Tampa’s Soda Pop Inc. has a new fruit drink for which it has high hopes. Don Ham
ID: 445508 • Letter: T
Question
Tampa’s Soda Pop Inc. has a new fruit drink for which it has high hopes. Don Hammond, the production planner, has assembled the following cost data and demand forecast. Don’s job is to develop an aggregate plan. The three initial options are:
(i) Plan A: A chase strategy that hires and fires personnel as necessary to meet the forecast.
(ii) Plan B: A level strategy
(iii) Plan C: A level strategy that produces 1,200 cases per quarter and meets the forecasted demand with inventory and subcontracting.
(iv) Which strategy is the lowest cost plan?
Quarter Forecast
1 1800
2 1100
3 1600
4 900
Previous quarter’s output = 1300 cases
Beginning inventory = 0 cases
Stock out cost = $150 per case
Inventory holding cost = $40 per case at end of quarter
Hiring employees = $40 per case
Terminating employees = $80 per case
Subcontracting cost = $60 per case
Unit cost on regular time = $30 per case
Overtime cost = $15 extra per case
Capacity on regular time = 1800 cases per quarter
Explanation / Answer
According to the case studies i would like to go for Level strategy because it is lowest strategy plan:-
LEVEL STRATEGY.
A level strategy seeks to produce an aggregate plan that maintains a steady production rate and/or a steady employment level. In order to satisfy changes in customer demand, the firm must raise or lower inventory levels in anticipation of increased or decreased levels of forecast demand. The firm maintains a level workforce and a steady rate of output when demand is somewhat low. This allows the firm to establish higher inventory levels than are currently needed. As demand increases, the firm is able to continue a steady production rate/steady employment level, while allowing the inventory surplus to absorb the increased demand.
A second alternative would be to use a backlog or backorder. A backorder is simply a promise to deliver the product at a later date when it is more readily available, usually when capacity begins to catch up with diminishing demand. In essence, the backorder is a device for moving demand from one period to another, preferably one in which demand is lower, thereby smoothing demand requirements over time.
A level strategy allows a firm to maintain a constant level of output and still meet demand. This is desirable from an employee relations standpoint. Negative results of the level strategy would include the cost of excess inventory, subcontracting or overtime costs, and backorder costs, which typically are the cost of expediting orders and the loss of customer goodwill.
CHASE STRATEGY.
A chase strategy implies matching demand and capacity period by period. This could result in a considerable amount of hiring, firing or laying off of employees; insecure and unhappy employees; increased inventory carrying costs; problems with labor unions; and erratic utilization of plant and equipment. It also implies a great deal of flexibility on the firm's part. The major advantage of a chase strategy is that it allows inventory to be held to the lowest level possible, and for some firms this is a considerable savings. Most firms embracing the just-in-time production concept utilize a chase strategy approach to aggregate planning.
Most firms find it advantageous to utilize a combination of the level and chase strategy. A combination strategy (sometimes called a hybrid or mixed strategy) can be found to better meet organizational goals and policies and achieve lower costs than either of the pure strategies used independently.
According to above case we know that there is so much subcontracting , termination, inventory holding costs, so i don't think chase strategy work on aforesaid case in terms of lower the cost.We can also go for hybrid or mixed strategy.
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