Question

The following is simplified aggregate planning information (no hiring or layoff is expected):

	July	August	September
Beginning inventory, units	105
Demand forecast, units	610	530	720
Safety stock, units
Production requirements, units
Workers required	20	20	20
New workers hired	0	0	0
Workers laid off	0	0	0
Actual production, units	650	650	650
Ending inventory, units

Consider that these months have the same number of workdays. There will be no new hiring or layoffs during the 3-month period. Also, consider that safety stock is equal to 10% of each monthly demand.

a. What aggregate planning strategy is being used in this case? When compare with chase strategy, please explain the pros and cons of each strategy.

b. For each month, calculate safety stock, production requirements, beginning inventory (except for July), and ending inventory. Show your calculations, and input results in the table above.

c. Calculate the total cost of inventory for the entire three-month plan. The cost is $2 per month to hold one unit in inventory.

Answer 1

a.The aggregate planning strategy used in this case is level strategy because the production level is constant and is equal to 650 units.

The pros of this strategy:

• The output is stable and also the workforce is held constant which enhances the employee morale.
• The total cost is lower when compared to chase planning strategy.

The cons of this strategy :

• Higher inventory costs
• Higher labor utilization.

b.Safety stock =10 % of demand

Production requirement =Demand forecast+Safety stock

Production requirement for July=B3+B4=671

(Drag this cell formula to the right to the rest of the months)

Ending inventory for July=B2+B9-B3+B4=206

(Drag this cell formula to the right to the rest of the months)

Beginning inventory of August=Ending inventory of July and so on.

B13 - fic -SUM(B11:011) A 1 July 105 August September 206 379 610 530 720 53. 583 792 20 72 2 Beginning Inventory | 3 Demand forecast 4 Safety stock 5 Production requirement 6 Workers required 7 New workers hired 8 Workers laid off 9 Actual production 10 Ending inventory 11 Inventory cost 12 13 Total inventory cost 14 650 206 412 650 379 758 650 381 762 1932

c.Inventory cost for July=B10*2=412

(Drag this cell formula to the right to the rest of the months)

Total inventory cost=SUM(B11:D11)=$ 1932