Operations and Supply Chain Management The Core

262 OPERATIONS AND SUPPLY CHAIN MANAGEMENT
for the salespeople. Sales are mainly to the large U.S. retail
grocers. The pudding is shipped to the grocers from the distribution
warehouses based on orders taken by the salespeople.
Your immediate task is to prepare an aggregate plan for
the coming year. The technical and economic factors that
must be considered in this plan are shown next.
3,000
2,500
2,000
1,500
1,000
500
0
Forecast Demand by Quarter (1,000 = Case Units)
1st
(1–13)
2nd
(14–26)
3rd
(27–39)
4th
(40–52)
Technical and Economic Information
1st
(Next Year)
1. The plant runs 5 days each week, and currently is running
10 lines with no overtime. Each line requires six
people to run. For planning purposes, the lines are run
for 7.5 hours each normal shift. Employees, though,
are paid for 8 hours’ work. It is possible to run up to
2 hours of overtime each day, but it must be scheduled
for a week at a time, and all the lines must run overtime
when it is scheduled. Workers are paid $20.00/
hour during a regular shift and $30.00/hour on overtime.
The standard production rate for each line is 450
cases/hour.
2. The marketing forecast for demand is as follows:
Q1—2,000; Q2—2,200; Q3—2,500; Q4—2,650; and
Q1 (next year)—2,200. These numbers are in 1,000-
case units. Each number represents a 13-week forecast.
3. Management has instructed manufacturing to maintain
a two-week safety stock supply of pudding inventory
in the warehouses. The two-week supply should
be based on future expected sales. The following are
ending inventory target levels to comply with the
safety stock requirement for each quarter: Q1—338;
Q2—385; Q3—408; Q4—338.
4. Inventory carrying cost is estimated by accounting to
be $1.00 per case per year. This means that if a case of
pudding is held in inventory for an entire year, the cost
to just carry that case in inventory is $1.00. If a case
is carried for only one week, the cost is $1.00/52, or
$0.01923. The cost is proportional to the time carried
in inventory. There are 200,000 cases in inventory at
the beginning of Q1 (this is 200 cases in the 1,000-
case units that the forecast is given in).
5. If a stock-out occurs, the item is backordered and
shipped at a later date. The cost when a backorder
occurs is $2.40 per case due to the loss of goodwill
and the high cost of emergency shipping.
6. The human resource group estimates that it costs
$5,000 to hire and train a new production employee. It
costs $3,000 to lay off a production worker.
7. Make the following assumptions in your cost
calculations:
∙ Inventory costs are based on inventory in excess of
the safety stock requirement.
∙ Backorder costs are incurred on the negative
deviation from the planned safety stock
requirement, even though planned inventory may
be positive.
∙ Overtime must be used over an entire quarter and
should be based on hours per day over that time.
Questions
1. Prepare an aggregate plan for the coming year, assuming
that the sales forecast is perfect. Use the spreadsheet
“Bradford Manufacturing.” In the spreadsheet,
an area has been designated for your aggregate plan
solution. Supply the number of packaging lines to run
and the number of overtime hours for each quarter.
You will need to set up the cost calculations in the
spreadsheet.
You may want to try using the Excel Solver to find
a low-cost solution. Remember that your final solution
needs an integer number of lines and an integer number
of overtime hours for each quarter. (Solutions that
require 8.9134 lines and 1.256 hours of overtime are
not feasible.)
It is important that your spreadsheet calculations
are set up so that any values in the number of lines and
overtime hours rows evaluates correctly. Your spreadsheet
will be evaluated based on this.
2. Find a solution to the problem that goes beyond
just minimizing cost. Prepare a short write-up that
describes the process you went through to find your
solution and that justifies why you think it is a good
solution.