Space Age Furniture Company.


According to the paper the company incurs a cost of $0.75 per unit per week to hold stock for any subassemblies in stock from one week to another. Hence Space Age Company will incur a total cost of $975 for the six weeks in relation to holding cost. It is clear that due to the high number of subassemblies being produced, there is a demand for part 3079 to be produced in high numbers since it is used to make the subassemblies. However, this can lead to the company incurring overtime costs in order to meet the demand for sub assembles produced in lot sizes of 1000 units. This paper recommends that the lot size of producing the subassemblies should be reduced in order to avoid too much demand for part 3079. This is because it can lead to overtime costs, which in turn can lead to the loss of competent staff. This can be done by reducing the lot size to say 800 units and analysing its effects through Material Requirements Planning. If reducing that number still does not yield better results, the company can consider reducing the number further up to a point where they can sustain the demand for part 3079 that is used to make the subassemblies for the final products. Alternatively, since the machine that makes part 3079 can make as much units as possible, the company can consider employing more staff who can make the part in order to meet the demand for the subassemblies required. This will eliminate overtime costs, stock out costs and motivate the staff who will work the regular 40 hours per week. According to Hanna & Newman, for a company to come up with the best course of action, a cost-benefit analysis must be done in order to choose the one that minimises costs and maximises benefits. In this case, the two recommendations will be analysed. A trade-off is a situation where one gains something at the expense of losing something.

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