Eight Glasses A Day: The EGAD Bottling Company has decided to introduce a new li

Question

Eight Glasses A Day:

The EGAD Bottling Company has decided to introduce a new line of premium bottled water that will include several designer flavors. Marketing manager Georgianna is predicting an upturn in demand based on the new offerings and the increased public awareness of the health benefits of drinking more water. She has prepared aggregate forecasts for the next six months, as shown,

Month May June July Aug Sep Oct Total

Forecast 50 60 70 90 80 70 420

Production manager Mark Mercer, has developed the following information. (Note: Costs are in thousands of dollars).

Regular production cost: $1 per tankload

Regular production capacity: 60 tankloads

Overtime production cost: $1.6 per tankload

Subcontracting cost: $1.8 per tankload

Holding cost: $2 per tankload per month

Back ordering cost: $5 per month per tankload

Beginning inventory: 0 units

Among the strategies being considered are:

1. Level production supplemented by up to 10 tank loads a month from overtime

2. A combination of overtime, inventory and subcontracting.

3. Using overtime for up to 15 tank loads a month, along with inventory to handle variations.

QUESTIONS:

1. The objective is to choose the plan that has the lowest cost, which plan would you recommend?

2. Presumably, information about the new line has been shared with supply chain partners. Explain what information should be shared with various partners and why sharing that information is important?

Explanation / Answer

This post provides a good example of how to select the plan with lowest cost. It considers different plans such as level production supplemented by overtime and using additional labor.

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