answer question 3

units in demand from April and 2,500(= 0.1 X 25,000) units from May forward to March. TABLE 9-4 Anticipated Monthly Demand at Lavare Month Demand 1. Lavare, located in the Chicago suburbs, is a major manufac- turer of stainless steel sinks. Lavare is in the middle of the S&OP exercise for the coming year. Anticipated monthly demand from distributors over the 12 months is shown in Table 9-4. Capacity at Lavare is governed by the number of machine operators it hires. The firm works 20 days a month, with a regular operating shift of eight hours per day. Any time beyond that is considered overtime. Regular-time pay is $15 per hour and overtime is $22 per hour. Overtime is limited to 20 hours per month per employee. The plant currently has 250 employees. Each sink requires two hours of labor input. It costs $3 to carry a sink in inventory for a month. Materials cost per sink is $40. Sinks are sold to distributors at a price of $125 each. We assume that no stock outs are allowed and the starting inventory entering January is 5,000 units and the desired ending inventory in December is also 5,000 units. Market research has indicated that a promotion drop- ping prices by 1 percent in a given month will increase sales in that month by 20 percent and bring forward 10 percent demand from each of the following two months. Thus, a 1 percent drop in price in March increases sales in March By 3,000(= 0.2 x 15,000) and shifts 1,800(= 0.1 X 18,000) January February March April May June July August September October 10,000 11,000 15,000 18,000 25,000 26,000 30,000 29,000 21,000 18,000 14,000 11,000 November December 3. Return to the data for Lavare in Exercise 1. Now, assume that a third party has offered to produce sinks at $74 per unit. How does this change affect the optimal production plan without a promotion? How does this change affect the opti- mal timing of a promotion? Explain the changes