FAR EASTERN UNIVERSITY

Case: Eight Glasses a Day (EGAD)

Operations Management
MBA 703
FEU-Manila

Submitted by:
RALPH ADRIAN H. MIEL
MA. THERESA M. MAMAUAG
EMMANUEL OJUOLA
AMRO AHMED ABDELRAZIG

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I. Case Background
The EGAD Bottling Company has decided to introduce a new line of
premium bottled water that will include several “designer” flavors. This product
development strategy will give an opportunity for the company to gain more
customers and generate more profits. Marketing manager Georgianna Mercer is
predicting an upturn in demand based on the new offerings and the increased
public awareness of the health benefits of drinking more water. Since water is a
basic necessity, there is a continuous demand for the products. And by adding
new tastes and images for bottled water products, more customers will surely
patronize it. She has prepared aggregate forecasts for the next six months (May-
50, June-60, July-70, August-90, September-80, October-70). Production
manager Mark Mercer has developed the costs that the firm will incur for the
production of the new products. Regular production cost ($1000 per tankload),
regular production capacity (60 tankloads), overtime production cost ($1600 per
tankload), subcontracting cost ($1800 per tankload) and holding cost ($2000 per
tankload per month). Backlogs are not allowed for the production and there is no
beginning inventory. The management is planning to establish operations and
capacity strategies that are efficient in order to sufficiently supply the aggregate
demand of the consumers.

II. Statement of the Problem

Since EGAD Bottling Company will launch a new line of products to the
market, the firm is concerned about the demand and capacity of products to be
manufactured. The firm wants to maximize utilization of the available
production facility, produce enough products to match the demands of the
consumers with less overall costs. Therefore, what strategy should the company
choose that has the lowest cost of production?

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III. Assumptions
1. We assume that the products of the firm have high demands in the market.
2. We assume that the firm has high storage and production costs.

IV. Areas of Consideration

a. Human Resource and Development

To ensure high quality of products produces and lessen the number

of rejected products, the HR can consider hiring employees that are
expert in manufacturing and ha necessary skills to handle the procedures
and operations excellently. Also, it is recommended to provide necessary
trainings for the proper use of equipment and machines.

b. Operations

The operations may develop a business plan which includes guideline

for the operations and capacity strategies. They may establish an
aggregate plan to further achieve a production plan that will effectively
utilize the organization’s resources to match expected demand.
Moreover, a master plan may be considered to indicate the quantity
and timing of planned completed production.

c. Finance

Working and communicating well with managers to prepare the

company’s budgets and forecasts may give necessary and critical
information to the finance department in order to fulfil the cash needs of
each department, plan company staffing levels, plan asset purchase and
expansions at minimum cost. The finance department can also use past
records from respective departments to make better budget and forecast

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over long-term and short-term time horizons. This will help them give
useful feedbacks with regards to the financial standing of the company.

d. Marketing

The marketing department can conduct surveys to the mass to

determine if the new product will be greatly sold to the market. The firm
may consider giving free taste for the products in some location or
supermarkets before launching or publicly launch the new line of
products to the consumers.

e. IT / R & D Business Development etc.

The R&D team may consider in looking out for a new machine
that will efficiently produce larger amount of products, to reduce
unnecessary process at a minimum cost. This will help the company
obtain required amount of products within the given time period and
lessen the operational and salary expenses.

V. Framework
Strengths Opportunities
 New line of premium bottled  Increased public awareness
water Industry’s low-cost of the health benefits of
producer drinking more water.
 High demands for products  Large customer base to target
 Do not allow backlogs for
production

Weaknesses Threats
 High storage and production  New competitors entering the
costs. market
 Insufficient number of  Price fluctuations of raw
employees. materials

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 Environmentalist proposing
the to limit the production of
plastic bottles.

VI. Alternative Courses of Action (at least 4)

1. Level production supplemented by up to 10 tankloads a month from
overtime.

Advantages:

1. Less severe method for changing capacity.

2. Increase in number of products.
3. Allows the firm to maintain a steady base of employees.

Disadvantages:

1. Increase in operations and salary expenses

2. Workers may refuse to overtime.
3. Results in lower productivity, poorer quality and more accidents.

PERIOD MAY JUNE JULY AUG SEP OCT TOTAL

Forecast 50 60 70 90 80 70 420
Output              
Regular 60 60 60 60 60 60 360
Overtime 10 10 10 10 10 10 60
Subcontract              
Output -
Forecast 20 10 0 -20 -10 0  
Inventory              
Beginning 0 20 30 30 10 0  
Ending 20 30 30 10 0 0  
Average 10 25 30 20 5 0  
Backlog 0 0 0 0 0 0  
Costs:              

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Regular @
$1000 60000 60000 60000 60000 60000 60000 360000
Overtime @
$1600 16000 16000 16000 16000 16000 16000 96000
Subcontract
@18000 - - - - - -  
Inventory
@$2000 20000 50000 60000 40000 10000 0 180000
Backlog - - - - - -  
12600 13600 11600
Total 96000 0 0 0 86000 76000 636000

2. A combination of overtime, inventory, and subcontracting. Regular

production should be the same each month.

Advantages:

1. Increase in number of products.

2. Limited liability over subcontractors
3. Production will be completed more quickly.
4. Less severe method for changing capacity.
5. The management may control the use of supply options as
necessary.

Disadvantages:

1. Less control over the output.

2. Increase in salary expenses.
3. Results in lower productivity, poorer quality and more accidents.
4. Includes higher storage costs and the cost of money tied up that
could be invested elsewhere.

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Forecast 50 60 70 90 80 70 420
Output              
Regular 60 60 60 60 60 60 360
Overtime 0 0 0 0 0 10 10
Subcontract 0 0 0 30 20 10  
Output -
Forecast 10 5 5 -15 0   -5
Inventory          
   
Beginning 0 10 10 0 0 0  
Ending 10 10 0 0 0 0  
Average 5 10 5 0 0 0 20
Backlog 0 0 0 0 0 0  
Costs:              
Regular @ $1 60000 60000 60000 60000 60000 60000 360000
Overtime @
$1.6 0 0 0 0 0 16000 16000
Subcontract
@$1.8 - - - - - -  
Inventory @$2 10000 20000 10000 0 0 0 40000
Backlog - - - - - -  
Total 70000 80000 70000 60000 60000 76000 416000

3. Using overtime for up to 15 tankloads a month, along with inventory

to handle variations. Regular production should be the same each month.

Advantages:

1. Allows the firm to maintain a steady base of employees.

2. Increase in number of products.
3. Allows firms to produce goods in one period and sell or ship them
in another period

Disadvantages:

1. Salary expenses will be increased.

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2. Results in lower productivity, poorer quality and more accidents.

3. Includes higher storage costs and the cost of money tied up that
could be invested elsewhere.

PERIOD MAY JUNE JULY AUG SEP OCT TOTAL

Forecast 50 60 70 90 80 70 420
Output              
Regular 60 60 60 60 60 60 360
Overtime 0 5 15 15 15 10 60
Subcontract              
Output -
Forecast 10 5 5 -15 -5 0  
Inventory              
Beginning 0 10 15 20 5 0  
Ending 10 15 20 5 0 0  
Average 5 12.5 17.5 12.5 2.5 0 50
Backlog 0 0 0 0 0 0  
Costs:              
Regular @ $1 60000 60000 60000 60000 60000 60000 360000
Overtime @
$1.6 0 8000 24000 24000 24000 16000 96000
Subcontract
@$1.8 - - - - - -  
Inventory
@$2 10000 25000 35000 25000 5000 0 100000
Backlog - - - - - -  
11900 10900
Total 70000 93000 0 0 89000 76000 556000

4. Hire additional regular workers.

Advantages:

1. New employees can bring new skills and ideas.

2. Increase in number of workforces.

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Disadvantages:

1. Requires more training.

2. Salary expenses will be increased.
3. Time consuming.
4. Highly skilled workers are generally more difficult to find.

Discussion Questions:

1. The objective is to choose the plan that has the lowest cost. Which plan
would you recommend?
A combination of overtime, inventory, and subcontracting. Regular
production should be the same each month.
Plan 2 = $416000

Forecast 50 60 70 90 80 70 420
Output              
Regular 60 60 60 60 60 60 360
Overtime 0 0 0 0 0 10 10
Subcontract 0 0 0 30 20 10  
Output -
Forecast 10 5 5 -15 0   -5
Inventory          
   
Beginning 0 10 10 0 0 0  
Ending 10 10 0 0 0 0  
Average 5 10 5 0 0 0 20
Backlog 0 0 0 0 0 0  
Costs:              
Regular @ $1 60000 60000 60000 60000 60000 60000 360000
Overtime @
$1.6 0 0 0 0 0 16000 16000
Subcontract
@$1.8 - - - - - -  
Inventory @$2 10000 20000 10000 0 0 0 40000
Backlog - - - - - -  
Total 70000 80000 70000 60000 60000 76000 416000

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2. Presumably, information about the new line has been shared with supply
chain partners. Explain what information should be shared with various
partners, and why sharing that information is important.
The information that may be share to the suppliers are Inventory,
Information Sales Data, Sales Forecasting, Order Information, Product
Ability Information, Exploitation Information of New Products and Other
Necessary Information. The importance of sharing these information to the
supplier is to build good relationship with the supplier. With this they may
extend credit limits and net period in order to acquire larger supplies with
extended deadline for payment. Supply chain partners should be consulted
during the planning stage so that any issues or advice they may have can
be taken into account, and they should be informed when plans have been
finalized.

VII. Action Plans

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Activity Responsible Person/s, or Timeline

Department/s, Team/s, etc
Preparation of Customer Operations Department Day 1 – 7
Orders, Forecast and other
Market Information
Operations Planning for Operations Department Day 8 - 14
Demand Plan
Master Production Operations Department Day 15 - 21
Planning
Preparation of Material Operations, and Procurement Day 22 – 36
Requirements Department
Preparation of Capacity Operations Department, Day 37 – 51
Requirements (Inventory, Finance Department and
Overtime and Human Resource Department
Subcontractors
Scheduling of Manufacture Operations Department Day 52 – 39
and Production
Manufacture/Production of Operations Department Day 40 – 70
New Products
Quality Check for Products Product Management Day 71 – 77
Department
Distribution of Products Product Management Day 78 – 84
Department

VIII. Recommendation
We recommend that the EGAD Bottling Company may utilize an
aggregate plan of combination of overtime, inventory, and subcontracting.
Regular production should be the same each month. This will help them produce
the required amount of products within the given schedule at a lowest cost. Since

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the plan is combination, the firm may only implement overtime, increase
inventories to be produced and hire subcontractors only if needed for the
production. Meaning the company is flexible which is a great advantage. The
firm may avoid constraints in applying the strategies for overtime, inventory and
subcontracts as these supply options will only be applied if necessary and not on
a regular basis.

IX. Conclusion

Introducing of new line of premium bottled water is a great opportunity

for EGAD Bottling Company. Therefore, it is essential for the firm to produce the
products efficiently to meet the demands of the market. It is recommended for the
firm to establish an aggregate plan that will help them maximize the utilization of
the available production facility and achieve financial goals by reducing overall
variable cost and improving the bottom line. With an effective aggregate plan, the
company may also increase customer satisfaction by matching demand and
reducing wait time for customers and reduce costs in inventory stocking. One of
the best criteria of aggregate plan is flexibility. Therefore, the company may use a
strategy of 2 a combination of overtime, inventory, and subcontracting and
consistent production each month in order to reduce costs and constraints and
produced products at a lowest cost. Aggregate planning will ensure that
organization can plan for workforce level, inventory level and production rate in
line with its strategic goal and objective.

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