Toy World, Inc.: An Operations Perspective

Abstract

This case allows students to apply the concept of relevant-costs framework to the analysis of aggregate-production-planning alternatives. Students can use the AGGPRODS Excel spreadsheet model.

Excerpt

UVA-OM-1054

Toy World, Inc.:

An Operations Perspective

Dan Hoffman, Production manager of Toy World, Inc., felt good about the meeting that he had just had with the company's president, Mr. McClintock. Sure that the company's current product plan was inefficient, Hoffman went to McClintock to convince him that a switch to a level production plan throughout the year would be easier to manage and would save the company money.

Toy World had historically produced in response to customer orders, which were highly seasonal. Every year the plant would run at a bare minimum for the first seven months of the year and then be forced to quickly ramp up to produce 15 times as much volume during the peak month of November. This method had always been a nightmare for production in terms of hiring new workers and performing the necessary training not to mention the enormous amount of overtime that was always logged. Hoffman was certain there was a better way, but it was critical that he convince McClintock before any changes could take place. He knew that the only way to do this was to show his boss an improvement in the company's financial statements.

In order to get a better understanding of the costs that were involved in production for the year, he turned to a spreadsheet model that he had once used in college. The basis of this model is that all of the different Toy World product models can be looked at in aggregate based on a given monthly SKU forecast. Using the model, one would be able to investigate the incremental annual costs associated with different production plans. Since the projected monthly forecasts for Toy World were usually quite predictable, this seemed like a perfect situation to give this model a try.

. . .

Keywords: aggregate planning, operations management, relevant costs