Mary Rhodes: Operations Manager at Kansas Furniture Aggregate Planning Assignment Answers
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Mary Rhodes: Operations Manager at Kansas Furniture Aggregate Planning Assignment

QUESTION 1

Mary Rhodes, operations manager at Kansas Furniture, has received the following estimates of demand requirements:

July	Aug.	Sept.	Oct.	Nov.	Dec.
1,000	1,200	1,400	1,800	1,800	1,600

Assuming stockout costs for lost sales of $100 per unit, inventory carrying costs of $25 per unit per month, and zero beginning and ending inventory, evaluate these two plans on an incremental cost basis:

a) Plan A: Produce at a steady rate (equal to minimum requirements) of 1,000 units per month and subcontract additional units at a $60 per unit per premium cost.

PERIOD	EXPECTED DEMAND
July	1 000
August	1 200
September	1 400
October	1 800
November	1 800
December	1 600
	$ 8 800

Period	Demand	Production	End of period inventory	Sub contract units	Inventory cost	Sub contract cost
June		1000	0
July	1000	1000	0	0	0	0
August	1200	1000	0	200	0	12000
Sept.	1400	1000	0	400	0	24000
October	1800	1000	0	800	0	48000
November	1800	1000	0	800	0	48000
December	1600	1000	0	600	0	36000
Total Cost						$ 168 000

b) Plan B: Vary the workforce, which performs at a current production level of 1,300 units per month. The cost of hiring additional workers is $3,000 per 100 units produced. The cost of layoffs is $6,000 per 100 units cut back.

Month	Demand	Production	Hire	Layoff	Hire Cost	Layoff Cost
June		1300
July	1000	1000	0	300	0	18000
August	1200	1200	200	0	6000	0
September	1400	1400	200	0	6000	0
October	1800	1800	400	0	12000	0
November	1800	1800	0	0	0	0
December	1600	1600	0	200	0	12000
					24000	30000
				Total Cost		$ 54000

Mary Rhodes also considering two more mixed strategies. Using the above data and compare plans C and D with plans A and B and make a recommendation.

a) Plan C: Keep the current workforce steady at a level producing 1,300 units per month. Subcontract the remainder to meet demand. Assume that 300 units remaining from June are available in July.

b) Plan D: Keep the current workforce at a level capable of producing 1,300 units per month. Permit a maximum of 20% overtime at a premium of $40 per unit. Assume that warehouse limitations permit no more than a 180-unit carryover from month to month. This plan means that any time inventories reach 180, the plant is kept idle time per unit is $60. Any additional needs are subcontracted at a cost of $60 per incremental unit.

Question 2

Your manager, Mr Fauzi, projects the firm’s aggregate planning demand requirements over the next 6 months as follows:

Jan	1,400	Apr	1,800
Feb	1,600	May	2,200
Mar	1,800	Jun	2,200

You are required to consider a few new production plans with the following information:

December demand	1,600 units
December production rate	1,600 units
Cost of lost sales (stockout)	RM100 per unit
Cost of holding inventory	RM20 per unit per month
Cost of hiring workers	RM50 per unit
Cost of laying off workers	RM75 per unit
Cost of subcontracting	RM75 per unit

Plan A: Vary the workforce level (chase strategy) by producing the quantity demanded in the prior month. Evaluate this plan.
Plan B: Produce at a constant rate of 1,400 units per month, which will meet the minimum demands. Then use subcontracting to subcontract to meet the rest of the demand. Evaluate this plan.
Plan C: Keep stable workforce by maintaining a constant production rate equal to average requirements and allow varying inventory levels. Evaluate this plan.
Plan D: Keep the current workforce stable at producing 1,600 units per month and subcontract to meet the rest of the demand. Evaluate this plan.