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10. Aggregate Planning and Master Production Scheduling

3. Beta associates produces accounting machines that have a seasonal demand pattern. We are required to
plan for the optimum production rates and inventory levels for the next four quarter periods. The available production capacity during regular time and overtime, as well as other cost data are as follows.

Period Capacity in units Regular time Over time Subcontract 1 1200 150 800 2 900 200 800 3 1000 350 800 4 700 350 800 Period Units of demand 1 1200 2 1100 3 1800 4 1500
Available Initial Inventory = 110 units Desired Final Inventory = 140 units Regular Time Cost/Unit = Rs.100 Overtime Cost/Unit = Rs.125 Subcontracting cost/unit = Rs.145 Inventory Cost/Unit/period = Rs.15 The cost of unused capacity = Rs.40/unit (a) Formulate the problem as a transportation model. (b) Solve the model and infer the results [This is only for assignment purpose].

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The required transportation model is shown below.. Source of Period in which product to be sold supply/ 1 2 3 4 Period product Beginning 0 15 30 inventory Regular time 100 115 130 1 Overtime 125 140 155 Subcontract Regular time 2 Overtime Subcontract Regular time 3 Overtime Subcontract Regular time 4 Overtime Subcontract Demand 1200 1100 1800 125 145 1500+140 = 1640 0 0 2420 350 800 8160 125 145 140 145 100 0 0 40 350 800 700 125 145 140 145 100 155 145 115 0 0 40 200 800 1000 145 145 100 145 115

Unused capacity 45 145 170 145 130 0 40 0 0 40

Total available capacity 110 1200 150 800 900

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The results of the model are show in the second line of applicable cells as furnished below. Source of supply/ product Beginning inventory Regular time Overtime Subcontract Regular time 2 Overtime Subcontract Regular time 3 Overtime Subcontract Regular time 4 Overtime 350 Subcontract Demand 1200 1100 1800 145 130 1500+140= 1640 0 670 2420 800 8160 700 125 0 350 Period in which product to be sold 1 2 3 4 0 100 1200 125 145 15 110 115 140 145 100 790 125 200 145 30 130 155 145 115 110 140 145 340 100 1000 125 350 145 460 115 140 145 800 100 40 700 40 0 0 1000 350 800 45 145 170 150 145 800 130 155 145 40 0 0 900 200 800 0 800 Unused capacity 0 40 0 Total available capacity 110 1200 150

Period

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4. The forecast for a group of items manufactured in a firm is shown below. Quarter Demand 1 37 0 2 32 0 3 57 0 4 67 0 5 55 0 6 37 0 7 35 0 8 480

The firm estimates that it costs Rs.200 per unit to increase the production rate, Rs.250 per unit to decrease the production rate, Rs.75 per unit per quarter to carry the items on inventory and Rs.125 per unit if subcontracted. Compare the cost incurred if the following pure strategies are followed. - Varying the workforce size - Changing the inventory levels - Subcontracting Solution. Hiring cost = Rs.200/unit Firing cost = Rs.250/unit Carrying cost = Rs.75/unit/quarter Subcontract cost = Rs.125/unit

a) Cost of varying the workforce size (Hiring and firing): Quarter 1 2 3 4 5 6 7 8 Demand forecast 370 320 570 670 550 370 350 480 Cost of increasing production level (Rs.) 50000 20000 26000 Cost of decreasing production level (Rs.) 12500 30000 45000 5000 Total cost Total cost of plan (Rs.) 12500 50000 20000 30000 45000 5000 26000 1,88,500

b) Cost of Changing inventory: Quarter Demand forecast Cumulative demand Production level Cumulative production level Inventory Adjusted inventory wit 180 as the beginning inventory 270 410 300 90 0 90 200 180 Cost of holding inventory

1 2 3 4 5 6 7 8

370 320 570 670 550 370 350 480

370 690 1260 1930 2480 2850 3200 3680

460 460 460 460 460 460 460 460

460 920 1380 1840 2300 2760 3220 3680

90 230 120 90 180 90 20 0

20250 30750 22500 6750 0 6750 15000 13500

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Total cost c) Cost of subcontracting 1,15,500

Quarter Demand forecast Production Subcontract Incremental cost Units Units Units (Rs.) 1 370 320 50 6250 2 320 320 0 0 3 570 320 250 31250 4 670 320 350 43750 5 550 320 230 28750 6 370 320 50 6250 7 350 320 30 3750 8 480 320 160 20000 Total cost 1,40,000 The comparison of the total costs of the pure strategies gives the solution of changing inventory levels as the best strategy.