hardy-2 uses 2
speed-monitoring chips and 2 GPS chips. Monica has 80 speed-monitoring chips and 120 GPS chips in
storage and ready for assembly. How many X-V-5 and Hardy-2 computers should she make for prototype
testing with potential customers?
Answered 3 days AfterFeb 25, 2022

Solution

Sandeep answered on Mar 01 2022
39 Votes
2
SUPPLY CHAIN MANAGEMENT / OPERATIONS MANAGEMENT
Executive Summary
WeRFast is a very unique selling proposition and business model. They are in the business of selling all kinds of bicycle computers including those for road bikes, mountain bikes, and e-bikes. Scooty jones being president of WeRFast is concerned over the constant growth of highest selling
and street bike computer with GPS.
I would like to add here that company’s cu
ent policy of 500 lot in each production run is exaggerated since the daily demand is of only 40 bikes only. F the cu
ent policy continues then the company is incu
ing the Total inventory cost of $ 12900 every time it plugs in machinery to manufacture the bikes with computers. The unintended consequence of this non-stop production is that the when the production stops the company will end up with 420 units in its warehouse unsold. There is cost of securing and holding inventory which is $ 50. Hence, we have to be very sure of the desired production level so that the company’s does not have high closing stock balance B/S.
Whereas if we plan to use EOQ method we will need to produce only 239 units in each lot
atch which will not minimise the Total inventory cost but also accrue the Economies of scale to the firm. The Firm is able to save to the tune of $ 2000 if it uses the EOQ approach to produce and sell plus it will not have very high level of unsold computers. Besides Luke smith manufacturing manager has raised concern about the machine used to form the plastic cases for the bicycle computers is aging and prone to frequent
eakdowns. There is cost associated with each
eakdown of $15 and total for the year could be $ 300. This will eat into the saving of $ 2000 besides causing inte
uptions and long production schedules as well labour delays etc.
I would like to conclude by saying that company should adopt more technical and scientific method of EOQ to plan the production scheduling and economise operations.
Conclusion:
In the I would like to conclude by saying that there is scope for improving the production of the bestselling street bike computer with GPS and monitoring chips. The higher the demand for a particular product, the higher the inventory must be. The uncertainty of demand also increases the need for larger inventory due to the possibility of spikes in demand. The demand has become steady and increasing at diminishing rate which can be reversed by introducing the innovative products and selling directly to consumers at price with a 10% discount from the normal retail price to obtain the design and testing information. Yes outreach to customers can be a way around to beat the innovation fatigue and increase recall value/visibility in the minds of customers. WeRFast will sell the prototypes directly to customers....
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