Question

Productio 2) As General Manager of your company, select the best option. The supply Chain Director is presenting you the following Production Plans for the next 6 months Option A Mini Imerlory : 900 Period o 2 1 3 4 5 T Demand 1,300 1,200 500 600 800 900 Days | 20 | 22 20 20 1 18 1 19 1600 1,200 800 800 800 800 Ending Inventory/600/900 900 900 1,100 1,100 1,000 Projected Backlog Capacity 2,000 2,200 2,000 2,000 1,800 1,900 Option B minimum Inventor: 900 Period oll 2 13 14 15 Demand 1,300|1,200 | 8oo 600 800 900 days | 20|22|20|2o| 18. 19 | Production 2000/800/800/800 800 800 Ending Backlog 600 1,300 900 900 1.100 100 1000 Projected Backles Capacity I 2000/2,200/2000/2000 1,800 1,900) Whis option and Why?

Answer 1

Whichever option to be chosen will be based on minimizing the total cost. Total cost is the sum of production cost and inventory carrying (ending backlog) cost.

Option A:

Total production = 1600 + 1200 + 800 + 800 + 800 + 800 = 6000

Total backlog inventory = 600 + 900 + 900 + 900 + 1100 + 1100 + 1100 = 6600

Option B:

Total production = 2000 + 800 + 800 + 800 + 800 + 800 = 6000

Total backlog inventory = 600 + 1300 + 900 + 900 + 1100 + 1100 + 1100 = 7000

Clearly production is same for both Option A and Option B. However, inventory backlog is higher for Option B hence higher related cost.

Hence, Option A plan with lower ending backlog and related cost is the best option.

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