Her operations manager is considering a new plan, which begins in January with 200 units of inventory on hand. Stockout cost of lost sales is $65 per unit. Inventory holy cost is $20 per unit per month. Ignore any idle-time costs. Evaluate the following plan:
Keep the current workforce stable at producing 1600 units per month. In addition to the regular production, another 20% of the normal production units can be produced in overtime at an additional cost of $55 per unit. A warehouse now constrains the maximum allowable inventory on hand to 600 units or less.
Month | Demand | Production(units) | O.T. Production (Units) | Ending inventory | Stockouts (units) |
Dec | 200 | ||||
Jan | 1500 | 1600 | |||
Feb | 1500 | 1600 | |||
March | 1600 | 1600 | |||
April | 1700 | 1600 | |||
May | 2100 | 1600 | |||
June | 2300 | 1600 | |||
July | 1800 | 1600 | |||
August | 1500 | 1600 |
Month |
Demand |
Production (units) |
OT Production (units) |
Opening Inventory |
Ending Inventory |
Stockout (units ) |
Dec |
- |
200 |
- |
|||
Jan |
1500 |
1600 |
- |
200 |
300 |
- |
Feb |
1500 |
1600 |
- |
300 |
400 |
- |
March |
1600 |
1600 |
- |
400 |
400 |
- |
April |
1700 |
1600 |
‘- |
400 |
300 |
- |
May |
2100 |
1600 |
200 |
300 |
- |
- |
June |
2300 |
1600 |
320 |
- |
- |
380 |
July |
1800 |
1600 |
200 |
- |
- |
- |
Aug |
1500 |
1600 |
- |
- |
100 |
- |
Holding Cost=$ 20/unit* 1500 units=$ 30,000
Overtime units cost=$ 55/unit* 720 units=$ 39600
Stockout Costs=$ 65/unit*380 units=$ 24700
Total Cost=$ 94300
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