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Develop a level production plan for Covolo Diving Gear. What are the advantages and disadvantages of this plan? Could Covolo implement a pure chase plan, given the current capacity? Why or why not? If sales continue to grow, what are the implications for production capacity at Covolo?

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The strategic approach to production planning at Covolo Diving Gear involves selecting the most appropriate production method to align with sales forecasts, capacity constraints, and operational costs. One prevalent strategy is the level production plan, which entails establishing a consistent production rate throughout the planning horizon, regardless of fluctuating monthly demand. Implementing such a plan offers several benefits but also presents specific challenges that must be carefully considered in the context of Covolo's operational environment.

Development of a Level Production Plan:

To develop a level plan, Covolo would determine a stable monthly production rate that meets overall demand over the planning horizon while maintaining a consistent workforce and utilizing capacity efficiently. Summing the forecasted sales from September to August results in total demand of approximately 385,500 gauge sets. Dividing this by 12 months gives an average monthly production target of approximately 32,125 gauge sets. Considering existing inventory and workforce constraints, Covolo would plan to produce around this volume each month. For instance, starting with the current inventory of 10 gauge sets and assuming no inventory accumulation or depletion initially, the production rate would be set at about 32,125 units per month, aligning with the steady capacity of 35,000 gauge sets per month, which comfortably surpasses the average demand.

Advantages of the Level Production Plan:

The primary advantages include simplified scheduling, consistent workforce management, and reduced hiring and layoffs. This stability in operations leads to lower training, onboarding, and severance costs, and it often results in improved product quality due to steady production routines. Additionally, a level plan reduces inventory fluctuations, which can decrease holding costs and improve customer satisfaction through reliable delivery schedules.

Disadvantages of the Level Production Plan:

However, a major drawback is the potential for excess inventory during months of lower demand or insufficient inventory during peak demand periods. This mismatch can lead to increased holding costs, especially since the holding cost is $8 per gauge set per month, potentially impacting overall profitability. Moreover, inflexibility in responding to unexpected demand shifts or market changes can result in lost sales or excess stock, which is not optimal when sales grow faster than predicted.

Pure Chase Plan Feasibility:

A chase demand plan aligns production directly with monthly sales, hiring or laying off workers to match fluctuating requirements. Given Covolo’s current capacity of 35,000 gauge sets per month, implementing a pure chase plan might be feasible if the monthly demand closely aligns with this capacity. For months where demand exceeds capacity, Covolo would face production shortfalls unless capacity is expanded, or outsourced production is considered. Conversely, during months with lower demand, the company would need to lay off workers, incurring separation costs of $500 per employee.

Given the forecasted demand ranging from 17,500 to 42,000 units, the chase plan could require fluctuating the workforce significantly, which could be costly and operationally disruptive. The company’s ability to implement a pure chase plan depends on the flexibility of its workforce, the costs associated with hiring and layoff, and the capacity constraints, which, given the maximum capacity of 35,000 units per month, may limit its applicability for months with demand exceeding capacity.

Implications of Continued Sales Growth:

If sales continue to grow beyond current forecasts, Covolo will face significant capacity challenges. Sustained growth will require either expanding existing capacity, investing in additional machinery or technician labor, or outsourcing production to meet increased demand. Capacity expansion involves capital investment, longer lead times, and potential disruptions during implementation but may be necessary for long-term growth. Alternatively, developing flexible workforce strategies, such as cross-training employees or implementing scalable shifts, could help manage fluctuations more effectively without immediate facility expansion. Failure to adapt to increasing demand risks losing market share to competitors or unmet customer expectations.

In conclusion, Covolo Diving Gear can reasonably implement a level plan to smooth production and reduce costs related to workforce fluctuations. While advantageous for operational stability, it bears risks of excess inventory and reduced responsiveness to demand changes. The pure chase plan could be feasible if demand fluctuations are within capacity limits; otherwise, it could lead to frequent hiring, layoffs, and potential capacity strain. Continued sales growth necessitates strategic capacity planning, whether through expansion or flexible workforce management, to sustain competitive advantage and meet increasing market demands. Proper balancing of these strategies will ensure operational efficiency and customer satisfaction as the company plans for future growth.

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