The Operations Manager of XYZ, Inc. needs to prepare an aggregate production pla
ID: 455612 • Letter: T
Question
The Operations Manager of XYZ, Inc. needs to prepare an aggregate production plan for next year to meet demand forecast at minimum cost. Demand for the next four quarters is shown below: Quarter Demand 1 15,000 2 15,800 3 18,200 4 20,000 Suppose at the beginning of the planning period (i.e., period 1 above) there were 50 production workers and 1000 units in inventory. Each worker produces 500 units per quarter and is paid $12,000 per quarter. Overtime is paid at 150% of regular pay. It costs $2,000 on average to lay off a worker and $1,500 to hire a new worker. Quarterly inventory holding cost averages $20 per unit. At the end of the fourth quarter, the manager plans to have 1,500 units in inventory. Instructions:
(a) Develop an aggregate plan for the six periods using level strategy.
(b ) The manager is wondering how many workers will be needed if the company uses a Level plus 20% overtime during the two high demand periods. Please determine the number of workers that will be required if this strategy (i.e., Level plus 20% overtime during two peak demand quarters) is used. [Note: For part (b) please note that you are NOT required to complete the Resource and Cost table.]
Explanation / Answer
Total Production Required = 15000 + 15800 +18200 + 20000 - 1000 + 1500 = 69500 Quarterly Production = 69500 / 4 = 17375 Worker required per quarter = 17375/500 = 35 Workers to be laid off = 50 - 35 = 15 Q1 Q2 Q3 Q4 Forecast A 15,000 15,800 18,200 20,000 Beginning inventory B 1,000 3,375 4,950 4,125 Actual Production C (Note Above) 17,375 17,375 17,375 17,375 Overtime production D 0 0 0 0 Total production E = C+D 17,375 17,375 17,375 17,375 Closing Inventory F = B + E - A 3,375 4,950 4,125 1,500 Workers hired G ( Note Above) 0 0 0 0 Workers laid off H 15 0 0 0 Q1 Q2 Q3 Q4 Regular Cost @ $12000/500 = $24 $ 24 * C $417,000.00 $521,250.00 $521,250.00 $521,250.00 Overtime @ 150% of Regular = $36 $ 36 * D $0.00 $0.00 $0.00 $0.00 Inventory @ $20 per unit $ 20 * F $67,500.00 $99,000.00 $82,500.00 $30,000.00 Hiring @ $1500 per labor $ 1500 * G $0.00 $0.00 $0.00 $0.00 Layoff @ $2000 per labor $ 2000 * H $30,000.00 $0.00 $0.00 $0.00 Total Cost $2,289,750.00 $514,500.00 $620,250.00 $603,750.00 $551,250.00 B Total Production Required = 15000 + 15800 +18200 + 20000 - 1000 + 1500 = 69500 Quarterly Production = 69500 / (1+1+1.2+1.2) = 15795.45 or 15796 Worker required per quarter = 15796/500 = 32 Workers to be laid off = 50 - 32 = 18
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