GIVEN THE FOLLOWING PRODUCT STRUCTURE, PUT TOGETHER AN ORDERING STRATEGY FOR VEN

Question

GIVEN THE FOLLOWING PRODUCT STRUCTURE, PUT TOGETHER AN ORDERING STRATEGY FOR VENDOR-PROCURED ITEMS FOR 2019(DATA BELOW):

A backorder costs the company $10 per item.

Storing an item at the warehouse costs $2 per item per month.

Based on training and severance, there is a one-time $2000 cost for hiring a worker and a $3000 for firing a worker due to production. Based on these costs, what can you assume? You can arbitrarily set the worker count on 1 January based on your production line estimation from the previous month.

FORECAST FOR 2019:

Explanation / Answer

Production rate is synchronized with demand by varying machine capacity or hiring and laying off workers as the demand rate varies However, in practice, it is often difficult to vary capacity and workforce on short notice Expensive if cost of varying capacity is high Negative effect on workforce morale Results in low levels of inventory Should be used when inventory holding co

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