Need answers to questions 1&2 Eight Glasses A Day: The EGAD Bottling Company has

Question

Need answers to questions 1&2

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

1.

The best plan would be to choose a combination of overtime, inventory and subcontracting. Regular production should be the same each month. As an upturn in demand is forecasted in near future, it would be better to increase the production. In this plan, the regular product ion would be the same. In addition, there would be overtime production and some part is given to sub-contacting. The overtime production cost: $1.6 per tank load and subcontracting cost: $1.8 per tank load sound reasonable for extra production.

2.

Most importantly the plan should be shared to the partners first. Partners should be made clear that an upturn in demand is forecasted in near future, and this would require an increase the production. When this is made clear to them, the expenses and costs incurred during the production can be minimized easily. In other words, partners should be made clear that there should be an increase in the production but with minimized costs, ultimately leading to profits.

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