1.3 Production

Each product has its own manufacturing line. For each product, the Production Department:

• Schedules production runs to supply enough units for sale based on the Marketing Department's forecast minus inventory;
• Purchases or sells capacity based on demand and growth rates of the intended segment;
• Determines automation levels for each product.

Each line has a first shift capacity. The capacity reflects the number of sensors that can be produced each year with an eight hour shift. The company can schedule a second eight hour shift, which allows the company to manufacture up to twice first shift capacity, however second shift labor costs are 50% higher than first shift.

Each line has an automation rating. Labor costs for lines with higher ratings are less than those with lower ratings, however:

• Increasing automation is expensive, as machines must be purchased to replace workers;
• R&D projects for products with higher automation take longer relative to products with lower automation– this is because lines with higher automation have more machines to re-engineer.

Increases in capacity and changes in automation take a full year to implement. Sales of capacity are immediate. Selling all of an assembly line's capacity discontinues the associated sensor– it is no longer available for sale.