Question

2. Skycell, a major European cell phone manufacturer, is making production plans for the coming year. Skycell has worked with its customers (the service providers) to come up with forecasts of monthly requirements (in thousands of phones) as shown in Table 3.

  Manufacturing is primarily an assembly operation, and capacity is governed by the number of people on the production line. The plant operates for 20 days a month, eight hours each day. One person can assembly a phone every 10 minutes. Workers are paid 20 euros per hour and a 50 percent premium for overtime. The plant currently employs 1,250 workers. Component costs for each cell phone total 20 euros. Given the rapid decline in component and finished-product prices, carrying inventory from one month to the next incurs a cost of 3 euros per phone per month. Skycell currently has a no-layoff policy in place. Overtime is limited to a maximum of 20 hours per month per employee. Assume that Skycell has a starting inventory of 50,000 units and wants to end the year with the same level of inventory.

Table 3: Monthly Demand for Cell Phones, in Thousands

Month	Demand
January	1,000
February	1,100
March	1,000
April	1,200
May	1,500
June	1,600
July	1,600
August	900
September	1,100
October	800
November	1,400
December	1,700

a.          Is there any value for management to negotiate an increase of allowed overtime per employee per month from 20 hours to 40?

b.          Reconsider parts (a) and (b) if Skycell starts with only 1,200 employees. Reconsider parts (a) and (b) if Skycell starts with 1,300 employees. What happens to the value of additional overtime as the workforce size decreases?