Question

A. Aggregate Planning

Problem 1. AUTO Inc. are in the process of developing an aggregate plan for their latest sports car, model "Sporty-Sprinty". Anticipated sales forecast in A.U. for the next four months is tabulated below:

Month                         Jan                  Feb                Mar                 April

Sales forecast (A.U.)    100                   200                 300                   600

           

• Initial inventory (at the beginning of first month) = 100 A.U.
• Initial workforce level = 50
• Minimum ending inventory required at the end of the plan = 30 A.U.
• Minimum ending inventory needed at the end of any month other than the last = 0
• AUTO Inc,. use 1 Worker-Month production (Production rate) = 10 a.u.
• Salary of a regular time worker = $7,000 per month.
• Hiring Cost per worker = $1,200
• Layoff Cost per worker = $2,500
• Inventory carrying cost per A.U. per month = $50
• Overtime = 20% of regular time for two months only paid @ 150% of the regular time production rate.

AUTO Inc. do not allow shortages in their aggregate plan. Develop

1. Level workforce with overtime plan,

(ii) Chase plan

Based on cost criterion which strategy would you recommend?

Answer 1

Month	J	F	M	A
Sales forecast	100	200	300	600
Production	300	300	300	300
Initial inventory	100	300	400	400
Ending inventory	300	400	400	100
Overtime	0	0	0	0
Hiring	0	0	0	0
Firing	20	0	0	0

Regular workers = 30

firing cost = 20*2500=50000

Workers' wages = 7000x30x4 = 840000

Inventory cost = avg inventory * cost of holding one unit per month

= 1200*50 =60000

Total cost = 50000+840000+60000 =950000

2. Chase plan

Month	J	F	M	A
Sales forecast	100	200	300	600
Production	0	200	300	630
Initial inventory	100	0	0	0
Ending inventory	0	0	0	30
Overtime	0	0	0	0
Hiring	0	20	10	33
Firing	50	0	0	0

Hiring cost =1200x63= 75600

Firing cost = 2500x50 =125000

Inventory cost = 50x65 =3250 ( based on avg inventory)

workers' wages = (20+30+63)x7000 =791000

Total cost = 75600+125000+3250+791000 =994850

It can be seen that level strategy is better than chase strategy as it has lower total cost.