Question

A While the demand for regular fabric has declined, the demand for medical-grade fabric has been surging in the market. In response, the management at Fabric Mills quickly bumped up the regular output of medical-grade fabric by reassigning workers from the production of regular fabric and rehiring retired workers. Table 2 shows the demand forecast and capacity for medical-grade fabric. Note that overtime is limited to 20% of the regular capacity. The availability of subcontract is also limited due to the capacity shortage worldwide.

 

Table 1: Demand Forecast and Capacity for Regular Fabric (in Hundreds of Bolts)

Month	5	6	7	8	9	10	11
Forecast	140	140	180	180	180	200	200
Regular Capacity	140	190	250	250	250	250	250

 

He has also updated cost information shown in the table below. The subcontract cost has increased by 10% due to the increase in logistics costs. The cost of carrying inventory has doubled due to the increased risk of obsolescence. That is, carrying large inventory when demand is rapidly shrinking slows down the movement of inventory and thus increases the risk of product obsolescence.

 

Regular output	$40 per hundred bolts
Overtime	$60 per hundred bolts
Subcontract	$55 per hundred bolts
Inventory carrying cost	$4 per hundred bolts

 

Now Chris is ready to develop aggregate planning. Given the highly uncertain environment, he is going to try a number of different scenarios for aggregate planning. Chris is certain that workers can be assigned to other jobs if production is less than normal.

  

QUESTION 1

Although it may be a little too optimistic, Chris first assumes that all bolts of regular fabric produced in Month 4 will be sold. That is, the ending inventory at the end of Month 4 will be zero.  For simplicity, he  also assumes that backlog at the end of Month 4 will be zero. Under this scenario, develop a chase plan. Backlog is not allowed. How much is the total cost?

Hints:

·      Use the “Aggregate Planning” worksheet 

·      Enter “0” in Cell D9 and Cell D11 in the Aggregate Planning worksheet.

·      In a chase plan, you can reduce regular output if available regular output exceeds demand.

 

A.    $48,800

B.    $52.080

C.     $67,640

D.    $81,820

 

 

QUESTION 2

Under the scenario in QUESTION 1, now develop a level plan. Backlog is not allowed. How much is the total cost?

Hint:

·      In a level plan, you cannot reduce regular outputs. You need to use all available regular outputs.

 

A.    $48,800

B.    $52.080

C.     $67,640

D.    $81,820

 

 

QUESTION 3

In the level plan developed in QUESTION 2, how many bolts will be carried over to Month 12?

 

A.    0 bolts

B.    310(00) bolts

C.     360(00) bolts

D.    1,110(00) bolts

 

QUESTION 4

Chris next considers a more realistic scenario. Given the weak demand, he is afraid that a significant amount of regular fabric will remain unsold. He estimates that the amount of unsold regular fabric at the end of Month 4 to be 200(00) bolts. The positive ending inventory implies that backlog will be zero at the end of Month 4. Under this scenario, develop a chase plan. Backlog is not allowed. How many bolts of regular outputs are required in Month 6?

Hints:

·      Enter “200” in Cell D9 and “0” in Cell D11 in the Aggregate Planning worksheet.

·      Use the ending inventory from the previous period, if any, to satisfy the current demand and adjust regular outputs accordingly.

o   If the ending inventory from the previous period exceeds the current demand, regular outputs are not required in the current period.

o   If the ending inventory falls short of the current demand, use regular outputs to fill the gap.

 

A.    0 bolt

B.    80(00) bolts

C.     140(00) bolts

D.    190(00) bolts

 

 

QUESTION 5

In the chase plan developed in QUESTION 4, how much is the total cost?

 

A.    $38,240

B.    $41,440

C.    $42,240

D.    $46,000

 

While the demand for regular fabric has declined, the demand for medical-grade fabric has been surging in the market. In response, the management at Fabric Mills quickly bumped up the regular output of medical-grade fabric by reassigning workers from the production of regular fabric and rehiring retired workers. Table 2 shows the demand forecast and capacity for medical-grade fabric. Note that overtime is limited to 20% of the regular capacity. The availability of subcontract is also limited due to the capacity shortage worldwide.

 

Table 2: Demand Forecast and Capacity for Medical-Grade Fabric (in Hundreds of Bolts)

Month	5	6	7	8	9	10	11
Forecast	300	300	300	200	200	100	100
Regular Capacity	200	200	200	150	150	150	150
Overtime	40	40	40	30	30	30	30
Subcontract	50	50	50	50	50	50	50

 

The table below summarizes the cost information for medical-grade fabric.

 

Regular output	$80 per hundred bolts
Overtime	$120 per hundred bolts
Subcontract	$100 per hundred bolts
Inventory carrying cost	$10 per hundred bolts
Backlog	$150 per hundred bolts

 

QUESTION 6

To begin with, Chris assumes that both ending inventory and backlog in Month 4 are zero for simplicity. Under this scenario, develop a chase plan. Backlog is allowed. Which month has the largest amount of backlog?

Hints:

·      Enter “0” in Cell D9 and Cell D11 in the Aggregate Planning worksheet.

·      Use regular output as much as possible to satisfy demand as it’s the most inexpensive option.

·      If demand exceeds regular output, use subcontract next (the second inexpensive option) and then overtime (the least inexpensive option).

·      If there is still unfilled demand, you are allowed to have backlog.

·      Although backlog is allowed, reduce it as much as possible as it’s very expensive.

·      As it’s a chase plan, no inventory should be carried.

 

A.    Month 5

B.    Month 6

C.     Month 7

D.    None of the above

 

 

QUESTION 7

In the chase plan developed in QUESTION 6, how much is the total cost?

 

A.    $128,000

B.    $140,000

C.     $140,600

D.    $149,000

 

 

QUESTION 8

Under the scenario in QUESTION 6, now develop a level plan. Backlog is allowed. How much is the total cost?

Hint:

·      In a level plan, you cannot reduce regular outputs. You need to use all available regular outputs.

·      If regular outputs fall short of demand, use subcontract and overtime (in this order) to fill the gap.

 

A.    $128,000

B.    $140,000

C.     $140,600

D.    $149,000

 

QUESTION 9

Chris now considers a different scenario. Given the surging demand for medical-grade fabric, it is likely that there will be unfilled demand in Month 4. He estimates that 100(00) bolts will be backlogged at the end of Month 4. This implies that there is no ending inventory in Month 4. Under this scenario, develop a chase plan.  Backlog is allowed. How much is the total cost?

Hints:

·      Enter “0” in Cell D9 and “100” in Cell D11 in the Aggregate Planning worksheet.

·      Also see the hints in QUESTION 6. All the hints, excluding the first one, apply to this question as well.

 

A.    $210,300

B.    $210,700

C.     $220,100

D.    $220,500

 

 

QUESTION 10

Under the scenario in QUESTION 9, develop a level plan. Then, compare its total cost to the total cost in the chase plan developed in QUESTION 9. Which plan has a lower total cost?

 

A.    The chase plan

B.    The level plan