The sales department of a manufacturing company projects the following aggregate demand.

Jan	1400
Feb	1600
Mar	1700
Apr	1800
May	2300
Jun	2200
Jul	1800
Aug	1600

You have been hired as a consultant to help develop a manufacturing plan to minimize cost (and maximize profit).  It is expected that the year will begin with 200 units on hand.  The stock-out cost of lost sales is $100 per unit.  The inventory holding cost is $20 per unit per month.  You may ignore idle time costs.

You consider the following options:

Plan A: In any given month, vary the workforce to produce the quantity required in the prior month (this would be considered a chase strategy).  Both the December demand and build were 1600 units.  The cost of hiring additional workers is $5,000 per 100 units.  The cost of laying off workers is $7,500 per 100 units.

Plan B: Produce at 1,500 per month, which will meet minimum demand, and use subcontracting at a price premium of $75 per unit to make up any production shortfall.  Once again, both the December demand and build were 1600 units.

Plan C: Keep a stable workforce by maintaining a constant production rate equal to the average monthly demand and allowing varying inventory levels.  Once again, both the December demand and build were 1600 units.

Evaluate these plans and provide a report to management with specific recommendations.  After your evaluation of each plan, look at an additional plan which is a combination of the plans you evaluated or a slight variation in one of the plans that will further reduce the overall cost to the company for this demand period.  Make sure to include this plan in your recommendations as well.

 

Answer rating: 100% (QA)

SOLUTION To evaluate the three plans A B and C and suggest additional recommendations well calculate the costs associated with each plan and compare them Well also consider the initial inventory hirin... View the full answer