Skala chair operation and production

Furniture

Skala Furniture’s

Ladder Back Chair Operation Plan

Prepared by Team 4 Astha Singh

Nishant Bochare Pankaja Nishita Battula

Danny Hsieh Gordon Peng

Chaitanya Reddy

Prepared for

Dr. Kern Peng

Fall 2015

EMGT 253: Operations and Production Systems

Table of Contents 1. About Skala .................................................................................................................................... 3

2. Mission Statement ......................................................................................................................... 3

3. Operation Strategies ..................................................................................................................... 3

4. Location .......................................................................................................................................... 4

Location ......................................................................................................................................... 5

Cost ................................................................................................................................................. 5

5. Layout ............................................................................................................................................. 7

6. Workforce Planning ....................................................................................................................... 8

7. Forecasting ................................................................................................................................... 10

8. Inventory & Master Production Schedule ................................................................................ 14

9. Process Flow ............................................................................................................................... 19

10. Production Time .......................................................................................................................... 21

11. Tool Utilization ............................................................................................................................. 24

12. Supply Chain Management ....................................................................................................... 25

Demand Planning ........................................................................................................................ 26

Supply Planning ........................................................................................................................... 26

13. Bill of Material .............................................................................................................................. 27

Cost Analysis ............................................................................................................................... 28

Required Tool Cost ..................................................................................................................... 28

Rent Cost ...................................................................................................................................... 28

Electricity ...................................................................................................................................... 28

Labor cost: .................................................................................................................................... 29

14. Chair Prototyping: ....................................................................................................................... 59

15. Conclusion: ................................................................................................................................... 61

About Skala Skala is a furniture retail company founded in 2015, located in Tijuana, Baja California,

Mexico. It is a privately owned company that has a single location with 16 employees.

Skala specializes in the conventional ladder back chair, offering high quality furniture at

affordable prices. Our company has strategically differentiated itself from the competition,

because our product pricing is different when compared to conventional products of

comparable quality currently on the market.

Mission Statement Skala Furniture is committed to providing outstanding customer experience by

ensuring consistent quality, low cost, and volume flexibility on ladder-back chairs for all

customers. Skala is the industry standard when it comes to service to customers. We also

maintain a superior level of integrity in interactions with business partners and associates.

We continuously thrive to improve; utilizing quality practices and employee

involvement to manufacture surface finishing systems, for the production manufacturing

industry that result in customer and employee satisfaction.

Operation Strategies Strategizing and having plan is important in manufacturing. Operational strategies

are used to reach company's’ objectives as envisioned. By deciding an operation strategy

to follow, a company can analyze effectives ways to use their resources. Skala follows

the make-to-stock strategy for its production and inventory strategies. This approach is

coordinated with the line process choice in mind. Using a line process with the make-to-

stock strategy is defined as mass production. In other words it is the classical

manufacturing process.

To maintain customer standards and uphold to promised delivery times, the make-

to-stock strategy allows manufacturing firms to hold items in stock for immediate delivery.

This method is applicable for standard products with high volumes and accurate

forecasts. Make-to-stock strategy is the traditional production strategy used in the industry

to match production with consumer demand forecasts. Thus we have to determine how

much stock should be produced which we will go into detail later on.

The advantage to adapting the make-to-stock strategy is that we have no

variations in our product. We are producing a single type of defined ladder-back chair with

no customizations. This allows us to save on labor and have faster delivery speed. In

addition to the delivery and labor savings, make-to-stock lets us minimize excess

inventory by using accurate forecasting methods.

Location The method of selecting our factory location is as follows, with a weighted score

for each candidate in the respective categories: Labor costs, land cost, transportation &

logistics, and taxes/duties. We understand that each location of interest will present

numerous advantages and shortcomings relative to the other choices, and using this

method allows us to holistically and objectively compare them.

Our first location of interest is Shenzhen, China, a port city suitable for offshore

manufacturing. With average labor rated at $3 USD an hour and rising, it is the most

affordable location in the short term. Industrial land rent is approximately 30 RMB per

square meter per month, or about 43 cents US per square foot per month. Transportation

is the most problematic, as it will have to be by sea first then handing over to ground

carriers to reach our distributors. Due to overseas shipping from a foreign COO, we will

also be expecting taxes and duties that will no doubt raise our bottom line costs.

The second selection is Tijuana, Mexico. Tijuana is located an hour south of the

US-Mexico border, typical port of entry is through San Diego, California. Labor rate is

currently at $2.50 USD per hour and appears to be stable in the foreseeable future,

favorable for long-term planning. Industrial land use is at $0.33 USD per square foot per

year, considerably cheaper than the other location candidates. Since Tijuana is

contiguous to the US by land, only land carriers are required for transportation. With

NAFTA in effect, transporting goods to and from Mexico will be tax and duty free.

Our final location choice is Dallas, Texas, our only consideration located in the continental

US. With a minimum wage of $7.25 USD per hour, it has the most expensive labor rate

of all three, although a very stable rate at that. A snapshot of the most affordable industrial

warehouses turned up $4 USD per square foot per month, an order of magnitude higher

than the other two locations. Like Tijuana, transportation will be handled by land freight

only, although with a slight edge in efficiency since no international borders will be

involved. The domestic advantage carries over to taxes and duties as well, which we

expect none of.

After evaluating our decision matrix, we've selected the Presidentes industrial

zone in Tijuana, Mexico to locate our manufacturing operations. This location already

has a 53,000 square foot warehouse-style facility sitting atop, with overhead lighting,

insulation, shipping docks, and line grids all included. This northwestern Mexico offers

several advantages over other locations we've considered.

1) Location

The Presidents district in Tijuana is within an hour's drive to the US-Mexico border

(proximity to our destination market) and thus favoring ground transportation, avoiding

troublesome and expensive logistics compared to offshore manufacturing. Freight

services will be contracted out to major carriers, eliminating the need for us to take

logistics in-house and allows us to focus our resources better on our products.

Furthermore, Tijuana offers a host of incentives that benefit a start-up manufacturing

company like ours. Corporate tax discounts in the first 5 years of operation, worker

training, and grants for acquisition of land for development and/or industrial use are all

categories which help us in the first few years of operation.

2) Cost Property - At just $0.33 USD per square foot per year, rent is an order of magnitude

cheaper compared to any available industrial space found in the continental US states.

Our manufacturing footprint (to be discussed further in detail) does not require the full

53,000 square foot space, and coupled with the facility's favorable amenities we are

confident that the space can easily be shared with other businesses.

Labor – Mexico's standard labor rates stand at $3.00 USD per hour at time of writing. We

chose to benchmark China's labor wages, which have been on the rise and surpassed

the $3.00 USD per hour rate, reinforcing our selection of Tijuana over offshoring.

Layout The factory layout can be generalized as a U-shape, one-direction shop floor

process. Inbound raw materials first enter through the north-eastern load docks, where

the first stop is the IQA station. Materials satisfying our IQA criteria are delivered to

various machine shop stations that immediately follow. The machine shop stations are

designed to allow some expansion before major revisions are required, with ample

spacing between each station so that a couple more machines (drills, lathes, cutters, etc.)

may be added in the future. After machining processes are complete, the semi-finished

components pass through the post-machining quality checks, where our floating QA

personnel will have fixtures and go/no-go gauges to ensure correct parts fitment in the

next stations. Satisfactory components move on to sub-assembly stations, where

adhesives are applied to fitted chair sub-assemblies. Sub-assemblies are left to cure in

the next station where another QA check evaluates fitment – this is critical as the

adhesives have not cured at this point, allowing reworks to be made to components thus

avoiding complete scrapping of failed parts. Passing assemblies are painted here and

allowed to dry/cure overnight; note that the floor space allocations in the painting area

allows more than two days' worth and more of products to be held without issues. Next

step is the cushion assembly, where ordered seat cushions are installed to the chair

frame, and the product is considered complete. From here the product can take one of

two routes, heading either to storage or to the shipping docks.

Workforce Planning Our Tijuana facility will be staffed with the minimum amount of skilled and unskilled

labor, sufficient to handle fluctuating demands while minimizing idle time. The workforce

proposed shall be divided in the following categories, with job functions outlined below:

10 regular skilled laborers, 3 floating quality assurance specialists with 1 supervisor, and

1 full-time plant manager.

The 10 skilled laborers will each be in charge of one of the following: a single

process station, shipping, or receiving, paid at a standard hourly rate of $3.00 USD. When

loading is high, priorities will be placed on manning the process stations from machining

to paint, with final packaging/shipping done after production for the day is completed.

Workers will be trained to operate the respective machines/processes at their respective

stations, with opportunities to learn other stations to increase overall flexibility.

3 floating quality assurance personnel can be found at the IQA, FQA, and the two

in-line quality check stations on the shop floor. This group will be paid a standard hourly

rate of $5.00 USD and shall be present whenever regular production is in progress.

Quality assurance must inspect incoming raw materials/production supplies to ensure

they are adequate for further processing, documenting reason and quantity of rejects

according to the quality specifications we agreed upon with our vendors, serving as the

first point of data in our throughput analysis. In-line stations and final quality assurance

will perform form and fitment checks after the machining and assembly processes, using

a mix of fixtures, gages, and design specifications to verify components if components

are correctly fabricated/assembled. The floating QAs will be trained in all of our

manufacturing steps, hence the name 'floating' as they will be qualified to overlook any

station on the shop floor. The lone supervisor role is to deliver guidance and provide

management presence on the shop floor, for the floating QAs as well as the skilled

operators at all stations. This supervisor will be paid a regular hourly rate of $10.00 USD

and is scheduled the same way as the operators and QA personnel.

Finally, a full-time manager will be hired to overlook all operations at the plant. This

non-exempt position is earmarked for a $35,000.00 USD annual salary, and is not subject

to the planned shift schedules as the operators but is required to be on-call whenever

needed. The plant manager is tasked to maintain a record of shipments and receiving,

throughput and quality reports, as well as executing shift changes and workforce well-

being/punctuality. This plant manager is the final decision maker in any and all cases of

incidents, accidents, and deviations from planned production schedules, with inputs from

the supervisor.

Forecasting Given a 12-month demand as a heads-up, our marketing department was tasked to

forecast the demand for the next three years of operation. Since our business is strictly

in the United States, it was appropriate to use the US census bureau's historic furniture

sales data as the basis of our forecast:

Plotting the 4-year data all in one and fitting a linear trend line, we've arrived at reliable

2.42% year-to-year growth with a confident R2 value of 0.90. This growth rate is used to

scale the given 12-month heads-up demand, producing the 3-year forecast shown in the

following:

Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

Year 1

120

0

200

0

230

0

210

0

140

0

160

0

250

0

200

0

180

0 2600

220

0 1800

Year 2

124

0

207

8

236

8

218

0

145

5

166

9

259

7

208

3

186

5 2714

229

1 1871

Year 3

128

1

215

8

243

7

226

4

151

2

174

1

269

9

217

0

193

3 2833

238

6 1944

Avg %

growth

103.

32

103.

88

102.

95

103.

83

103.

93

104.

33

103.

90

104.

16

103.

63

104.3

9

104.

14

103.93

Forecast production volumes, by month

Inventory & Master Production Schedule With our previously established demand forecast, it is insufficient to plan a

master production schedule based purely on market demand. As with any

extrapolations, the resulting data must have a confidence level attached to it, implying

the existence of some uncertainties. As the master production schedule is planned out

at the weekly level, the uncertainties carried over from yearly projections will have a

severe impact if not addressed appropriately. Thus, we must introduce the mechanism

of safety stock and incorporate its contributions into our overall production targets.

Consider the following expression:

𝑆𝑆 = 𝑆𝑆 × √𝑆(𝑆)𝑆𝑆2 × (𝑆(𝑆))2𝑆𝑆

2

Where:

𝑆𝑆 = 𝑆𝑆𝑆𝑆𝑆𝑆 𝑆𝑆𝑆𝑆𝑆

𝑆𝑆

= 𝑆

− 𝑆𝑆𝑆𝑆𝑆𝑆𝑆𝑆𝑆𝑆𝑆𝑆 𝑆𝑆𝑆𝑆𝑆 𝑆𝑆𝑆𝑆𝑆𝑆𝑆𝑆𝑆𝑆𝑆𝑆𝑆 𝑆𝑆 𝑆𝑆𝑆𝑆𝑆𝑆𝑆 𝑆𝑆𝑆𝑆𝑆𝑆(𝑆)

= 𝑆𝑆𝑆𝑆𝑆𝑆𝑆 𝑆𝑆𝑆𝑆 𝑆𝑆𝑆𝑆𝑆(𝑆) = 𝑆𝑆𝑆𝑆𝑆𝑆𝑆 𝑆𝑆𝑆𝑆𝑆𝑆 (𝑆𝑆𝑆𝑆𝑆)𝑆𝑆

= 𝑆𝑆𝑆𝑆𝑆𝑆𝑆𝑆 𝑆𝑆𝑆𝑆𝑆𝑆𝑆𝑆𝑆 𝑆𝑆 𝑆𝑆𝑆𝑆 𝑆𝑆𝑆𝑆𝑆𝑆

= 𝑆𝑆𝑆𝑆𝑆𝑆𝑆𝑆 𝑆𝑆𝑆𝑆𝑆𝑆𝑆𝑆𝑆 𝑆𝑆 𝑆𝑆𝑆𝑆𝑆𝑆

Regarding service level, this refers to the likeliness of our safety stock's ability to satisfy

fluctuating demands in our forecast. For this, we chose a confidence level of >85%,

which corresponds to a 𝑆𝑆 value of 1.11. The calculated safety stock by month is as

follows:

Jan

Fe

b Mar Apr

Ma

y Jun Jul

Au

g Sep Oct

No

v Dec

Year 1

120

0

200

0

230

0

210

0

140

0

160

0

250

0

200

0

180

0

260

0

220

0

180

0

Producti

on

133

3

208

8

233

3

207

8

132

3

162

2

259

9

194

5

177

8

268

8

215

6

175

6

Inventor

y 133 221 254 232 155 177 276 221 199 287 243 199

E(D) 40 67 77 70 47 53 83 67 60 87 73 60

Safety

Stock 133 221 254 232 155 177 276 221 199 287 243 199

Z(a) 1.11

E(L) 6.25

S(L)

2.98

6

S(D) 0

Jan

Fe

b Mar Apr

Ma

y Jun Jul

Au

g Sep Oct

No

v Dec

Year 2

124

0

207

8

236

8

218

0

145

5

166

9

259

7

208

3

186

5

271

4

229

1

187

1

Producti

on

137

7

217

0

240

0

216

0

137

5

169

2

270

0

202

7

184

1

280

8

224

4

182

5

Inventor

y 137 230 262 241 161 184 287 230 206 300 253 207

E(D) 41 69 79 73 49 56 87 69 62 90 76 62

Safety

Stock 137 230 262 241 161 184 287 230 206 300 253 207

Z(a) 1.11

E(L) 6.25

S(L)

2.98

6

S(D) 0

Jan

Fe

b Mar Apr

Ma

y Jun Jul

Au

g Sep Oct

No

v Dec

Year 3

128

1

215

8

243

7

226

4

151

2

174

1

269

9

217

0

193

3

283

3

238

6

194

4

Producti

on

142

3

225

4

246

9

224

5

142

9

176

6

280

5

211

2

190

7

293

3

233

7

189

5

Inventor

y 142 238 269 250 167 192 298 240 214 313 264 215

E(D) 43 72 81 75 50 58 90 72 64 94 80 65

Safety

Stock 142 238 269 250 167 192 298 240 214 313 264 215

Z(a) 1.11

E(L) 6.25

S(L)

2.98

6

S(D) 0

Note that the inventory of ship-ready products is never equal to zero, guaranteeing

demand fulfillment with the appropriate margin defined by the safety stock.

With the safety stock defined and derived on a monthly basis, they are added to

our monthly demand to produce the overall production targets. Dividing the monthly

targets by the respective number of weeks in each month, we arrive at the master

production schedule:

2015 Jan Feb Mar Apr

Wee

k 1 2 3 4 5 6 7 8 9

1

0

1

1

1

2

1

3

1

4

1

5

1

6

1

7

Plan

ned

2

6

7

2

6

7

2

6

7

2

6

7

2

6

7

5

2

2

5

2

2

5

2

2

5

2

2

5

8

3

5

8

3

5

8

3

5

8

3

5

2

0

5

2

0

5

2

0

5

2

0

May Jun Jul

Wee

k

1

8

1

9

2

0

2

1

2

2

2

3

2

4

2

5

2

6

2

7

2

8

2

9

3

0

3

1

Plan

ned

2

6

5

2

6

5

2

6

5

2

6

5

2

6

5

4

0

6

4

0

6

4

0

6

4

0

6

5

2

0

5

2

0

5

2

0

5

2

0

5

2

0

Aug Sep Oct

Wee

k

3

2

3

3

3

4

3

5

3

6

3

7

3

8

3

9

4

0

4

1

4

2

4

3

4

4

Plan

ned

4

8

6

4

8

6

4

8

6

4

8

6

4

4

5

4

4

5

4

4

5

4

4

5

5

3

8

5

3

8

5

3

8

5

3

8

5

3

8

Nov Dec

Wee

k

4

5

4

6

4

7

4

8

4

9

5

0

5

1

5

2

Plan

ned

5

3

9

5

3

9

5

3

9

5

3

9

4

3

9

4

3

9

4

3

9

4

3

9


Wee

k 1 2 3 4 5 6 7 8 9

1

0

1

1

1

2

1

3

1

4

1

5

1

6

1

7

1

8

Plan

ned

2

7

5

2

7

5

2

7

5

2

7

5

2

7

5

5

4

3

5

4

3

5

4

3

5

4

3

6

0

0

6

0

0

6

0

0

6

0

0

4

3

2

4

3

2

4

3

2

4

3

2

4

3

2

May Jun Jul

Wee

k

1

9

2

0

2

1

2

2

2

3

2

4

2

5

2

6

2

7

2

8

2

9

3

0

3

1

Plan

ned

3

4

4

3

4

4

3

4

4

3

4

4

4

2

3

4

2

3

4

2

3

4

2

3

5

4

0

5

4

0

5

4

0

5

4

0

5

4

0

Aug Sep Oct

Wee

k

3

2

3

3

3

4

3

5

3

6

3

7

3

8

3

9

4

0

4

1

4

2

4

3

4

4

Plan

ned

5

0

7

5

0

7

5

0

7

5

0

7

3

6

8

3

6

8

3

6

8

3

6

8

3

6

8

7

0

2

7

0

2

7

0

2

7

0

2

Nov Dec

Wee

k

4

5

4

6

4

7

4

8

4

9

5

0

5

1

5

2

Plan

ned

5

6

1

5

6

1

5

6

1

5

6

1

4

5

6

4

5

6

4

5

6

4

5

6


Wee

k 1 2 3 4 5 6 7 8 9

1

0

1

1

1

2

1

3

1

4

1

5

1

6

1

7

1

8

Plan

ned

3

5

6

3

5

6

3

5

6

3

5

6

5

6

4

5

6

4

5

6

4

5

6

4

4

9

4

4

9

4

4

9

4

4

9

4

4

9

4

4

4

9

4

4

9

4

4

9

4

4

9

4

4

9

May Jun Jul

Wee

k

1

9

2

0

2

1

2

2

2

3

2

4

2

5

2

6

2

7

2

8

2

9

3

0

3

1

Plan

ned

3

5

7

3

5

7

3

5

7

3

5

7

3

5

3

3

5

3

3

5

3

3

5

3

3

5

3

7

0

1

7

0

1

7

0

1

7

0

1

Aug Sep Oct

Wee

k

3

2

3

3

3

4

3

5

3

6

3

7

3

8

3

9

4

0

4

1

4

2

4

3

4

4

Plan

ned

5

2

8

5

2

8

5

2

8

5

2

8

3

8

1

3

8

1

3

8

1

3

8

1

3

8

1

7

3

3

7

3

3

7

3

3

7

3

3

Nov Dec

Wee

k

4

5

4

6

4

7

4

8

4

9

5

0

5

1

5

2

Plan

ned

5

8

4

5

8

4

5

8

4

5

8

4

4

7

4

4

7

4

4

7

4

4

7

4

Process Flow

The flow of operations at Skala’s manufacturing unit starts with the set-up of the

inventory for the receiving of the ordered raw materials. The pre set-up of the inventory

means to bifurcate the older raw materials and making room for the new materials that

are to be received. Post this, based on the demand forecasted, the order for the various

raw materials are made. On the arrival of the raw materials based on the lead time, they

are received and stocked in the inventory. For the order received, the bill is made ready

and the payment for the same is made.

As the day starts, few workers are assigned to make batches of the raw materials in

the inventory, as the assembly line involves running all the machines as batches. After

the raw materials are made as batches, another set of laborers move the batched

materials to the respective stations. As per given specification the rods and the thick

boards are sent to the straight cutter area and the thin boards are sent to the flex cutter.

The straight cutter and the flex cutter operate simultaneously. From these we get raw leg

supports, raw back and front legs and also raw seat frames from the straight cutter and

raw back slats as the output from the flex cutter. Again as per given specifications the raw

leg supports and the raw back and front legs are transported to the Lathe machines.

Simultaneously to save on time, the raw seat frame is already sent to the Drilling machine

and the raw back slats arrive at the ladder back sub-assembly station. At the Lathe station

the raw leg supports and the raw front and back legs are furthered cut to specifications,

knurled and sanded. So we get the processed leg supports and processed front and back

legs as the output from the Lathe. Now the processed front and back legs are sent to the

Drilling machine station where required number of holes are each made on the front and

back legs. The seat frames are already drilled by the time the lathe process is completed.

Next comes the assembling part. The required number of screws are already in the

sub-assembly station. After the Lathe process one leg support is already transported to

the ladder-back sub-assembly while two leg supports are sent to the seat sub-assembly

station. The raw back slats from the flex cutter are also already at the ladder-back sub-

assembly station. Now after the drilling process, two drilled back legs, one leg support

and the raw back slats are assembled at the ladder-back sub-assembly station. Post this,

the holed front legs and two leg supports are assembled onto the ladder-back sub-

assembly. This unit is now sent to the seat-frame sub-assembly station where the holed

seat frame from the drilling machine are assembled. Post this there will be a quality check

by Skala’s department to check for the dimensions, sturdiness etc. After this quality check

the assembled unit is sent to be painted. The paint is done at the painting area and sent

to the drying room, where it is left to dry for 24 hours. After this we perform another quality

check, because after the painting job is how the product looks to our customer and that

is a very important factor for Skala, hence another quality check. After the chairs have

dried and inspected they are moved to the final assembly section where seat cushion is

assembled to the painted seat-frame sub-assembly.

This ends the process of manufacturing the chair. Now the chairs are covered with

Skala’s packaging and sent to be stocked in the Inventory. From here, as per the demand

of our customers, the products are transported to them.

Production Time

Process Process

Time

Note

Cut: legs / leg

supports

10 sec/leg To measure and cut legs / leg supports from rod.

Cut: Seat-

frame boards

1 min./board To measure and cut Seat-frame boards from thick

boards.

Cut: Back slats 2 min./slat To measure and cut Back slats from thin boards.

Lathe: Back

legs

12 min/leg Initial setup time 20 min. for change over.

Lathe: Front

legs

5 min/leg Initial setup time 10 min. for change over.

Lathe: Leg

supports

6

min/support

Initial setup time 15 min. for change over.

Drill: Legs 10 sec/leg To measure and drill two holes on each leg.

Drill: Seat-

frame boards

10 sec/board To measure and drill two holes on the front seat-

frame boards.

Ladder-back

subassembly

5 min. Assembly of back legs, back slats, and one leg

support.

Seat

subassembly

4 min. Assembly of front legs and leg supports to the

ladder-back subassembly.

Seat-frame

subassembly

3 min. Assembly of Seat-frame boards and the rest of the

chair.

Paint 10 min./chair Paint chairs. Chairs must be dried for 24 hours.

Seat cushion

subassembly

3 min. Assembly of Seat cushions to the printed chairs.

Based on this data and the parallel assembly lines that Skala is implementing, the

following procedural methodology which will be used for every chair that goes through

Skala’s assembly line from raw material to finished product. Since weekly demands need

to be met punctually, and we have to abide by our customer’s strict demand schedules,

this standardized process will stream-line all unique assembly lines to prevent as much

human error as possible and also keep chair-to-chair quality consistent. This means that

manufacturing for each chair is quality-controlled and the amount of defects will be

eradicated as much as possible. Each assembly line will be directed to follow the

procedural steps outlined below. (NOTE: The process steps below are calculated based

on the number of tools that are being utilized, check the Tool Capacity section – time is

also shown in seconds).

Four material handlers and personnel will be responsible for allocating the amount of raw

material to each specified station. Raw material handlers will put together material for the

chair,. Once the material has been obtained from raw material storage, it should take

about two minutes to move required parts to cutting stations. Once at cutting stations,

each chair component will have a designated area and ‘swim-lane’, where their

manufacturing process will commence. As soon as the cutting steps for the back leg, leg

supports, and front leg is complete, these parts will be moved by handlers to the lathe

stations. The table above takes into account the set-up of lathes, but we are assuming

that this work will be done in the morning, before the daily production begins. After lathe

steps are complete, the material handlers will move parts to the drilling stations. Once

drilling is complete, designated parts are moved to each chair sub-assembly station, for

the ladder back, seat, and seat frame. Next, chairs are brought to the painting and drying

areas, where each chair has wood stain applied to its surfaces, and then chairs are dried

and seat-cushions are installed. Finally, the last step to complete the manufacturing

process is to label chairs with serial number and update inventory on the computer. The

final step is to move completed chairs and stack them on storage racks. As soon as

chairs are being moved to storage, material handlers are prepping raw material for the

next batch of chairs. The figure below graphically displays the procedural steps from start

to finish for chair manufacturing. It has been calculated to take about 14 minutes of work

time (not counting chair drying) to complete the operation process.

Machine Description Repeats

Cut

(min)

Lathe

(min)

Drill

(min) Total

1 Slat 4 2 0 0 8

2 Front legs 2 0.17 5 0.17 10.67

3 Back Legs 2 0.17 12 0.17 24.67

4 Leg support 4 0.17 6 0 24.67

5 Frames 4 1 0 0.17 4.67

Tool Utilization

Tool Preventive

Maintenance

(hrs/week)

Uptime Utilization

Straight Cutter 2 95.00% 90.00%

Flex-Cutter 3 90.00% 90.00%

Lathe 1 3 95.00% 90.00%

Lathe 2 3 95.00% 90.00%

Drill 1 98.00% 90.00%

Based on the given data for tool utilization, effective tool usage time must be calculated

in order to figure out how much actual time that each tool can be run. Once the number

of actual tool hours are calculated, our company will be able to see the differences

between actual run time and stated runtime and then find time during the week or on

weekends to allocate for the make-up lost tool time.

Uptime can be seen as the actual effective time that a tool is used. Utilization can be

seen as the effective employee work rate, based on employee breaks, work ethic, and

tool set-up. Uptime indicates the actual useful hours of work that the machine does – if a

machine works for 10 hours and has a 90% uptime, then it has only done 9hrs of useful

work.

The equipment engineers on the company rolls perform preventive maintenance on the

weekends. For the six tools that we have on the floor, there will be 15 hours of PM that

will be examined during the weekend. If any machine has a defect, officials from the

company the machine was purchased from will be called to repair the machines.

Supply Chain Management

Skala furniture’s supply-chain management strategy begins right from the storage of raw

materials to the origin and shipping of the manufactured chairs. This means that the

supply-chain management approach deals with the storage of raw materials, work-in-

process inventory and finished goods from the point of origin to the point of consumption.

Such an approach ensures that inventory holding is positive all the time to maintain on-

time delivery of the chairs. In order to simplify the raw material procurement process,

Skala furniture places orders in a periodic fashion. It is assumed that if the raw material

suppliers are failing to fulfill the order, then it is solely their responsibility to supply the

material of the same standards and at the same cost from a different supplier. A failure in

achieving it would lead to a penalty in order to reimburse the loss sustained by Skala

furniture.

The supply-chain management strategy adopted by Skala furniture is “Efficient Supply

Chain”. Since, the demand is predictable with low forecast errors, and consistent quality

and on-time delivery is a priority, therefore, “Efficient Supply Chain” is most suited.

Demand Planning Skala furniture conducts thorough demand planning to create reliable forecasts. This kind

of planning helps Skala furniture improve the accuracy of revenue forecasts and align

inventory levels as per the demand. Table shows the forecast, which illustrates the

demand of the chair. The table shows a very linear demand however it does have a slow

increase.

Supply Planning The objective of supply planning is to balance supply and demand in a manner that

achieves the financial and service objectives of Skala furniture. This is accomplished with

the help of demand planning and the location where the facility is established. The

demand planning provides an efficient forecast and the location is selected in such a way

that it is very close to all the suppliers. This proximity to the suppliers helps in procuring

the raw material in advance and in minimum time in order to cover the demand and the

production schedules.

Bill of Material The tables shows the bill of material for one Chair. Skala manufacturing used to

store inventory and track each and every order as well as raw material. To make this

tracking system effective Skala Company select specific code number for each part based

on the type of material that being used, example prefix Sk-P is for the wood piece part

and prefix Sk-SA is for the Subassembly part. Skala Company does not use specific code

for Adhesive and paint as it is order as per the calculated demand but still it is monitor by

tracking their order slot number. Each part from bill of material is according to CAD

drawing as per ASME standard and guidelines.

Table No:

Sr.

no

Skala Part

No

Part

Name

Quanti

ty

Part

Price Type

1 Sk-P001 Back Slat 4 $1.2 Part

2 Sk-P002 Front Leg 2 $1.5 Part

3 Sk-P003 Back Leg 2 $1.5 Part

4 Sk-P004

Leg

Support 4 $1.5 Part

5 Ad-01 Adhesive 135gm $0.07 Ad

6 Sk-SA001 Frames 4 $1

Subassem

bly

7 Sk-SA002 Cushion 1 $5

Subassem

bly

8 Pa-01 Paint 0.5gm $1 Pa

Total $12.77

Fig No. Paint For Furniture. Fig

No. Adhesive Glue

Cost Analysis The cost analysis is an important aspect for Skala Furniture as per company’s

strategy. Company’s strategy is to produce consistent quality and mass production chair

for quick break even and to make company profitable as early as possible. To

determine the cost analysis we need to take all required cost in the consideration such

as tool cost, machinery cost, labor cost, raw material cost etc. Also costing is important

for us to determine the reasonable price for per chair to sand in very competitive market

and remain profitable for remaining two years. To determine the per chair cost we

actually come up with all the following fixed and variable cost.

Required Tool Cost Component Total Tools Cost for

each ($)

Final Cost ($)

Straight

Cutter

1 2000 2000

Flex Cutter 1 2800 2800

Lathes 2 8000 16000

Drill 1 1000 1000

Total 21800

Rent Cost Sq.Ft Cost/Sq.ft Total/Year Total/Week

Full Facility 54000 0.33 17820 342.692307

7

Actual Size 21750 0.33 7177.5 138.028846

2

Electricity Energy/K W Usage/kW Total/Year Total/Week

$0.12(Mexic

o)

78549 $9425.88 $181.25

$12435 per week in year 2015

$13678.50 per week in year 2016 10%

increment

$ 15046.35 per week in year 2017 10%

increment

Labor cost:

Insurance (equipment + Employee) = $25000/yr = $480.77 per week

Paint + Glue = $1.07/ chair

Maintenance + Misc = $2000 + $1000= $3000/week

Cost of materials (per chair): $12.766

Raw Material cost:

Year 2015

Component Quantity

Per Chair

Week 1 to 5

Jan 15

Cost/e

a in $

Total

cost

Lead Time in

Days

Rod 2 2670 1.5 4005 5

Thin Board 1 1335 2 2670 7

Thick

Board

0.5 667.5 2.5 1668.75 3

Seat

Cushion

1 1335 5 6675 10

Total

Chairs

1335 Total

Cost=

15018.7

5

Component Quantity

Per Chair

Week 6 to 9

Feb 15

Cost/ea in

$

Total cost Lead Time in

Days

Rod 2 4176 1.5 6264 5

Thin Board 1 2088 2 4176 7

Thick Board 0.5 1044 2.5 2610 3

Seat

Cushion

1 2088 5 10440 10

Total Chairs 2088 Total

Cost=

23490

Component Quantity

Per Chair

Week 10 to

13

Mar 15

Cost/ea in

$


Days

Rod 2 4664 1.5 6996 5

Thin Board 1 2332 2 4664 7

Thick Board 0.5 1166 2.5 2915 3

Seat

Cushion

1 2332 5 11660 10


Cost=

26235

Component Quantity

Per Chair

Week 14 to

17

Apr 15

Cost/ea in

$


Days

Rod 2 4160 1.5 6240 5

Thin Board 1 2080 2 4160 7

Thick Board 0.5 1040 2.5 2600 3

Seat

Cushion

1 2080 5 10400 10


Cost=

23400

Component Quantity

Per Chair

Week 18 to

22

May 15

Cost/ea in

$


Days

Rod 2 2650 1.5 3975 5

Thin Board 1 1325 2 2650 7

Thick Board 0.5 662.5 2.5 1656.25 3

Seat

Cushion

1 1325 5 6625 10


Cost=

14906.25

Component Quantity

Per Chair

Week 23 to

26

June 15

Cost/ea in

$


Days

Rod 2 3248 1.5 4872 5

Thin Board 1 1624 2 3248 7

Thick Board 0.5 812 2.5 2030 3

Seat

Cushion

1 1624 5 8120 10


Cost=

18270

Component Quantity

Per Chair

Week 27 to

31

July 15

Cost/ea in

$


Days

Rod 2 4160 1.5 6240 5

Thin Board 1 2080 2 4160 7

Thick Board 0.5 1040 2.5 2600 3

Seat

Cushion

1 2080 5 10400 10


Cost=

23400

Component Quantity

Per Chair

Week 32 to

35

Aug 15

Cost/ea in

$


Days

Rod 2 3888 1.5 5832 5

Thin Board 1 1944 2 3888 7

Thick Board 0.5 972 2.5 2430 3

Seat

Cushion

1 1944 5 9720 10


Cost=

21870

Component Quantity

Per Chair

Week 36 to

39

Sept 15

Cost/ea in

$


Days

Rod 2 3560 1.5 5340 5

Thin Board 1 1780 2 3560 7

Thick Board 0.5 890 2.5 2225 3

Seat

Cushion

1 1780 5 8900 10


Cost=

20025

Component Quantity

Per Chair

Week 41 to

44

Oct 15

Cost/ea in

$


Days

Rod 2 5380 1.5 8070 5

Thin Board 1 2690 2 5380 7

Thick Board 0.5 1345 2.5 3362.5 3

Seat

Cushion

1 2690 5 13450 10


Cost=

30262.5

Component Quantity

Per Chair

Week 45 to

48

Nov 15

Cost/ea in

$


Days

Rod 2 4312 1.5 6468 5

Thin Board 1 2156 2 4312 7

Thick Board 0.5 1078 2.5 2695 3

Seat

Cushion

1 2156 5 10780 10


Cost=

24255

Component Quantity

Per Chair

Week 49 to 52

Dec 15

Cost/ea in

$

Total

cost

Lead Time in

Days

Rod 2 3512 1.5 5268 5

Thin Board 1 1756 2 3512 7

Thick Board 0.5 878 2.5 2195 3

Seat

Cushion

1 1756 5 8780 10


Cost=

19755

Year 2015

Component Quantity Per

Chair

Week 1 to

5

Jan 16

Cost/ea in

$

Total

cost

Lead Time in

Days

Rod 2 2750 1.5 4125 5

Thin Board 1 1375 2 2750 7

Thick Board 0.5 687.5 2.5 1718.75 3

Seat

Cushion

1 1375 5 6875 10


Cost=

15468.7

5

component Quantity Per

Chair

Week 6 to

9

Feb 16

Cost/ea in

$

Total

cost

Lead Time in

Days

Rod 2 4344 1.5 6516 5

Thin Board 1 2172 2 4344 7

Thick Board 0.5 1086 2.5 2715 3

Seat

Cushion

1 2172 5 10860 10


Cost=

24435


Chair

Week 10 to

13

Mar 16

Cost/ea in

$

Total

cost

Lead Time in

Days

Rod 2 4800 1.5 7200 5

Thin Board 1 2400 2 4800 7

Thick Board 0.5 1200 2.5 3000 3

Seat

Cushion

1 2400 5 12000 10


Cost=

27000


Chair

Week 14 to

18

Apr 16

Cost/ea in

$

Total

cost

Lead Time in

Days

Rod 2 4320 1.5 6480 5

Thin Board 1 2160 2 4320 7

Thick Board 0.5 1080 2.5 2700 3

Seat

Cushion

1 2160 5 10800 10


Cost=

24300


Chair

Week 19 to

22

May 16

Cost/ea in

$

Total

cost

Lead Time in

Days

Rod 2 2752 1.5 4128 5

Thin Board 1 1376 2 2752 7

Thick Board 0.5 688 2.5 1720 3

Seat

Cushion

1 1376 5 6880 10


Cost=

15480


Chair

Week 23 to

26

June 16

Cost/ea in

$

Total

cost

Lead Time in

Days

Rod 2 3384 1.5 5076 5

Thin Board 1 1692 2 3384 7

Thick Board 0.5 846 2.5 2115 3

Seat

Cushion

1 1692 5 8460 10


Cost=

19035


Chair

Week 27 to

31

July 16

Cost/ea in

$

Total

cost

Lead Time in

Days

Rod 2 5400 1.5 8100 5

Thin Board 1 2700 2 5400 7

Thick Board 0.5 1350 2.5 3375 3

Seat

Cushion

1 2700 5 13500 10


Cost=

30375


Chair

Week 32 to

35

Aug 16

Cost/ea in

$

Total

cost

Lead Time in

Days

Rod 2 4056 1.5 6084 5

Thin Board 1 2028 2 4056 7

Thick Board 0.5 1014 2.5 2535 3

Seat

Cushion

1 2028 5 10140 10


Cost=

22815


Chair

Week 36 to

40

Sept 16

Cost/ea in

$

Total

cost

Lead Time in

Days

Rod 2 3680 1.5 5520 5

Thin Board 1 1840 2 3680 7

Thick Board 0.5 920 2.5 2300 3

Seat

Cushion

1 1840 5 9200 10


Cost=

20700


Chair

Week 41 to

44

Oct 16

Cost/ea in

$

Total

cost

Lead Time in

Days

Rod 2 5616 1.5 8424 5

Thin Board 1 2808 2 5616 7

Thick Board 0.5 1404 2.5 3510 3

Seat

Cushion

1 2808 5 14040 10


Cost=

31590

Component

Quantity Per

Chair

Week 45 to

48

Nov 16

Cost/ea in

$

Total

cost

Lead Time in

Days

Rod 2 4488 1.5 6732 5

Thin Board 1 2244 2 4488 7

Thick Board 0.5 1122 2.5 2805 3

Seat

Cushion

1 2244 5 11220 10


Cost=

25245

Component

Quantity Per

Chair

Week 49 to

52

Dec 16

Cost/ea in

$

Total

cost

Lead Time in

Days

Rod 2 3648 1.5 5472 5

Thin Board 1 1824 2 3648 7

Thick Board 0.5 912 2.5 2280 3

Seat

Cushion

1 1824 5 9120 10


Cost=

20520

Year 17


Chair

Week 1 to 4

Jan 17

Cost/ea in

$

Total

cost

Lead Time in

Days

Rod 2 2848 1.5 4272 5

Thin Board 1 1424 2 2848 7

Thick Board 0.5 712 2.5 1780 3

Seat

Cushion

1 1424 5 7120 10

Total

Chairs

1424 Total

Cost=

16020


Chair

Week 5 to 9

Feb 17

Cost/ea in

$

Total

cost

Lead Time in

Days

Rod 2 4512 1.5 6768 5

Thin Board 1 2256 2 4512 7

Thick Board 0.5 1128 2.5 2820 3

Seat

Cushion

1 2256 5 11280 10

Total

Chairs

2256 Total

Cost=

25380


Chair

Week 9 to

13

March 17

Cost/ea in

$

Total

cost

Lead Time in

Days

Rod 2 4940 1.5 7410 5

Thin Board 1 2470 2 4940 7

Thick Board 0.5 1235 2.5 3087.5 3

Seat

Cushion

1 2470 5 12350 10

Total

Chairs

2470 Total

Cost=

27787.5


Chair

Week 14 to

18

Apr 17

Cost/ea in

$

Total

cost

Lead Time in

Days

Rod 2 4490 1.5 6735 5

Thin Board 1 2245 2 4490 7

Thick Board 0.5 1122.5 2.5 2806.25 3

Seat

Cushion

1 2245 5 11225 10

Total

Chairs

2245 Total

Cost=

25256.2

5


Chair

Week 19 to

22

Cost/ea in

$

Total

cost

Lead Time in

Days

May 17

Rod 2 2856 1.5 4284 5

Thin Board 1 1428 2 2856 7

Thick Board 0.5 714 2.5 1785 3

Seat

Cushion

1 1428 5 7140 10

Total

Chairs

1428 Total

Cost=

16065


Chair

Week 23 to

27

Jun 17

Cost/ea in

$

Total

cost

Lead Time in

Days

Rod 2 3530 1.5 5295 5

Thin Board 1 1765 2 3530 7

Thick Board 0.5 882.5 2.5 2206.25 3

Seat

Cushion

1 1765 5 8825 10

Total

Chairs

1765 Total

Cost=

19856.2

5


Chair

Week 28 to

31

Jul 17

Cost/ea in

$

Total

cost

Lead Time in

Days

Rod 2 5608 1.5 8412 5

Thin Board 1 2804 2 5608 7

Thick Board 0.5 1402 2.5 3505 3

Seat

Cushion

1 2804 5 14020 10

Total

Chairs

2804 Total

Cost=

31545


Chair

Week 32 to

35

Aug 17

Cost/ea in

$

Total

cost

Lead Time in

Days

Rod 2 4224 1.5 6336 5

Thin Board 1 2112 2 4224 7

Thick Board 0.5 1056 2.5 2640 3

Seat

Cushion

1 2112 5 10560 10

Total

Chairs

2112 Total

Cost=

23760


Chair

Week 36 to

40

Sept 17

Cost/ea in

$

Total

cost

Lead Time in

Days

Rod 2 3810 1.5 5715 5

Thin Board 1 1905 2 3810 7

Thick Board 0.5 952.5 2.5 2381.25 3

Seat

Cushion

1 1905 5 9525 10

Total

Chairs

1905 Total

Cost=

21431.2

5


Chair

Week 41 to

44

Oct 17

Cost/ea in

$

Total

cost

Lead Time in

Days

Rod 2 5864 1.5 8796 5

Thin Board 1 2932 2 5864 7

Thick Board 0.5 1466 2.5 3665 3

Seat

Cushion

1 2932 5 14660 10

Total

Chairs

2932 Total

Cost=

32985


Chair

Week 45 to

48

Nov 17

Cost/ea in

$

Total

cost

Lead Time in

Days

Rod 2 4672 1.5 7008 5

Thin Board 1 2336 2 4672 7

Thick Board 0.5 1168 2.5 2920 3

Seat

Cushion

1 2336 5 11680 10

Total

Chairs

2336 Total

Cost=

26280


Chair

Week 49 to

52

Dec 17

Cost/ea in

$

Total

cost

Lead Time in

Days

Rod 2 3792 1.5 5688 5

Thin Board 1 1896 2 3792 7

Thick Board 0.5 948 2.5 2370 3

Seat

Cushion

1 1896 5 9480 10

Total

Chairs

1896 Total

Cost=

21330

Cumulative Cost: According to above raw material cost and other fixed and variable

cost we calculated cumulative cost for three years.

Wee

k

Raw

Material

Cost

Labor

Cost

Paint +

Glue/We

ek

Mainte

nance

+ Misc

Insuran

ce Rent

Electric

ity

Total

Cumulative

Expenses

1 15018.75 12435 285.69 3000 480.77 342.7 181.25 31744.16

2 12435 285.69 3000 480.77 342.7 181.25 16725.41

3 12435 285.69 3000 480.77 342.7 181.25 16725.41

4 12435 285.69 3000 480.77 342.7 181.25 16725.41

5 12435 285.69 3000 480.77 342.7 181.25 16725.41

6 23490 12435 558.54 3000 480.77 342.7 181.25 40488.26

7 12435 558.54 3000 480.77 342.7 181.25 16998.26

8 12435 558.54 3000 480.77 342.7 181.25 16998.26

9 12435 558.54 3000 480.77 342.7 181.25 16998.26

10 26235 12435 623.81 3000 480.77 342.7 181.25 43298.53

11 12435 623.81 3000 480.77 342.7 181.25 17063.53

12 12435 623.81 3000 480.77 342.7 181.25 17063.53

13 12435 623.81 3000 480.77 342.7 181.25 17063.53

14 23400 12435 556.4 3000 480.77 342.7 181.25 40396.12

15 12435 556.4 3000 480.77 342.7 181.25 16996.12

16 12435 556.4 3000 480.77 342.7 181.25 16996.12

17 12435 556.4 3000 480.77 342.7 181.25 16996.12

18 14906.25 12435 283.55 3000 480.77 342.7 181.25 31629.52

19 12435 283.55 3000 480.77 342.7 181.25 16723.27

20 12435 283.55 3000 480.77 342.7 181.25 16723.27

21 12435 283.55 3000 480.77 342.7 181.25 16723.27

22 12435 283.55 3000 480.77 342.7 181.25 16723.27

23 18270 12435 434.42 3000 480.77 342.7 181.25 35144.14

24 12435 434.42 3000 480.77 342.7 181.25 16874.14

25 12435 434.42 3000 480.77 342.7 181.25 16874.14

26 12435 434.42 3000 480.77 342.7 181.25 16874.14

27 23400 12435 556.4 3000 480.77 342.7 181.25 40284.84

28 12435 556.4 3000 480.77 342.7 181.25 16884.84

29 12435 556.4 3000 480.77 342.7 181.25 16884.84

30 12435 556.4 3000 480.77 342.7 181.25 16884.84

31 12435 556.4 3000 480.77 342.7 181.25 16884.84

32 21870 12435 520.02 3000 480.77 342.7 181.25 38829.74

33 12435 520.02 3000 480.77 342.7 181.25 16959.74

34 12435 520.02 3000 480.77 342.7 181.25 16959.74

35 12435 520.02 3000 480.77 342.7 181.25 16959.74

36 20025 12435 476.15 3000 480.77 342.7 181.25 36940.87

37 12435 476.15 3000 480.77 342.7 181.25 16915.87

38 12435 476.15 3000 480.77 342.7 181.25 16915.87

39 12435 476.15 3000 480.77 342.7 181.25 16915.87

40 30262.5 12435 575.66 3000 480.77 342.7 181.25 47277.88

41 12435 575.66 3000 480.77 342.7 181.25 17015.38

42 12435 575.66 3000 480.77 342.7 181.25 17015.38

43 12435 575.66 3000 480.77 342.7 181.25 17015.38

44 12435 575.66 3000 480.77 342.7 181.25 17015.38

45 24255 12435 576.73 3000 480.77 342.7 181.25 41271.45

46 12435 576.73 3000 480.77 342.7 181.25 17016.45

47 12435 576.73 3000 480.77 342.7 181.25 17016.45

48 12435 576.73 3000 480.77 342.7 181.25 17016.45

49 19755 12435 469.73 3000 480.77 342.7 181.25 36664.45

50 12435 469.73 3000 480.77 342.7 181.25 16909.45

51 12435 469.73 3000 480.77 342.7 181.25 16909.45

52 12435 469.73 3000 480.77 342.7 181.25 16909.45

201

5

year

sTot

al 237487.5 646620 25369.7 156000

25000.0

4

17820.

4 9425 1140566.24

1 15468.75 13678.5 294.25 3000 480.77 342.7 181.25 33446.22

2 13678.5 294.25 3000 480.77 342.7 181.25 17977.47

3 13678.5 294.25 3000 480.77 342.7 181.25 17977.47

4 13678.5 294.25 3000 480.77 342.7 181.25 17977.47

5 13678.5 294.25 3000 480.77 342.7 181.25 17977.47

6 24435 13678.5 581.01 3000 480.77 342.7 181.25 42699.23

7 13678.5 581.01 3000 480.77 342.7 181.25 18264.23

8 13678.5 581.01 3000 480.77 342.7 181.25 18264.23

9 13678.5 581.01 3000 480.77 342.7 181.25 18264.23

10 27000 13678.5 642 3000 480.77 342.7 181.25 45325.22

11 13678.5 642 3000 480.77 342.7 181.25 18325.22

12 13678.5 642 3000 480.77 342.7 181.25 18325.22

13 13678.5 642 3000 480.77 342.7 181.25 18325.22

14 24300 13678.5 462.24 3000 480.77 342.7 181.25 42445.46

15 13678.5 462.24 3000 480.77 342.7 181.25 18145.46

16 13678.5 462.24 3000 480.77 342.7 181.25 18145.46

17 13678.5 462.24 3000 480.77 342.7 181.25 18145.46

18 13678.5 462.24 3000 480.77 342.7 181.25 18145.46

19 15480 13678.5 368.08 3000 480.77 342.7 181.25 33531.3

20 13678.5 368.08 3000 480.77 342.7 181.25 18051.3

21 13678.5 368.08 3000 480.77 342.7 181.25 18051.3

22 13678.5 368.08 3000 480.77 342.7 181.25 18051.3

23 19035 13678.5 452.61 3000 480.77 342.7 181.25 37170.83

24 13678.5 452.61 3000 480.77 342.7 181.25 18135.83

25 13678.5 452.61 3000 480.77 342.7 181.25 18135.83

26 13678.5 452.61 3000 480.77 342.7 181.25 18135.83

27 30375 13678.5 577.8 3000 480.77 342.7 181.25 48636.02

28 13678.5 577.8 3000 480.77 342.7 181.25 18261.02

29 13678.5 577.8 3000 480.77 342.7 181.25 18261.02

30 13678.5 577.8 3000 480.77 342.7 181.25 18261.02

31 13678.5 577.8 3000 480.77 342.7 181.25 18261.02

32 228115 13678.5 542.49 3000 480.77 342.7 181.25 246340.71

33 13678.5 542.49 3000 480.77 342.7 181.25 18225.71

34 13678.5 542.49 3000 480.77 342.7 181.25 18225.71

35 13678.5 542.49 3000 480.77 342.7 181.25 18225.71

36 20700 13678.5 393.76 3000 480.77 342.7 181.25 38776.98

37 13678.5 393.76 3000 480.77 342.7 181.25 18076.98

38 13678.5 393.76 3000 480.77 342.7 181.25 18076.98

39 13678.5 393.76 3000 480.77 342.7 181.25 18076.98

40 13678.5 393.76 3000 480.77 342.7 181.25 18076.98

41 31590 13678.5 751.14 3000 480.77 342.7 181.25 50024.36

42 13678.5 751.14 3000 480.77 342.7 181.25 18434.36

43 13678.5 751.14 3000 480.77 342.7 181.25 18434.36

44 13678.5 751.14 3000 480.77 342.7 181.25 18434.36

45 25245 13678.5 600.27 3000 480.77 342.7 181.25 43528.49

46 13678.5 600.27 3000 480.77 342.7 181.25 18283.49

47 13678.5 600.27 3000 480.77 342.7 181.25 18283.49

48 13678.5 600.27 3000 480.77 342.7 181.25 18283.49

49 20520 13678.5 487.92 3000 480.77 342.7 181.25 38691.14

50 13678.5 487.92 3000 480.77 342.7 181.25 18171.14

51 13678.5 487.92 3000 480.77 342.7 181.25 18171.14

52 13678.5 487.92 3000 480.77 342.7 181.25 18171.14

201

6

457963.7

5 711282 26342.33 156000

25000.0

4

17820.

4 9425 1428133.52

year

s

Tota

l

1 16020

15046.3

5 380.92 3000 480.77 342.7 181.25 35451.99

2

15046.3

5 380.92 3000 480.77 342.7 181.25 19431.99

3

15046.3

5 380.92 3000 480.77 342.7 181.25 19431.99

4

15046.3

5 380.92 3000 480.77 342.7 181.25 19431.99

5 25380

15046.3

5 603.48 3000 480.77 342.7 181.25 45034.55

6

15046.3

5 603.48 3000 480.77 342.7 181.25 19654.55

7

15046.3

5 603.48 3000 480.77 342.7 181.25 19654.55

8

15046.3

5 603.48 3000 480.77 342.7 181.25 19654.55

9 27787.5

15046.3

5 528.58 3000 480.77 342.7 181.25 47367.15

10

15046.3

5 528.58 3000 480.77 342.7 181.25 19579.65

11

15046.3

5 528.58 3000 480.77 342.7 181.25 19579.65

12

15046.3

5 528.58 3000 480.77 342.7 181.25 19579.65

13

15046.3

5 528.58 3000 480.77 342.7 181.25 19579.65

14 25256.25

15046.3

5 480.43 3000 480.77 342.7 181.25 44787.75

15

15046.3

5 480.43 3000 480.77 342.7 181.25 19531.5

16

15046.3

5 480.43 3000 480.77 342.7 181.25 19531.5

17

15046.3

5 480.43 3000 480.77 342.7 181.25 19531.5

18

15046.3

5 480.43 3000 480.77 342.7 181.25 19531.5

19 16065

15046.3

5 381.99 3000 480.77 342.7 181.25 35498.06

20

15046.3

5 381.99 3000 480.77 342.7 181.25 19433.06

21

15046.3

5 381.99 3000 480.77 342.7 181.25 19433.06

22

15046.3

5 381.99 3000 480.77 342.7 181.25 19433.06

23 19856.25

15046.3

5 377.71 3000 480.77 342.7 181.25 39285.03

24

15046.3

5 377.71 3000 480.77 342.7 181.25 19428.78

25

15046.3

5 377.71 3000 480.77 342.7 181.25 19428.78

26

15046.3

5 377.71 3000 480.77 342.7 181.25 19428.78

27

15046.3

5 377.71 3000 480.77 342.7 181.25 19428.78

28 31545

15046.3

5 750.07 3000 480.77 342.7 181.25 51346.14

29

15046.3

5 750.07 3000 480.77 342.7 181.25 19801.14

30

15046.3

5 750.07 3000 480.77 342.7 181.25 19801.14

31

15046.3

5 750.07 3000 480.77 342.7 181.25 19801.14

32 23760

15046.3

5 564.96 3000 480.77 342.7 181.25 43376.03

33

15046.3

5 564.96 3000 480.77 342.7 181.25 19616.03

34

15046.3

5 564.96 3000 480.77 342.7 181.25 19616.03

35

15046.3

5 564.96 3000 480.77 342.7 181.25 19616.03

36 21431.25

15046.3

5 407.67 3000 480.77 342.7 181.25 40889.99

37

15046.3

5 407.67 3000 480.77 342.7 181.25 19458.74

38

15046.3

5 407.67 3000 480.77 342.7 181.25 19458.74

39

15046.3

5 407.67 3000 480.77 342.7 181.25 19458.74

40

15046.3

5 407.67 3000 480.77 342.7 181.25 19458.74

41 32985

15046.3

5 784.31 3000 480.77 342.7 181.25 52820.38

42

15046.3

5 784.31 3000 480.77 342.7 181.25 19835.38

43

15046.3

5 784.31 3000 480.77 342.7 181.25 19835.38

44

15046.3

5 784.31 3000 480.77 342.7 181.25 19835.38

45 26280

15046.3

5 624.88 3000 480.77 342.7 181.25 45955.95

46

15046.3

5 624.88 3000 480.77 342.7 181.25 19675.95

47

15046.3

5 624.88 3000 480.77 342.7 181.25 19675.95

48

15046.3

5 624.88 3000 480.77 342.7 181.25 19675.95

49 21330

15046.3

5 507.18 3000 480.77 342.7 181.25 40888.25

50

15046.3

5 507.18 3000 480.77 342.7 181.25 19558.25

51

15046.3

5 507.18 3000 480.77 342.7 181.25 19558.25

52

15046.3

5 507.18 3000 480.77 342.7 181.25 19558.25

201

7yea

rs

Tota

l

287696.2

5

782410.

2 27363.11 156000

25000.0

4

17820.

4 9425 1305715

Tota

l

3

year

s

1015378.

75

214031

2.2 79075.14 468000

75000.1

2

53461.

2 28275 3874414.76

After summing all of the cumulative expenses and dividing this by the number of chair

produced, the total cost/per chair is found to be $52.43. In order to remain a competitive

force in the market for home and office chairs, Skala has chosen to price their chairs at

$59.99. It comes to 12.59% profit per chair cost. This takes into account potential rising

costs in terms of inflation or downward inflections in the economy. Break-even point for

Skala’s profitability will be analyzed in the next section.

Skala’s Cost per Chair = $52.43

Selling Price per Chair = $59.99

Profit Percent per Chair = 12.59%

Break-Even Analysis

Break-even analysis gives the company an indication to the exact moment that they

transition from accumulated losses to profits. The graph below sums up all of the revenue

from chair sales @$59.99 and compares it with the total running costs for the company.

Costs are shown by the upward trending Red line, and the orange line represents the

running total for revenue. After 8 weeks of operation, the revenue line crosses the costs

line. After this week, Skala becomes profitable, and the break-even point for the number

of sold chairs is found to be 2901 which occurs at Week = 8.

Fig No. Break Even Analysis for Year 2015

Fig No. Break Even Analysis.

The cash-flow analysis tabulated below. Per the amount of sales, cash is accumulated

per the selling price of each chair, and from the formula profit / loss = revenue – costs.

The last column in the cash flow table shows when Skala has positive cash, after week

8.

Cash-Flow Analysis

Units

Sold

cumulative

Units Sold

Revenue

From Sales

Accumulated

Revenue Expense

Accumulated

Expense

Net

Income

267 267 16017.33 16017.33 31744.16 31744.16

-

15726.8

3

267 534 16017.33 32034.66 16725.41 48469.57

-

16434.9

1

267 801 16017.33 48051.99 16725.41 65194.98

-

17142.9

9

267 1068 16017.33 64069.32 16725.41 81920.39

-

17851.0

7

267 1335 16017.33 80086.65 16725.41 98645.8

-

18559.1

5

522 1857 31314.78 111401.43 40488.26 139134.06

-

27732.6

3

522 2379 31314.78 142716.21 16998.26 156132.32

-

13416.1

1

522 2901 31314.78 174030.99 16998.26 173130.58 900.41

522 3423 31314.78 205345.77 16998.26 190128.84

15216.9

3

583 4006 34974.17 240319.94 43298.53 233427.37 6892.57

583 4589 34974.17 275294.11 17063.53 250490.9

24803.2

1

583 5172 34974.17 310268.28 17063.53 267554.43

42713.8

5

583 5755 34974.17 345242.45 17063.53 284617.96

60624.4

9

520 6275 31194.80 376437.25 40396.12 325014.08

51423.1

7

520 6795 31194.80 407632.05 16996.12 342010.2

65621.8

5

520 7315 31194.80 438826.85 16996.12 359006.32

79820.5

3

520 7835 31194.80 470021.65 16996.12 376002.44

94019.2

1

265 8100 15897.35 485919.00 31629.52 407631.96

78287.0

4

265 8365 15897.35 501816.35 16723.27 424355.23

77461.1

2

265 8630 15897.35 517713.70 16723.27 441078.5

76635.2

0

265 8895 15897.35 533611.05 16723.27 457801.77

75809.2

8

265 9160 15897.35 549508.40 16723.27 474525.04

74983.3

6

406 9566 24355.94 573864.34 35144.14 509669.18

64195.1

6

406 9972 24355.94 598220.28 16874.14 526543.32

71676.9

6

406 10378 24355.94 622576.22 16874.14 543417.46

79158.7

6

406 10784 24355.94 646932.16 16874.14 560291.6

86640.5

6

520 11304 31194.80 678126.96 40284.84 600576.44

77550.5

2

520 11824 31194.80 709321.76 16884.84 617461.28

91860.4

8

520 12344 31194.80 740516.56 16884.84 634346.12

106170.

44

520 12864 31194.80 771711.36 16884.84 651230.96

120480.

40

520 13384 31194.80 802906.16 16884.84 668115.8

134790.

36

486 13870 29155.14 832061.30 38829.74 706945.54

125115.

76

486 14356 29155.14 861216.44 16959.74 723905.28

137311.

16

486 14842 29155.14 890371.58 16959.74 740865.02

149506.

56

486 15328 29155.14 919526.72 16959.74 757824.76

161701.

96

445 15773 26695.55 946222.27 36940.87 794765.63

151456.

64

445 16218 26695.55 972917.82 16915.87 811681.5

161236.

32

445 16663 26695.55 999613.37 16915.87 828597.37

171016.

00

445 17108 26695.55 1026308.92 16915.87 845513.24

180795.

68

538 17646 32274.62 1058583.54 47277.88 892791.12

165792.

42

538 18184 32274.62 1090858.16 17015.38 909806.5

181051.

66

538 18722 32274.62 1123132.78 17015.38 926821.88

196310.

90

538 19260 32274.62 1155407.40 17015.38 943837.26

211570.

14

538 19798 32274.62 1187682.02 17015.38 960852.64

226829.

38

539 20337 32334.61 1220016.63 41271.45 1002124.09

217892.

54

539 20876 32334.61 1252351.24 17016.45 1019140.54

233210.

70

539 21415 32334.61 1284685.85 17016.45 1036156.99

248528.

86

539 21954 32334.61 1317020.46 17016.45 1053173.44

263847.

02

439 22393 26335.61 1343356.07 36664.45 1089837.89

253518.

18

439 22832 26335.61 1369691.68 16909.45 1106747.34

262944.

34

439 23271 26335.61 1396027.29 16909.45 1123656.79

272370.

50

439 23710 26335.61 1422362.90 16909.45 1140566.24

281796.

66

23710

1140566.

24

275 23985 16497.25 1438860.15 33446.22 1174012.46

264847.

69

275 24260 16497.25 1455357.40 17977.47 1191989.93

263367.

47

275 24535 16497.25 1471854.65 17977.47 1209967.4

261887.

25

275 24810 16497.25 1488351.90 17977.47 1227944.87

260407.

03

275 25085 16497.25 1504849.15 17977.47 1245922.34

258926.

81

543 25628 32574.57 1537423.72 42699.23 1288621.57

248802.

15

543 26171 32574.57 1569998.29 18264.23 1306885.8

263112.

49

543 26714 32574.57 1602572.86 18264.23 1325150.03

277422.

83

543 27257 32574.57 1635147.43 18264.23 1343414.26

291733.

17

600 27857 35994.00 1671141.43 45325.22 1388739.48

282401.

95

600 28457 35994.00 1707135.43 18325.22 1407064.7

300070.

73

600 29057 35994.00 1743129.43 18325.22 1425389.92

317739.

51

600 29657 35994.00 1779123.43 18325.22 1443715.14

335408.

29

432 30089 25915.68 1805039.11 42445.46 1486160.6

318878.

51

432 30521 25915.68 1830954.79 18145.46 1504306.06

326648.

73

432 30953 25915.68 1856870.47 18145.46 1522451.52

334418.

95

432 31385 25915.68 1882786.15 18145.46 1540596.98

342189.

17

432 31817 25915.68 1908701.83 18145.46 1558742.44

349959.

39

344 32161 20636.56 1929338.39 33531.3 1592273.74

337064.

65

344 32505 20636.56 1949974.95 18051.3 1610325.04

339649.

91

344 32849 20636.56 1970611.51 18051.3 1628376.34

342235.

17

344 33193 20636.56 1991248.07 18051.3 1646427.64

344820.

43

423 33616 25375.77 2016623.84 37170.83 1683598.47

333025.

37

423 34039 25375.77 2041999.61 18135.83 1701734.3

340265.

31

423 34462 25375.77 2067375.38 18135.83 1719870.13

347505.

25

423 34885 25375.77 2092751.15 18135.83 1738005.96

354745.

19

540 35425 32394.60 2125145.75 48636.02 1786641.98

338503.

77

540 35965 32394.60 2157540.35 18261.02 1804903

352637.

35

540 36505 32394.60 2189934.95 18261.02 1823164.02

366770.

93

540 37045 32394.60 2222329.55 18261.02 1841425.04

380904.

51

540 37585 32394.60 2254724.15 18261.02 1859686.06

395038.

09

507 38092 30414.93 2285139.08

246340.7

1 2106026.77

179112.

31

507 38599 30414.93 2315554.01 18225.71 2124252.48

191301.

53

507 39106 30414.93 2345968.94 18225.71 2142478.19

203490.

75

507 39613 30414.93 2376383.87 18225.71 2160703.9

215679.

97

368 39981 22076.32 2398460.19 38776.98 2199480.88

198979.

31

368 40349 22076.32 2420536.51 18076.98 2217557.86

202978.

65

368 40717 22076.32 2442612.83 18076.98 2235634.84

206977.

99

368 41085 22076.32 2464689.15 18076.98 2253711.82

210977.

33

368 41453 22076.32 2486765.47 18076.98 2271788.8

214976.

67

702 42155 42112.98 2528878.45 50024.36 2321813.16

207065.

29

702 42857 42112.98 2570991.43 18434.36 2340247.52

230743.

91

702 43559 42112.98 2613104.41 18434.36 2358681.88

254422.

53

702 44261 42112.98 2655217.39 18434.36 2377116.24

278101.

15

561 44822 33654.39 2688871.78 43528.49 2420644.73

268227.

05

561 45383 33654.39 2722526.17 18283.49 2438928.22

283597.

95

561 45944 33654.39 2756180.56 18283.49 2457211.71

298968.

85

561 46505 33654.39 2789834.95 18283.49 2475495.2

314339.

75

456 46961 27355.44 2817190.39 38691.14 2514186.34

303004.

05

456 47417 27355.44 2844545.83 18171.14 2532357.48

312188.

35

456 47873 27355.44 2871901.27 18171.14 2550528.62

321372.

65

456 48329 27355.44 2899256.71 18171.14 2568699.76

330556.

95

48329

1428133.

52

356 48685 21356.44 2920613.15 35451.99 2604151.75

316461.

40

356 49041 21356.44 2941969.59 19431.99 2623583.74

318385.

85

356 49397 21356.44 2963326.03 19431.99 2643015.73

320310.

30

356 49753 21356.44 2984682.47 19431.99 2662447.72

322234.

75

564 50317 33834.36 3018516.83 45034.55 2707482.27

311034.

56

564 50881 33834.36 3052351.19 19654.55 2727136.82

325214.

37

564 51445 33834.36 3086185.55 19654.55 2746791.37

339394.

18

564 52009 33834.36 3120019.91 19654.55 2766445.92

353573.

99

494 52503 29635.06 3149654.97 47367.15 2813813.07

335841.

90

494 52997 29635.06 3179290.03 19579.65 2833392.72

345897.

31

494 53491 29635.06 3208925.09 19579.65 2852972.37

355952.

72

494 53985 29635.06 3238560.15 19579.65 2872552.02

366008.

13

494 54479 29635.06 3268195.21 19579.65 2892131.67

376063.

54

449 54928 26935.51 3295130.72 44787.75 2936919.42

358211.

30

449 55377 26935.51 3322066.23 19531.5 2956450.92

365615.

31

449 55826 26935.51 3349001.74 19531.5 2975982.42

373019.

32

449 56275 26935.51 3375937.25 19531.5 2995513.92

380423.

33

449 56724 26935.51 3402872.76 19531.5 3015045.42

387827.

34

357 57081 21416.43 3424289.19 35498.06 3050543.48

373745.

71

357 57438 21416.43 3445705.62 19433.06 3069976.54

375729.

08

357 57795 21416.43 3467122.05 19433.06 3089409.6

377712.

45

357 58152 21416.43 3488538.48 19433.06 3108842.66

379695.

82

353 58505 21176.47 3509714.95 39285.03 3148127.69

361587.

26

353 58858 21176.47 3530891.42 19428.78 3167556.47

363334.

95

353 59211 21176.47 3552067.89 19428.78 3186985.25

365082.

64

353 59564 21176.47 3573244.36 19428.78 3206414.03

366830.

33

353 59917 21176.47 3594420.83 19428.78 3225842.81

368578.

02

701 60618 42052.99 3636473.82 51346.14 3277188.95

359284.

87

701 61319 42052.99 3678526.81 19801.14 3296990.09

381536.

72

701 62020 42052.99 3720579.80 19801.14 3316791.23

403788.

57

701 62721 42052.99 3762632.79 19801.14 3336592.37

426040.

42

528 63249 31674.72 3794307.51 43376.03 3379968.4

414339.

11

528 63777 31674.72 3825982.23 19616.03 3399584.43

426397.

80

528 64305 31674.72 3857656.95 19616.03 3419200.46

438456.

49

528 64833 31674.72 3889331.67 19616.03 3438816.49

450515.

18

381 65214 22856.19 3912187.86 40889.99 3479706.48

432481.

38

381 65595 22856.19 3935044.05 19458.74 3499165.22

435878.

83

381 65976 22856.19 3957900.24 19458.74 3518623.96

439276.

28

381 66357 22856.19 3980756.43 19458.74 3538082.7

442673.

73

381 66738 22856.19 4003612.62 19458.74 3557541.44

446071.

18

733 67471 43972.67 4047585.29 52820.38 3610361.82

437223.

47

733 68204 43972.67 4091557.96 19835.38 3630197.2

461360.

76

733 68937 43972.67 4135530.63 19835.38 3650032.58

485498.

05

733 69670 43972.67 4179503.30 19835.38 3669867.96

509635.

34

584 70254 35034.16 4214537.46 45955.95 3715823.91

498713.

55

584 70838 35034.16 4249571.62 19675.95 3735499.86

514071.

76

584 71422 35034.16 4284605.78 19675.95 3755175.81

529429.

97

584 72006 35034.16 4319639.94 19675.95 3774851.76

544788.

18

474 72480 28435.26 4348075.20 40888.25 3815740.01

532335.

19

474 72954 28435.26 4376510.46 19558.25 3835298.26

541212.

20

474 73428 28435.26 4404945.72 19558.25 3854856.51

550089.

21

474 73902 28435.26 4433380.98 19558.25 3874414.76

558966.

22

From Cash-Flow analysis Skala’s statistics after 3 years of operation:

● Numbers of Chairs sold: 73902 only.

● Total Revenue: $4433380.98 only.

● Total Expense: $ 3874414.76 only.

● Net Income: $ 558966.22 only.

Chair Prototyping:

Skala Furniture delivering top quality comfortable chairs to customers. The dimensions of

the chair plays an important role in the same. Apart from this, it also plays a very important

in determining the floor area, Packaging and delivery. Since our stocking area is a vertical

expansion and we have a limit of 1000 for the number of chairs that can be stocked at a

time, the prototype of the chair is indeed a big factor. The dimensions of each chair that

Skala manufactures is shown below.

Front Side of Chair

Back Side of Chair

Conclusion:

In sum, Skala’s mission is to offer a affordable product to the public, yet profitable

to us and dependable with consistent quality at the same time. Our price point of $59.99

is a very competitive price on the market. The decision of selling to distributors rather than

selling the chairs ourselves further enable us to be profitable. In Skala we do not only aim

to offer the most economical chair on the market, but to have a dependable product as

well, and to achieve this we make to stock so that we do not have to manage an

overwhelming number of stock, thus reducing problems associating with quality. To

further enable us to offer a competitive price to our chairs, the location we chose is low

on the rent and convenient on shipping to our major market, with incentives from the local

government.

Our goal was to be profitable within the first year, and with our effort, we are able

to profitable in just 8 weeks. Our product is effective, economical, and dependable.

Location: Tijuana, Mexico

Forecast: Monthly average of 2053 chairs for 36 months.

Production: Production varies from 1300 chairs to 2700 chairs a month.

Inventory and Raw materials: Minimum Inventory: 130 chairs, Maximum Inventory

290 chairs. Re-ordering happens every 4 weeks, except for week 204 to 209

Tools:

● 1 Straight Cutter,

● 1 Flex Cutter,

● 2 Lathes,

● 1 Drill.

Factory Size: 21750 sq.ft.

Workforce: 15 employees including non-production staff.

Cost Analysis:

● Cost price per chair: $52.46

● Selling price to the distributor per chair: $59.99

● Profit % per chair: 12.59%

Break-even point: Week 8

Leadership & Management

Skala chair operation and production