OPERATIONS MANAGEMENT (MGCR-472-061)

AGGREGATE PLANNING AND MATERIAL REQUIREMENTS PLANNING PRACTICE QUESTIONS Problem 1. Leather-All produces a line of handmade leather products. At the present time, the company is producing only belts, handbags, and attach cases. The predicted demand for the three products over a six-month planning horizon is as follows: DEMAND MONTH 1 2 3 4 5 6 WORK DAYS 22 20 20 24 21 17 BELTS 2,000 2,800 2,500 3,400 3,000 2,600 BAGS 1,250 780 1,425 745 635 475 CASES 240 380 210 75 126 145

The belts require an average of 2 hours to produce, the handbags 3 hours, and the attach cases 6 hours. All of the workers have the skill to work any product. Leather-All has currently 35 regular time workers who each have a share in the firm and cannot be fired. There are an additional 25 locals that are available and can be hired for short periods at higher cost. Regular employees earn a base monthly salary calculated on the basis of the regular working hours for the month at $8.5 per hour (even if they need to work less). They, in addition, receive an overtime salary calculated on the basis of the monthly overtime hours they work at $14 per hour. Regular time comprises a 7-hour workday and due to union contracts, regular time workers can work at most 2 hours per day on overtime. The additional temporary workers are hired for $11 per hour and are kept on the payroll for at least one full month. The cost of hiring and firing of these workers is negligible. Temporary workers do not work overtime. Leather-All also recognizes that in certain months it can manufacture more than what is needed, in order to accumulate inventory for future months. The accountant of the company estimates that 1 worker-hour worth of inventory has a cost of $1 per month. Likewise, Leather-All recognizes that some demand can be backordered. The estimated cost of backordering 1 worker-hour worth of demand is $10 per month. The production chief of Leather-All is totally confused and asks for your help. a) Using worker hours as the aggregate measure of production, convert the forecasted demands to demands in terms of aggregate units. Also, convert the amount of capacity (regular time, overtime, temporary worker) available in terms of aggregate units. b) Determine the optimal aggregate production plan for Leather-All assuming that demands cannot be backordered.
1

Problem 2. Psychics of the World Inc. wants an aggregate plan for their organization. Given the nature of the business, Psychics has decided that back orders are not acceptable. If a caller cannot be handled immediately, the call is lost sale. Psychics has predicted the following number of calls; May-8000 calls, June-5000 calls, July-6000 calls, August-7000 calls, September-6000 calls, October-8000 calls, November-10,000 calls, December-12,000 calls. Psychics of the World pays each of their 48 employees $4,000 per month. Each psychic works for 160 regular-time hours per month or 40 regular-time hours per week. The regular-time labor cost of a call is $20, the overtime labor cost per call is $30. Each psychic is expected to serve 200 callers per month. The management has limited overtime to 50 calls per month per psychic. It costs $3,000 to hire a new psychic and $2,000 to fire a psychic. a) Develop a level aggregate without inventory, without back orders, and without overtime. b) Using the same problem data, develop an aggregate plan using a level workforce supplemented by overtime. Minimize the wasted capacity. No back orders are permitted. Problem 3. The Bloomington Bike Company produces two models: the Basic and the Supra. Herb Hoosier, the owner, plans to assemble 15 Basics and 10 Supras each week during periods 4 to 8. Product structure trees for each bike are shown below:

K(2)

F W(2) Q

Develop a materials requirement plan for component parts K and W over the next eight weeks. Data on all lead times, current inventory and ordering rules are given below: Scheduled receipts are: Period 1: 20 Bs, 18 Ws; Period 2: 20 Ss, 15 Fs. ITEM B S X W F K Q M LEADTIME (WKS) 2 2 1 2 1 1 1 1 ON HAND 5 2 5 2 10 3 15 0 LOT-SIZING RULE Lot-for-lot Lot-for-lot Q = 25 Multiples of 12 Q = 30 Lot-for-lot Q = 30 Lot-for-lot

Problem 4. Assume that you are the manager of Assembly Inc. You have just received an order for 40 units of an industrial robot which is to be delivered at the start of week 7 of your schedule. Using the following information, determine how many units of subassembly G to order and the timing of those orders given that subassembly G must be ordered in multiples of 80 units and all other components are ordered lot-for-lot. Assume that the components are used only for this particular robot. ITEM Robot B C E F G H LEADTIME (WKS) 2 1 1 2 3 2 1 ON HAND 10 5 20 4 8 15 10 COMPONENTS B, G, C(3) E, F G(2), H -----

Problem 5. A manager has prepared a forecast of expected aggregate demand for the next six months. Develop an aggregate plan to meet this demand given this additional information: A level regular time production rate of 100 units per month will be used. Backorders are allowed and they are charged at a rate of $8 per unit per month. Inventory holding costs are $1 per unit per month. Determine the cost of this plan if regular time cost is $20 per unit and beginning inventory is zero.

Month Forecast

1 80

2 100

3 120

4 110

5 100

6 90

Problem 6. A producer of lawn mowers and leaf blowers, must develop an aggregate plan given the forecast for engine demand shown in the table below. The department has a normal capacity of 130 engines per month. Normal output has a cost of $60 per engine. The beginning inventory is zero engines. Overtime has a cost of $90 per engine. Develop a chase plan that matches the forecast using overtime and slack time, and computer the total cost of your plan. Month 1 Forecast 120 2 135 3 140 4 120 5 125 6 125 7 140 8 135 Total 1,040

SOLUTIONS Problem 1.
(a) Month 1 2 3 4 5 6 Month 1 2 3 4 5 6 Total Belts 2,000 2,800 2,500 3,400 3,000 2,600 Work Days 22 20 20 24 21 17 124 Hours 4,000 5,600 5,000 6,800 6,000 5,200 Reg.Cap. 5,390 4,900 4,900 5,880 5,145 4,165 30,380 Bags 1,250 780 1,425 745 635 475 OT Cap. 1,540 1,400 1,400 1,680 1,470 1,190 8,680 Hours 3,750 2,340 4,275 2,235 1,905 1,425 Temp. Cap. 3,850 3,500 3,500 4,200 3,675 2,975 21,700 Cases 240 380 210 75 126 145 Hours 1,440 2,280 1,260 450 756 870 Total 9,190 10,220 10,535 9,485 8,661 7,495

(b) No backorders Demand Production Regular Time@$8.5 Overtime@$14 Temporary@$11 Inventory End Inventory Aver.@$1 Total

1 9,190 5,390 1,105 3,850

2 10,220 4,900 1,400 3,500 735 945.0

3 10,535 4,900 1,400 3,500 0 367.5

4 9,485 5,880 0 3,801 196 98.0

5 8,661 5,145 0 3,675 355 275.5

6 7,495 4,165 0 2,975 0 177.5

COST

$258,230 $54,670 $234,311

1,155 577.5

$2,441 $549,652

TOTAL

Problem 2. a) Here we are using a level plan. Since inventory and back orders are not permitted, find the period with the highest demand- December has demand of 12,000 calls which is the aggregate production rate. 12,000 calls divided by 200 calls per psychic per month gives us 60 psychics. So we hire 60-48=12 psychics.
a) Period Service Calls Regular Time Capacity (calls) Wasted Capacity (calls) May 8,000 12,000 4,000 June 5,000 12,000 7,000 July 6,000 12,000 6,000 August 7,000 12,000 5,000 September 6,000 12,000 6,000 October 8,000 12,000 4,000 November December 10,000 12,000 2,000 12,000 12,000 -

This plan appears to waste substantial capacity 34,000 more calls could have been handled. Total calls demanded were 62,000 whereas we had 96,000.
Total Cost Calculation Regular-time Labor Cost 60 Psychics @ $4,000 for 8 periods Hiring Costs 12 Psychics @ 3,000 Total Costs $ $ 36,000 1,956,000 $ 1,920,000

b) Here we use a level workforce. Aggregate production rate is 9,000 calls. We dont need to hire or fire since overtime will match the volume of calls each psychic can provide up to 250 calls per period.
Period Service Calls Regular Time Capacity (calls) Wasted Capacity (calls) Overtime Capacity needed (calls) May 8,000 9,600 1,600 June 5,000 9,600 4,600 July 6,000 9,600 3,600 August 7,000 9,600 2,600 September 6,000 9,600 3,600 October 8,000 9,600 1,600 400 2,400 November December 10,000 9,600 12,000 9,600

Total Cost Calculation Regular-time Labor Cost 48 Psychics @ $4,000 for 8 periods Overtime Cost 2800 calls @ $30 Total Costs $ $ 84,000 1,620,000 $ 1,536,000

This plan reduces the wasted regular-time capacity by 16,400 calls. Total cost is $300,000 less than the previous plan. Overtime is needed only in 2 periods so it should not create morale problems. This plan is an improvement but better plans are possible. Problem 3.
Item: B Lot Size Rule: L4L Lead Time: 2 weeks 1 Gross Requirements Scheduled Receipts Projected Available (5) Planned Orders 0 20 25 25 25 5 25 15 0 15 0 15 0 0 2 0 3 0 4 15 5 15 6 15 7 15 8 15

Item: S Lot Size Rule: L4L Lead Time: 2 weeks 1 Gross Requirements Scheduled Receipts Projected Available (2) Planned Orders Item: K Lot Size Rule: L4L Lead Time: 1 week 1 Gross Requirements Scheduled Receipts Projected Available (3) Planned Orders 3 3 3 13 0 20 0 20 0 0 0 0 2 0 3 0 4 16 5 20 6 20 7 0 8 0 2 0 2 0 20 22 22 22 8 12 10 0 10 0 0 3 0 4 10 5 10 6 10 7 10 8 10

For instance: Period 3 gross requirement is 31=2*(13 of K)+(5 of B)

Item: W Lot Size Rule: FOQ=12 units Lead Time: 2 weeks 1 Gross Requirements Scheduled Receipts Projected Available (2) Planned Orders 0 18 20 12 20 60 1 60 6 12 11 8 8 8 2 0 3 31 4 55 5 55 6 15 7 0 8 0

Planned orders are multiples of 12, fixed order quantity size. Problem 4.
Item: Robot Lot Size Rule: L4L Lead Time: 2 weeks 1 Gross Requirements Scheduled Receipts Projected Available (10) Planned Orders 10 10 10 10 10 30 10 0 0 0 2 0 3 0 4 0 5 0 6 0 7 40 8 0

Item: C Lot Size Rule: L4L Lead Time: 1 week 1 Gross Requirements Scheduled Receipts Projected Available (20) Planned Orders Item: G Lot Size Rule: FOQ=80 units Lead Time: 2 weeks 1 Gross Requirements Scheduled Receipts Projected Available (15) Planned Orders 15 15 160 15 35 5 5 5 5 0 2 0 3 0 4 140 5 30 6 0 7 0 8 0 20 20 20 20 70 0 0 0 0 0 2 0 3 0 4 0 5 90 6 0 7 0 8 0

For item G, gross requirements are calculated from Robot and item C as; Period 4 Gross Requirement=2*(70 from C) Period 5 Gross Requirement=1*(30 from Robot)

ROBOT

C(3)

G(2)

Problem 5.

Month Forecast Level Production Beginning Inv. Ending Inv. Avg. Inventory Backorder

1 80 100 0 20 10 0

2 100 100 20 20 20 0

3 120 100 20 0 10 0

4 110 100 0 0 0 10

5 100 100 0 0 0 10

6 90 100 0 0 0 0 Total

Costs $12,000

$ 40 $ 160 $12,200

Problem 6.
Period Forecast Output Regular Overtime Subcontract Beginning Inv. Ending Inv. Avg. Inventory Backorder 1 120 120 2 135 130 5 3 140 130 10 4 120 120 5 125 125 6 125 125 7 140 130 10 8 135 130 5 Costs

$60,600 $2,700

_________________________________________________________________________________________ Total $63,300