Foldrite Furniture Company

FoldRite Furniture Company

Rohan Ailani

Puneet Singh

Yousef Al Ramadhan

Aarti Mangla

Michelle Gorrio

Objective

To identify the best strategy for FoldRite to meet its need for extra production and labor during the March-August timeframe, and to analyze how to effectively implement it.

Executive Summary

FoldRite Furniture Company is located in Aurora, Colorado, specializing in folding chairs. The demand for FoldRite products is very seasonal, as folding chairs are in high demand in the spring/summer months. Traditionally, FoldRite experiences a surge in demand around May and increases shipments to dealers around April. However, in 2010, the market demand for FoldRite's products was uncharacteristically high, which resulted in a need for a new strategy in order to meet this unexpected demand in terms of production as well as extra labor. The best strategy is to change the process design. The design change will increase manufacturing productivity and lower work-in-progress time, making the system lean and more responsive. Taking these benefits into account, FoldRite should implement this strategy within the organization.

Introduction

At the start of 2010, FoldRite had three major categories with one product each- AlStrong, GreenComfort and CloudChair. AlStrong, a folding table in which recycled aluminum replaced the plastic top of the preceding generation tables, accounted for the largest projected share of the company's total revenues, at 42%. GreenComfort, a stackable chair upholstered with a special washable fabric, was expected to generate 34% of the total revenues. Finally, CloudChair, a new folding chair that conformed to a variety of body shapes, was expected to provide the remaining 24% of the revenues, including a large portion of the company's growth.

The demand for FoldRite furniture is seasonal and fairly stable, increasing in the spring/summer months. However, the development of the CloudChair (which won a number of design awards in 2009) as well as the increasing relevance of eco-friendly products led to an unexpected surge in demand for the company in early 2010. The company had to optimize its resources (while meeting product quality standards and delivery schedules) and identify the strategy that would best allow it to meet the unexpected demand. The five strategies it contemplated were: Overtime, Subcontracting, Hiring New Workers, Training Existing Workers or Changing the Design.

Analysis of Strategies:

Overtime

This strategy consists of employing the existing workers to work overtime hours in order to meet the extra demand. Based on the model, in order to meet the demand, the company would need overtime hours in April and May for skilled workers, and in April-August for unskilled workers. If the existing workers were made to work overtime, the company would need 45 skilled workers in April and 91 in May. Similarly, the company would need 154 unskilled workers in April, 206 in May, 176 in June, 126 in July and 22 in August. This translates to a total of cost of $575,150, with $170,591.45 for skilled and $404,558.55 for unskilled labor.

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In the month of May, the forecasted demand is too high to be compensated for in overtime hours. So, in order to meet the demand, the company will still have to hire 23 new skilled workers and additionally, hire and supervise 25 new unskilled workers during that month. This would account for an additional cost of $36,163.

Subcontracting

Being able to subcontract skilled workers in the production of GreenComfort chairs allows the company to free more skilled workers to meet the extra production goals. In addition, it enables the company to avoid the demoralization of workers, hiring costs associated with the hiring and firing approach and also avoids the possible quality reduction associated with the overtime approach.

The cost of subcontracting is an extra 20% in labor wages and therefore, the subcontracting wage is $22.80/hour for skilled and $10.80/hour for unskilled workers. The total labor hours needed for the production of GreenComfort are 106,135, with 31,358 skilled hours and 74,777 unskilled hours. The total cost of implementing this option is $5,356,114.

Hiring New Workers:

Hiring new workers is too costly in the event that the expected demand levels fall back to their original levels, because the firm would have to fire a large amount of excess labor. In addition, the firm would experience reduced turn over rates and demoralization of the current employees, which directly violates the company's major goal to have a stable, productive workforce. However, hiring new workers may be a sustainable approach, since the corporate executives credited the change in demand to new strategic developments and it