Capacity Planning - Problem 5 - Chase Strategy

MANUFACTURING ENVIRONMENT - INVENTORY BASED

Management at the Davis Corporation has determined the following demand schedule (in units).

An employee can produce an average of 10 units per month. Each worker on the payroll costs $2,000 in regular-time wages each month.

Undertime is paid at the same rate as regular time. In accordance with the labor contract in force, Davis Corporation does not work over-time

or use subcontracting. Davis can hire and train a new employee for $2,000 and lay off one for $500. Inventory costs $32 per unit on hand at

the end of each month. At present, 140 employees are on the payroll and anticipation inventory is zero.

Prepare a production plan using a mixed strategy that uses a level workforce and anticipation inventory as its supply options. Minimize the

inventory left over at the end of the year. Layoffs, undertime, vacations, subcontracting, backorders, and stockouts are not options. The plan

may call for a one-time adjustment of the workforce before month 1.

Regular Time

Overtime

Not

Cost of an employee per month

Allowed

Value of unused Regular Time

(per hour)

Cost to Hire

Cost to Layoff

Inventory Cost per unit at end of each month

(cost per unit)

Inventory Production per Employee each month

(units)

Forecast

1

2

3

4

5

6

7

8

9

10

11

12

Total Demand

Forecasted Demand (units)

500

800

1,000

1,400

2,000

1,600

1,400

1,200

1,000

2,400

3,000

1,000

17,300

Forecasted Workforce

Units Produced

Inventory Roll-Forward

Beginning Balance

-

(Less)

Forecasted Demand

(Plus)

Production

End of Month On-Hand Inv.

Workforce

Current Workforce Level

Hires

Layoffs

Total Workforce

Hours Used

Utilized Hours

Undertime Hours Used

DOESN'T MATTER HERE - BECAUSE THE COST IS THE SAME AS REGULAR HOURS

Overtime Hours Used

NOT ALLOWED

Costs

Totals

Utilized Time

Hiring Cost

Layoff Cost

Inventory Cost

Total Cost