Kool King Division Analysis

Introduction

Kool King was a division of the Television Industries of America which was organized in early 1930’s. In 1953, through acquisition, TIA expanded in oil and gas burners, room air conditioners and central cooling systems. In 1970, the Kool King Division was established in a new plant in Melrose Park, Illinois. Growth of this division was a source of pride to TIA. The division produced seven model lines of air conditioners as below.

Kool King Product Line

Production Facilities

The divisional production facilities in Melrose Park were located in a modern, 1-story building with over 100, 000 sq. ft. of floor space. It had no manufacturing facility for any of the components used in it’s products. All component parts were purchased from outside suppliers. A typical air conditioner had 200 parts out of which 85% cost was of few parts of individual unit. In a given series, 75% parts were common. Most models were assembled on a single assembly line. A large portion of the line consisted of a waist-high, roller conveyor along which partially assembled units were riding on plywood pallets were pushed manually. Other portion of line had a moving belt which moved units automatically. Most of the parts were screwed or bolted by hand tools or air-powered wrenches.

Plant Work Force and labor cost

In 1979, Kool King division employed 150 people of whom approx. were classified as ‘direct labor’.

Rate of payment for Grade1 was $4.80 and a regular pay increase to $6.00 per hour till 18 months. 30-day trial period for new employees was in effect. Skilled production employees Grade2 to Grade8 were vital to product quality and plant efficiency, hence varying rate of production was avoided as it involved laying off and rehiring. The cost of hiring a new worker is $284.50 as per exhibit 7. In addition to it, any significant increase in number of employees would incur extra cost. Major attrition in company may be costly and also adversely affect the quality.

Planning

Planning for Kool King division had started in May in past years and laid out general guidelines for the division’s sales and production budgets for next fiscal year. Planning meetings in 1979 had begun with aggregated forecast of sales for coming year. Kool King executives questioned some features of the forecast. E.g. 1980 forecast was based on assumption that the new Mighty midget unit would take over a portion of market of smaller midget and also increase sales volume. However, Mr. Lewis VP of division believed it to be mistake and pointed out MM $350 price opened a new market in addition to $300 midget market.

Once the forecast was agreed upon, a large chart was prepared to facilitate development of production plan. In determining production plan, division executives were guided by 3 policies.

1. The desire to minimize fluctuations in the size of the work force
2. A preference for large lot size
3. A finished goods inventory containing almost all product lines.

Production plan was intended for the whole year and did not show details. Detailed master schedules were issued frequently throughout the year by materials manager Mr. Frank for 12-week period. These schedules were reviewed and reissued at least once a month. As production year progressed, it forced to change the original production plan, hence Mr. Frank liked to keep these schedules flexible at all times. It also meant changes in component parts acquisition patterns. In fiscal year 1979, KK has processed over $11 million worth of purchased parts. Mr. Frank attempted to keep no more than 1 to 2 weeks of inventory for regularly moving products. For products not being produced regularly, component parts inventory could be 1 to 2 months ahead of schedule. Although, Mr. Frank planned to schedule 12 weeks in advance, in reality, it was a different case for some parts purchase such as steels needed 4 months while some parts purchase can’t be made and held for 12 weeks. The minimum advance notice required to make changes in schedule was a function of the lead time of suppliers of component parts.

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