AGGREGATE PLANNING EXAMPLE

Summer Fun, Inc. produces a variety of recreation and leisure products. The products manager has developed an aggregate forecast: Month Forecast Mar 50 Apr 44 May 55 Jun 60 Jul 50 Aug 40 Sep 51 Total 350

Use the following information to develop aggregate plans: Regular production cost Overtime production cost Regular capacity Overtime capacity Subcontracting cost Subcontracting capacity Holding cost Backorder cost Beginning inventory $80 per unit $120 per unit 40 units per month 8 units per month $140 per unit 12 units per month $10 $20 per unit 0 unit 5 workers

Develop an aggregate plan using each of the following guidelines and compute the total cost for each plan. Which plan has the lowest total cost? a.) Use regular production. Supplement using inventory, overtime, and subcontracting as needed. No backlogs allowed. b.) Use a level strategy. Use a combination of backlogs, subcontracting, and inventory to handle variations in demand.

Period Forecast Output Regular Overtime Subcontract Output-Forecast Inventory Beginning Ending Average Backlog Costs: Output Regular at $2 Overtime Subcontract Inventory at $1 Backorder at $5 Total

1 200

2 200

3 300

4 400

5 500

6 200

Total 1800

300 100

300 100

300 0

300 (100)

300 (200)

300 100

1800 0

0 100 50 0

100 200 150 0

200 200 200 0

200 100 150 0

100 0 50 100

0 0 0 0 600 100

600 50 0 $650

600 150 0 $750

600 200 0 $800

600 150 0 $750

600 50 500

600 0 0

$3600

$600 $500 $4700

$1150 $600

Manager Chris Channing of Fabric Mils, Inc. has developed the forecast shown in the table for bolts of cloth. The figures are in hundreds of bolts. The department has a normal capacity of 275(00) bolts per month, except for the seventh month, where capacity will be 250(00) bolts. Normal output has a cost of $40 per hundred bolts. Workers can be assigned to other jobs if production is less than normal. The beginning inventory is zero bolts. a.) Develop a Chase plan that matches the forecast and compute the total cost of your plan. Overtime is $60 per hundred bolts. b.) Would the total cost be less with regular production with no overtime, but using a subcontractor to handle the excess above normal capacity at a cost of $50 per hundred of bolts. Backlogs are not allowed. The inventory carrying cost is $2 per hundred bolts.

Month Forecast

1 250

2 300

3 250

4 300

5 280

6 275

7 270

Total 1925