Question

The Company:

Telemarketing Incorporated (TI) is a service company with their primary business base in the Rocky Mountain region. TI is a service organization in the business of collecting and selling information for contracted clients.

Production Information:

TI made 5,221,782 calls in 2004 to households all over the Rocky Mountain region from their main telemarketing facility in Colorado Springs. There were a total of 330 working days in 2004, which TI conducted telemarketing calls. In 2004 TI completed, on average, over 15,800 calls a day.

TI’s main facility was designed to achieve a capacity level of between 17000-18000 calls a day (from 7:00 a.m. to 12:00 midnight). However, company analysis has shown that the best operation level (BOL) for TI is 17,600 calls a day. At the BOL level TI is able to achieve its lowest unit cost per call given several variables associated with the information collected and calling costs as contracted with clients.

TI has a company policy, which states, “Any one-month period where total calls exceed 500,000 the excess is considered service cushion or capacity cushion.” (Look at capacity cushion in this line of work along the line of a product-focused company that produces bottles, cars, computers or some other tangible product in excess of demand.) The company is compensated for these “cushion” periods at a rate of $10 per call over 500,000, with a cap of 11,500 over the 500,000.

The following is a monthly breakdown of TI’s service call rates for all of 2004. This information was obtained in its raw form and some normalizing of the data is required.

Table Information:

You’ll need to normalize Table 1 below before completing the fourteen (14) questions that follow.

Table 1 – TI’s 2004 Monthly/Daily Production Data (Requiring Normalization)

Month               Production Numbers   Number of Working Days During Month

January       15000 units/day       27 working days

February       15900 units/day       26 working days

March       419720 units/month            28 working days

April           16790 units/day       27 working days

May           504900 units/month   27 working days

June           17600 units/day       28 working days

July           391972 units/month   28 working days

August       12897units/day       29 working days

September       11569 units/day       27 working days

October       463681 units/month   29 working days

November       17689 units/day       27 working days

December       19000 units/day       27 working days

Total                                    330

Notes:

• When completing this problem a symmetrical curve for both economies and diseconomies of scale is assumed.

• Calculate capacity utilization rates as compared to the ideal BOL level.

Answer the Following Questions Based on the

Information Provided

Normalize data

Possible Points – There is a total of 20 possible.

1. Based on 2004 information what is TI’s annual design capacity production range (quantity)

2. What was its annual capacity utilization rate for 2004 as compared to the company’s BOL?

  

3. What would the company’s annual calls completed output be if it produced at its BOL for all of 2004 year?

4. Which are the second, third and fifth most underutilized months with regard to capacity utilization?

    

5. What is the capacity underutilization percentage for these three months (reference: Question 4)?

6. What three months did TI complete calls at the lowest per unit cost?

7. What three months did TI complete calls at the highest per unit cost?

8.     a) Was/were there any month/s were service or capacity    cushion applied?

       b) If so, what was/were the month/s?

       c) What was the cushion in calls (quantity) and capacity cushion percentage for the month or months in question?

9. Based on the completion of Question 8 and other information provided what was TI’s total “cushion” compensation for 2004 ( please show in total dollars)?

10. What month/s fall under the term - economies of scale, excluding    the BOL month/s should there be any?   

11.    a) Comparing the underutilized capacity of February with    September, which of these two months better utilized the capacity excluding the  

b) Which of these two months most likely had a higher per call rate cost for the company?

12.    a) Were there any months where the company achieved a BOL?   

b) What month/s?

       c) Respond to this statement “The BOL is not sustainable    because……………”

13. What was the cost of January’s underutilization performance (think along the lines of the BOL) if each unit not produced cost the company $15? (Think along the lines of what was produced and what could have been produced.)

14. If you were the operations manager and the growth profile forecast for 2005 reflected a 10% growth in the number of calls made over 2004, an 8% growth in 2006 over 2005 and a 7% growth in 2007 over 2006 what business strategies would you be considering for the company? Note: Do not exceed 1.5-pages in your discussion of this question. Single or 1½ spacing is fine. Do not double space your work on this final question.)

Answer 1

BOL Level	17600 calls per day
	No of calls per day	Total Number of days	Number of Calls Made	Capacity Utilised	Capacity Underutilisation	Ranking Based on Underutilisation
January	15,000	27	405,000	85.23%	14.77%	5
February	15,900	26	413,400	90.34%	9.66%	6
March	14,990	28	419,720	85.17%	14.83%	4
April	16,790	27	453,330	95.40%	4.60%	8
May	18,700	27	504,900	106.25%
June	17,600	28	492,800	100.00%
July	13,999	28	391,972	79.54%	20.46%	3
August	12,897	29	374,013	73.28%	26.72%	2
September	11,569	27	312,363	65.73%	34.27%	1
October	15,989	29	463,681	90.85%	9.15%	7
November	17,689	27	477,603	100.51%
December	19,000	27	513,000	107.95%
		330	5,221,782
2. BOL			5,808,000
Actual			5,221,782
Capacity Utilised			89.91%
3. Company's annual calls completed output at BOL = 330*17200 = 5221782
4. The second, third and fifth most underutilised months are August,July and January
5. Capacity Underutilisation % for August is 26.72, for July is 20.46% and for January is 14.77%
6. The three Months with lowest per unit Cost are December,May and November
7. The three Months with Highest Per unit Cost is July, August and September