PROJECT 1: 3M’s N95 Mask 2020-21 Aggregate Production Plan

3M is the leading U.S. producer of the N95 surgical and respirator masks that are in high demand as a personal protective equipment (PPE) item for U.S. healthcare workers and other at-risk employees/individuals during the current pandemic.  3M’s PPE products are currently produced at its Aberdeen plant in South Dakota as one of its main product lines for its health care business segment, which historically has contributed about 25% of the U.S. net revenues for the company.  Mr. MMM, a

hypothetical production manager at 3M’s Aberdeen Plant uses aggregate forecasts to assist in its production planning for the aggregate mask product line. Table 1 shows 3M’s monthly aggregate demand for the last five years along with the number of operational weeks anticipated per month (last column) that it operates the plant.

Given recent surges in U.S. demand due to the pandemic, 3M has invested $80 million in upgrades to its

Aberdeen production facility, increasing equipment capacity for this product line two different times.  In July, they increased their weekly production assembly line capacity to 13 million units and they are currently working on expanding production capacity to 22 million units by this October.  Mr. MMM would like to forecast the aggregate monthly mask product line demands for this upcoming year so that he can adjust scheduled productions and workforce requirements appropriately and make any necessary subcontracting arrangements.   He has asked you to analyze the historical data to identify recent patterns that 3M’s healthcare segment should take into account when it develops the N95 product lines’ production plan for the 2020-2021 year (i.e. year 6).

3M currently employs 440 workers to run the upgraded automated assembly line 5 days per week, 8 hours per day, who are paid $14.50 per hour.  The material and other variable costs are $0.40 per mask on average.    Every worker scheduled to support the production line allows the plant to produce an incremental 730 masks per hour. They can hire additional workers to run the modified line starting in October if they decide they want to more fully utilize the upgraded equipment’s capacity. Since 3M’s workforce is unionized, 3M cannot resize its workforce freely as new employees will become part of the union.  It costs 3M $5,000 to hire and train a new worker, and $10,000 to lay an employee off given the union restrictions.  If 3M asks their employees to work overtime, the extra hours are scheduled on weekends or evenings to get additional capacity time if necessary.   Employees are paid time and a half when they work overtime.

3M currently does not have any inventory of its masks. The holding cost for each mask is $0.05 per month. In the past, 3M has just rejected mask orders if they could not meet the current monthly demand.  The company is open to backordering some demand this upcoming year if needed to help the U.S. during the pandemic.  They estimate it will cost $0.10 per mask per month to process backorder requests.

Historically, Mr. MMM’s aggregate planning strategy has been to maintain a steady, well-trained workforce throughout the year in order to control costs, ensure quality production and keep the union happy.  The workforce works full-time and produces as many masks as possible each month.  Over the last few years, the masks orders have been noticeably higher than the plant regular-time capacity and production was not sufficient to satisfy demand so stockouts occurred every month.  Starting this September, 3M has decided overtime labor may be explored as an option to address the societal impact of mask stockouts.  Government regulations limit employee overtime to no more than 20% of the regular production level in any particular month.

Mr. MMM also has a longstanding relationship with a Chinese manufacturer that subcontracts work from American companies.  The Vietnamese manufacturer insists that 3M subcontract at least five million masks every month next year in the contract; in return, this subcontractor will manufacture 3M’s masks for $0.70 per unit, which includes the cost of the material, labor and shipping.

Mr. MMM is unclear as to what type of demand he should expect for the masks next year.  He believes that the pandemic is likely to continue for the near future, but the impact on demand could greatly decrease once a vaccine is successfully introduced.  He recognizes he may have to make adjustments to his usual production strategy in order to control costs with the recent expansions and improve product availability simultaneously.  The union will not allow him to schedule the workforce to work a shorter week though (less than 5 days per week).  He is also willing to resize the workforce and/or use the subcontractor.   While he is willing to use backordering now to help the U.S. economy, he does not want to see a plan that has any unfilled orders at the end of September 2021, when he is hoping much of the pandemic uncertainty and impact will be resolved.  He also does not want to have a large inventory at the end of August 2021 in case the pandemic is under control and demand is expected to decrease as a result.

Table 1: Historical number of 3M masks ordered in the U.S. over last 5 years (in millions)

In order to help 3M identify a good aggregate plan, you will need to perform the following activities:

PART A (40 points):  Monthly Forecasts

1. Plot the monthly time series with the two types of line graphs discussed in class. (Ignore the # of Operating Weeks per Month data for Part A). Identify the graphs in your spreadsheet using distinct chart titles (e..g. Graph 1: Historical Monthly Demand Across Years 1-5, Graph 2: Historical Monthly Demand by Year, Graph 3: Historical Annual Demand). Describe the demand behaviors for this time series by referring to the graph titles as you answer the following questions:
2. Trend:
   1. How would you describe the trend in this time series (e.g. nonexistent, upward, downward, constant, growing faster/slower than in past?):
   2. Identify which graph(s) you looked at and explain how you came to your conclusion based upon the graph(s):

• Do you think the trend you described will continue next year? Based on market signals, defend why or why not. What type of trend behavior do you expect for next year?  What other information from the project description or news events today did you consider in your analysis of this behavior?   Seasonality:

1. How would you describe the seasonality in this time series (e.g. not present, present with high and low periods in which months?):
2. Identify which graph(s) you looked at and explain how you came to your conclusion based upon the graph(s): Random Movement:
3. How would you describe the amount of random variation in this time series (e.g. minimal, extremely volatile?):
4. Identify which graph(s) you looked at and explain how you came to your conclusion based upon the graph(s):

2. Identify a forecasting model that you think will provide Mr. MMM with a reasonably accurate forecast for the next year. Calculate at least one monthly measure of performance (e.g. MAD or MAPD) to describe how accurate your selected forecasting approach is.
3. Using your recommended forecasting approach, forecast the monthly demand for Sept 2020Aug 2021 (year 6). Include a third graph in your spreadsheet that depicts how your forecasts (historical or future) compare to the actual patterns observed in the time series.  Be sure to title your graph with a meaningful label that refers to the periods forecasted. The graph legends for the lines should clearly distinguish between historical and forecasted values.
4. What forecasting approach did you select to model this time series? If you selected a seasonal method, describe clearly what other time-series models you used to implement this approach. Describe how your forecast for next year anticipates the behaviors you described in part 1. You should refer to specific relevant graphs and interpret the information the graph(s) provides as well as your calculated measure of performance when describing the quality of your forecast.  Interpret your measure of performance in a managerial context and be sure to include the units assumed for your measures (e.g. %, $, time period).  You should use the results in a sentence that describes how you would communicate the potential uncertainty/inaccuracy to Mr. MMM as he considers using your forecast.  (You will not get full credit for just reporting the numbers!)
5. Type your answers to the questions raised in steps 1 and 4 and submit your word document and your spreadsheet with the forecast model you recommended in steps 2 thru 4. Do not include other models besides the one you are recommending.  Make sure your spreadsheet includes the three requested graphs in step 1  and 3.