BUSN - Integrated Case Study: Susmar Shoes Inc.

Integrated Case Study: Susmar Shoes Inc.
Susmar Shoes Inc. manufactures and supplies three types of shoes (A, B and C) to
several customers against specific orders. The products are similar with some minor
design differences. These products require the same basic raw materials and are
processed on the same set of machines.
DEMAND
The orders are received by the marketing department and are cumulated into three
categories (A, B and C). The demand forecast for year 2011 is given in Table 1.
Produc
t
A
B
C

Jan
7
4
3

Table 1: Demand for 2011 in Thousands of Units
Feb Mar Apr May Jun July Aug Sep Oct
t
8
7
5
3
5
9
10
12
15
5
4
3
2
3
5
6
8
9
3
3
2
1
1
4
4
5
6

Nov

Dec

10
6
4

8
4
3

RAW MATERIAL
The amount of raw material required for each product is the same. Therefore, it may be
assumed that one unit of raw material is required for each one unit of finished product.
The cost of raw material is $ 6.00 per unit. The ordering cost is $ 1,500 per order and
the inventory carrying cost is $ 0.15 per unit per month. The lead time for receiving the
material is one month. This means that an order placed in any month will be received in
the following month. Production suffers if there is not enough material in stock. There is
no provision for staggered deliveries. In addition to the basic raw material, the cost of
other supplies is $ 1.00 per unit of finished product.
Currently, there are 15,000 units of raw material in stock and there are no outstanding
orders. There is no constraint on the warehouse capacity and, therefore, any amount of
raw material and/or finished product can be stored.
PRODUCTION CAPACITY
Only one product can be produced at a time and it costs $ 900.00 to change the set-up
from one product to the other. The production department can work in a single shift or
two shifts. The single shift capacity is 10,000 units per month which can be increased to
12,000 per month by producing 2,000 units during overtime. The two shift capacity is
19,000 units. There is no provision of overtime in two shifts. It costs $ 4,000 to go from
one shift to two shifts and $ 3,000 to go from two shifts to a single shift in addition to the
cost of changing the operating level. Operating levels can be changed in rounds of
1,000. This means that plant can operate at any level like 7,000, 8,000, 14,000 etc.
There is no cost of changing operating level up to 1,000 units, However, it costs $
600.00 per thousand units for changing capacity (up or down) if change is for more than
1,000 units. For example, it will cost $ 1,200.00 and $ 1,800.00 to change capacity by
Page 1 of 4

2,000 and 3,000 units respectively. If the plant is operating below capacity then idle
machine cost is estimated at $ 250.00 per thousand units of idle capacity.
The operating level in December 2010 was 10,000 in a single shift and the production
sequence was B-C-A.
FINISHED PRODUCT
Finished units are delivered to customers at the end of each month. The selling price
per unit is $ 17.00. The inventory carrying cost per unit per month is $ 0.25 based on
the end of month inventory. Any raw material and finished stock left at the end of
December 2011 will be valued at $ 6.00 and $ 12.00 per unit respectively.
Penalty for late delivery is $ 1.00 per unit per month. Direct labor cost is $ 2.00 per unit
during regular time. Overtime cost is 50% more. Plant overheads are estimated to be
200% of the direct labor cost.
Currently, there are no finished units in stock and there is also no backlog.
Working on the Case
The students can work individually or in teams of no more than five students in a team.
Only one submission is required per team. Write names of all team members on the
submission.
Solution
The objective is to maximize profit at the end of December.
The following decisions are to be made in each month






Number of shifts (1 or 2)
Operating level (can be changed in rounds of 1,000 only)
Production level for each product (need not be in levels of 1,000)
Sequence of production for the three products (A-B-C, B-A-C etc.)
Quantity of the raw materials ordered

Page 2 of 4

Submission
The solution to the problem should be presented in the following format. A drop box has
been created in the Blackboard. Submit a word document or a pdf file.
Ja
n

Fe
b

Mar

Apr

Solution
Ma Jun
y

Jul
y

Au
g

Sep
t

Oct

No
v

De
c

Number
of Shifts
Operating
Level
Productio
n Level of
A
Productio
n Level of
B
Productio
n Level of
C
Total
Productio
n (A + B
+ C)
Sequenc
e of
Productio
n for the
three
products
Quantity
of Raw
Material
Ordered
Give a complete analysis of various costs incurred.
What is the revenue and total profit made?
It will be a good idea to keep track of costs, revenue and profit on a monthly basis.
Grading
The team that makes the maximum profit will be the winning team and will get 100% for
the grade. All other teams will be compared with the winning team. The percentage
grade will go down by 5% for every $10,000 reduction in profit. For example, suppose
the maximum profit made by one of the teams is $400,000. This team gets 100%. The
Page 3 of 4

teams that make $390,000 and more (but less than $400,000) will get 95%. The teams
that make $380,000 and more (but less than 390,000) will get 90% and so on.