earn “Oo. Cc a7 Opacity and Aggregate Planning t 4 BEEEIEY ovriine Disney’s Planning Process Capacity Planning Aggregate Production Planning Adjusting Capacity to Meet Demand Demand Management | Hierarchical and Collaborative Planning Aggregate Planning for Services Summary Website resources for this chapter include. «Wnternet Exercises: + ln the News: * Online Quizzes + Simulations: + Virtual Tours + Company and Resource Weblinks www. prenhall.com/russell414 PARTIE Managing the Supply Chain DIsNeY’s PLANNING PROCESS Aggregate planning at Disney World is all about peo- ple—how many people will visit the parks and what they will do while there. The Disney property in Florida includes 4 parks, 20 hotels, 27,500 rooms, 160 miles of roads, and 56,000 employees. Forecasting attendance and guest behavior helps plan for more than 1 billion customer interactions per year, and the purchase of 9 million hamburgers, 50 million Cokes, and tons of “tan- gible memories.” Planning begins with a 5-year forecast of attendance based on a combination of econometric models, experi- based models, extensive research, and a magic mirror. The econometric model examines the international economies of seven key countries, their GDP growth, for- eign exchange rate, and consumer confidence. The experi- ence-based model looks at demographics, planned product introductions, capacity expansions, and marketing strate- gies. Extensive research is conducted by 35 analysts and 70 field personnel year round. Over 1 million surveys are administered to key household segments, current guests, cast members, and travel industry personnel. The magic Disney isa master at forecasting aggrega increments as small as 15 minutes, mirror is the patented part of the forecasting that, in part, accounts for the mere 5% error inthe attendance forecast and the 0% error in annual fo Disney's 5-year plan is converted to an annua ing plan (AOP) for each park, (The AOP is whay the aggregate production plan in this chapter) De highly seasonal and varies by month and da week, Economic conditions affect annual plans. history and holidays, school calendars, societal behyj? and sales promotions. The AOP is updated mony with information from airline specials, hotel bootin, recent forecast accuracies, Web site monitoring competitive influences. A daily forecast of attendances made by tweaking the AOP and adjusting for mon variations, weather forecasts, and the previous day) crowds, Attendance drives all other decisions. Disney isa master at adjusting its capacity and mana. ing its demand. Capacity can be increased by lengthening park hours, opening more rides or shows, adding ving food and beverage carts, and deploying mote “cast mem bers” Demand is managed by limiting access tothe park pera, Weal Nandi Y OF the ci + as" al” la le ate demand for its theme parks, as well as adjusting capacity i te eei 15 CHAPTER 9 Capacity and Aggregate Planning 4 _gowisto treet activities, and taking reservations. based on traffic, the weather, entry patterns, and crowds siti ons (ever wed fast pass?) Operating standards at key attractions, The daily operating plan is continually ne regulate when these actions are taken, Obsessive updated every 20 minutes throughout the day from data act a ata ensues the response is timely collected by cast members using hand-held computers. oe generally open at 9 A.M. each day, but an unusu- ‘To maintain flexibility, cast members are scheduled in 15- igh count of 7:30 4M. breakfast patrons at on-prop- minute intervals at various jobs throughout the park. vets will prompt carly openings at select locations. For Disney, pleasing the customer and making 4 G00 ast the day’ attendance forecast is updated profit takes careful planning, ‘Source Joni Newhirk and Mark Haskel, “Forecasting inthe Service Sector” Presented atthe Twelfh Annual Meeting ofthe Production Operations Management Society, Orlando, FL, April 1, 2001 Jew manufacturing firms are as adaptive as Disney to changes in demand, but with demanding customers and short lead times, responsiveness is a competitive must in every industry. In this chapter we'll learn how companies plan their resource levels to match supply and demand. We begin with a discussion of long-term capacity decisions, fol- lowed by the development of aggregate production plans. Aggregate planning seeks to meet demand through a combination of capacity adjustments and demand management. Collaborative planning with trading partners and aggregate planning for services are also discussed. CAPACITY PLANNING Cucity planning Capacity planning is a long-term strategic decision that establishes a firm’s overall level of — ‘the overall level resources. It extends over a time horizon long enough to obtain those resources—usually ¢ feet resources for year or more for building new facilities or acquiring new businesses. Capacity decisions | affect product lead times, customer responsiveness, operating costs, and a firm’ ability te compete. Inadequate capacity can lose customers and limit growth. Excess capacity car drain a company’s resources and prevent investments in more lucrative ventures. When te | increase capacity and how much to increase capacity are critical decisions, Figure 9.1 (a), (b), and (c) show three basic strategies fr the timing of capacity expan sion in relation to a steady growth in demand. Capacity lead strategy. Capacity is expanded in anticipation of demand growth, Thi aggressive strategy is used to lure customers from competitors who are capacity con strained or to gain a foothold in a rapidly expanding market, Capacity lag strategy. Capacity is increased after an inerease in demand has been docu mented. This conservative strategy produces a higher return on investment but et Jose customers in the process. It is used in industries with standard products and cost based or weak competition. The strategy assumes that lost customers will return feng competitors after capacity has expanded. Average capacity strategy. Capacity is expanded to coincide with average expect demand, This is a moderate strategy in which managers are certain they will be able g sell at least some portion of the additional output. = Consider higher education’ strategy in preparing fora tripling of the state's college bound population in the next decade. An established university, guaranteed applicant416 PART IIT Managing the Supply Chain Figure 9.1 Capacity Expansion Strategies Capacity can be increased incrementally or in large steps. The best operating level is the percent of capacity utilization that minimizes unit costs. A capacity cushion is the percent of capacity held in reserve for unexpected occurrences. {a) Capacity lead strategy (b) Capacity lag strategy ’ | | | Demand Units “ Units NY | Demand \ | | copaciy | rtm (0 Average capaci staegy ( Iceent ver one ( Dne-step expansion Capacity Units Units Incremental | ‘expansion Time Time even in lean years, may follow a capacity lag strategy. A young university might lead cpa ity expansion in hopes of capturing students not admitted to the more established univer sities. A community college may choose the average capacity strategy to fulfill ts missionof educating the state's youth but with little risk. How much to increase capacity depends on (1) the volume and certainty of ant Pated demands (2) strategic objectives in terms of growth, customer service, and compet: tion; and (3) the costs of expansion and operation. Capacity can be increased incrementally or in one large step as shown in Figure 912 Incremental expansion is less risky but more costly. An attractive alternative to expandits capacity is outsourcing, in which suppliers absorb the risk of demand uncertainty. The best operating level for a facility isthe percent of capacity utilization that oa izes average unit cost. Rarely is the best operating level at 100 percent of capaci—# higher levels of utilization, productivity slows and things start to go wrong. Average {ty utlization differs by industry. An industry with an 80 percent average utilization ¥™ have a 20 percent capacity cushion for unexpected surges in demand ot tempor “7 Stoppages. Large capacity cushions ate common in industries in which demand is it variable, resource flexibility is low, and customer service is important. Utilities #0 oi, ple, maintain a 20 percent capacity cushion, Capital-intensive industries with less H° : and higher costs maintain cushions under 10 percent. Airlines maintain a neg“ ion—overbooking is a common practice! Figure 9.2 shows the best operating lev hotel—as the point diseconomies of scale foe? yoms el—in this case, the number of "1 1 he at which the economies of scale have reached their Pe have not yet begun, I@92 pot pnomies and Fe mies of Seale ps froomies of scale occur viet oss less per unit produce high levels of cufput shovea certain level of ““put diseconomies of salecan occur, SSCREG ATE PRODUCTION PLANNING rebteninsthe ‘ong BPacity needed and over an | —Sttine horizon, CHAPTER 9 Capacity and Aggregate Planning 417 E 5 i | & 1 2 \ ! ' z é f Best operating ' 2 ' level ; \ I ! ' ' 1 \ \ 1 1 Econ ' 1 ! romies|_Diseconomies ofscale |! of scale uml 1000 +# Rooms Economies of scale occur when it en it costs less per unit to produce or operate at high lev- els of output. This holds true when: : 7 Fixed costs can be spread over a larger number of units, & Production or operating costs do not increase linearly with output levels, © Quantity discounts are available for material purchases, and Operating efficiency increases as workers gain experience. ‘The electronics industry provides a good case example of economies of scale. The average cost per chip placement for printed circuit-board assembly is 32 cents in factories with a Volume of 25 million placements, 15 cents in factories with 200 million placements, and 10 cents in factories with 800 million placements.’ Economies of scale do not continue indefinitely. Above a certain level of output, diseconomies of scale can occur. Overtaxed machines and material handling equipment treck down, service time slows quality suffers requiring more rework; abor costs increase ort overtime, and coordination and management activities become dificult. In addition, if customer preferences suddenly change, high-volume production can leave a firm with unusable inventory and excess capacity ‘Long-term capacity decisions concernin only the number of facilities and facility size pro- intermediate-term capacity decisions—such as i Pe for making more intern —s vide the framework Mion rates, and staffing levels These intermedias decisions are inventory policies, P viuction planning oF just plain aggregate planning. collectively known as aggregate Pre determines the resource capat mally not feasible to increase capacity by building new facili- duction plan! wer an i Aggregate pro it is usual to meet its demand Within this time frame, » 118 Solutions (April 1996): 8 went Profits for High-Tech Factories,” HE Sol " Yield Greater Prot 1}{igh Volumes418 PAR’ 1h Managing ve Supply chain gg CRE EE wid Ss ‘eet a wher PTET < td i denne Ce Producers of pulps PAPE umber, another W004 products have a” interesting capacity planning ro. em—they must plan for he renewable resource of trees. Capacity planning starts with a mathemati, sinnutation model of Free qr that deter the maximurt usainable flow of wood fiber from ex aereage. Decisions are made 0 subi trees to harvest "OW: vehich ones to leave until later; whereto amount, and location of new timbertand that should be purchased. The srw tces—more ts 07ers and the tyPe 4 iological lead time jew trees: plant m izon is the planning hor rkers, increase Je to hire or lay off wo or buld is feasibl rk, use overtime, asing new equipments however, it i vk week, add an extra shift, subcon! ict out WO" leplete inventory levels tae the term agsregate DECALS: d n individual products: ‘An aggre! luced but would not id pressed in aggresa ald not be specified by t¥PE of labor, given only for critical work centers. . Timited by space—number ‘of airline seats, number of ‘al facility. Time can also affect capaci “restaurant is limited by the number! ed. In some overcrowded selools 2:00 RM. lines or product rediuetion plan might speci hs ‘olot, size, tires, OF PE ly as labor © nine hous by { for produ or redu up and d We families, rather tba ycles are to be Resource capac urs, Labor hours w hhine, And they may be ces, capacity is often umber of beds in a correctio® ers who can be served lunch in wrell.as the number of hours lunch is ser¥ am, 9o that all students can Be served by tao objectives to ageregate planning: wide game ph y for meeting he plans are deve “An ageregale P prod ientify them by ¢ ty is also ex te terms, typical nor mac many bic of brakes type of mac For servi hotel rooms: number of custo’ seats, as begins at 10:0 ‘There are ing resources, mpany- an for alloc demand ‘To establish a Co omic strates) ‘To develop an econ ive refers to the lon; Yr a farm, Marketing person vy co ake unrealistic sales comm TY ci Huction is expec vies at an xen evaluated on keeping vreanufactFing Ce sown to panera resources (S00h own in planning S om ean he job of producti s inad! ‘The first object duction functions wi _have the tenden ) that prod who are at require additio Jetion dates. T capacity. If capacity volume- quantity or timing: ted to meet, some! Production personnel to accept orders thi to-meet compl available refuse equates rates) or hard: casted demand withCHAPTER 9 Capacity and Aggregate Planning 419 ¢ 08 ep Peo constraints Units or dotlars subcontracted, backordered, or lost Inventory expanded, but at a cost. The company needs to determine if the extra cost is worth the increased revenue from the sale, and if the sale is consistent with the strategy of the firm. Thus, the aggregate production plan should not be determined by manufacturing person. nel alone; rather, it should be agreed on by top management from all the functional areas of the firm—manufacturing, marketing, and finance. Furthermore, it should reflect com- Pany policy (such as avoiding lavotts, limiting inventory levels, or maintaining a specified customer service level) and strategic objectives (such as capturing a certain share of the market or achieving targeted levels of quality or profit). Because of the various factors and viewpoints that are considered, the production plan is often referred to as the company’s ‘company game plan: ‘game plan for the coming year, and deviations from the plan are carefully monitored. The rest of this chapter covers the second objective—developing an economic strategy for meeting demand. Demand can be met by adjusting capacity or managing demand. First, ‘we will discuss several quantitative techniques for choosing the most cost-effective method of adjusting capacity. Then, we will discuss some alternatives for managing demand. Figure 9.3 shows the inputs to and outputs from aggregate production planning. The Sssoureesto find an inputs are demand forecasts, capacity constraints, strategic objectives, company policies, “onc strategy for and financial constraints. The outputs include size of the workforce, production expressed “Sg demand, as either units or sales dollars, inventory levels that support the production plan, and the number of units or dollars subcontracted, backordered, or lost. SUSING CAPACITY TO MEET DEMAND a company’s products or services are stable over time or its resources are g is trivial, Demand forecasts are converted to regate planning is casts are : ee The resources necessary to meet demand are acquired and main- resource Te horizon of the plan, and minor variations in demand are handled ae aid ortime. Aggregate production planning becomes a challenge when with overtime or undertime. Aggres z horizon. For example, seasonal demand patterns er the planning demand fluctuates ov: can be met by: If demand for stant rate and using inventory €© absorb fluctuations in demand 1. Producing at a col ve ion) xe demand) is ae workers to match demand (chase demany . Hirin;420 PART II Managing the Supply Chain 3. Maintaining resources for high-demand levels 4, Increasing or decreasing work ig hours (overtime and undertime) 5. Subcontracting work to other firms 6. Using part-time workers 7. Providin the service or product ata later time period (backordering A pure strategy involves When one of these is selected, a company is said to have a pure stra only one capacity factor. NeRY fop demand, When two or more are selected, a company has a mixed strategy Mee Level The evel production strategy, shoven in Figure 94 (a), sts production, eet veh sualy to meet average demand) and uss inventory t absorb variate” ist Te anes During periods of low demand, overproduction is stored as inventory, 4p ema, tate and using inventory as 5 10 be den periods of high demand. The cost of this strategy isthe cost of holding inven, needed to meet demand, the cost of obsolete or perishable items that may have to be discarded The chase demand strategy, shown in Figure 9.4(D), matches the prodicog the demand pattem and absorbs variations in demand by hiting an fing 4 During periods of low demand, production is cut back and workers are lady periods of high demand, production isincreased and additional workers are, Pease, of this strategy is the cost of hiring and firing workers. This appro, industries in which worker skills are scarce or competition for labo! Ory, ing Chase demand involves “Changing workforce levels so that production matches demand. nk ited The ach Would not oy ris intense, butitcan nite cost effective during periods of high unemployment or for industries withlow-an™ {dintaining resources for high-demand levels ensures high but Gan be very costly in terms of the investment in extra workers remain ile duringlow-demand period. This strategy i used when superior custome ‘ice is important (such as Nordstrom’s department store) or when customers ae wi extra for the availability of critical staf or equipment. Profession ‘generate more demand may keep staf levels high, h levels of customer sen and machines thy pay al services trying defense contractors extra capacity “available}’ child-care facilities may elect to m: ity when attendance is low, and full-service hos, thatiis rate Mixed strategies: a c combination of may be pid toh aintain staff levels for contin pitals may invest in specialized equipment a small number of patients me and undertime are common strategies when demand flue extréie. A competent staf is maintained, hiting and firing costs are is met temporarily without investing in perm: premium paid for overtim possibility that used but is critical for the care of tuations are et overtime/undertime, avoided, and denn subeor janent resources, Disadvantages include he work, a tired and potentially less-efficient workforce, ant overtime alone may be insufficient to meet peak eet peal Subcontracting or outsourcing isa feasible ‘ualify-and time requirements. This is demand exceeds expectations hiring)firing, part-tin ‘workers, inventory, and ddemand periods Dackordering alternative if a supplier ean rly me common solution for component parts whe for the final product. The subcontracting decision ei Figure 9.4 Pare Strategies for Meeting Demand Production fCHAPTER 9 Capacity and Aggregate Planning 421 Retailers do almost 50 percent oftheir annual business during the holiday season Manufacturers of holi day items, such as wrapping paper, have an even more skewed demand pattern. Sixty-eight percent of the annual demand for wrapping paper takes place dur the months of November and December, 25 percent in the 2 weeks prior to Christmas. Producing early in the year and building up inventory is not cost effec- fie because of the bulkines of the product and the humidity requirements for storage. Heightened produc- fiom levels mean hiring more workers and using overtime in late summer and fal. maintaining strong ties with possible subcontractors and first-hand knowledge of their work. Disadvantages of subcontracting include reduced profits, loss of control over pro- duction, long lead times, and the potential that the subcontractor may become a fuvure competitor. Using part-time workers is feasible for unskilled jobs or in areas with large temporary labor pools (such as students, homemakers, or retirees). Part-time workers are less costle than full-time workers—no health-care or retirement benefits—and are more flexible their hours usually vary considerably. Part-time workers have been the mainstay of retail, fast-food, and other services for some time and are becoming more accepted in manufac. turing and government jobs. Japanese manufacturers traditionally use a large percentage of part-time or temporary workers. IBM staffs its entire third shift at Research Triangl Park, North Carolina, with temporary workers (college students). Part-time and tempo- rary workers now account for about one-third of our nation’s workforce. The temp agency Manpower Inc. is the largest private employer in the world. Problems with part-time workers include high turnover, accelerated training requirements, less commitment, and scheduling difficulties. Backordering is a viable alternative only if the customer is willing to wait for the prod- uct or Service, For some restaurants you may be willing to wait an hour for a table; for oth x ee planning strategy is not always preferable to another. The most effective strategy depends on the demand distribution, competitive position, and cost structure of awupply Chain 422 PARTI Managing she 8 onowinG THE HARVEST ‘There's nothing more seasonal than fruits and vegetables. Doles salads are made from fresh vegetables grown in Salinas Valley, California, from April to November, and in Yuma, Arizona, from November through March. State the-art packaging facilities process the lettuce and prepare the salads in each location, The two processing plants are of- strategically located to process peak season vegetables Inside the plant, the vegetables are inspected tring, hana and cleaned. The trimmed lettuce moves doyn veyor belt to the megacutter. The cut lettuce then eg .™ triple-wash system of chilled, chlorinated wate, when! bienaled with other vegetables to make different alge The mixed salad ingredients then travel to high packaging lines, where they ate weighed and fe ini hye Tarious sizes. The packaging machine is capable of pat ing up to 100 packages of salad a minute, within 24 hours of harvest, but each plant operates only during certain months of the year. So in November of every year, Dole closes down the processing center in Salinas Valley and loads its equipment ‘onto 76 flatbed trucks for the 600-mile Fide to Yuma. This ‘unlikely “caravan that follows the lettuce” takes 18 hours, Dut saves the company a bundle in capital equipment costs. Doles salad-making plants convert 360 million pounds ‘of raw vegetables into 190 million pounds of salad each year. From the plant, salads travel to a huge cold storage ang distribution automatically retrieves the product and brings itt dog, area, From here, the packaged salads are loaded into tefrig. erated trucks to begin the journey to local grocery stor, 365 days a year. cility, Inside the facility, a computer seq Source: Salad Factory Virtual Tour, , firm or product line, Several quantitative techniques are available to help with the agge- gate planning decision, We will discuss pure and mixed strategies using trial and er tte transportation method, and other quantitative techniques. APP Using Pure Strategies and Mixed Strategies Using trial and error to solve aggregate production planning problems involves formulit ing several strategies for meeting demand, constructing production plans from thos strategies, determining the cost and feasibility of each plan, and selecting the lowest st plan from among the feasible alternatives. The effectiveness of trial and error is dire! related to management's understanding of the cost variables involved and the reasondble ress of the scenarios tested. Example 9.1 compares the cost of two pure strategies. Exim 9.2 uses Excel to compare pure and mixed strategies for a more extensive problem. EXAMPLE 9.1 ‘The Good and Rich Candy Coi 7 ET «ly Company makes a variety of candies in three factories worldwide 8 of chocolate candies exhibits a highly se ex ds a «highly seasonal demand pattern, with peaks during the wist™| PLANNING USING PURE STRATEGIES chocolate candies: * eee Quan SALES FORECAST (LB) pring, 80,000 Summer Fall 50,000 Winter pean =Aggregate Planning 423 CHAPTER 9 Capacity an Hiring cost = $100 per worker Firing cost = $500 per worker Inventory carrying cost = $0.50 per pound per quarter Production per employee = 1000 pounds per quarter Beginning workforce = 100 workers Solution For the level production strategy, we frst need to calculate average quarterly demand. (80,000 + 50,000 + 120,000 + 150,000) 100,000 pounds 4 This becomes our planned production for each quarter. Since ea pounds a quarter, 100 workers will be needed each quarter to meet t of 100,000 pounds. Production in excess of demand is stored in inventor it is used to meet demand in a later period. Demand in excess of production is me? by using inventory from the previous quarter. The production plan and resulting inventory costs are B1VeR in Exhibit 9.1 For the chase demand strategy, production each quarter matches demand. To accom Excel | this, workers are hired and fired at a cost of $100 for each one hired and $500 for each one fired. ‘iets Since each worker can produce 1000 pounds per quarter, we divide the quarterly sales forecast by 1000 to determine the required workforce size each quarter. We begin with 100 workers and te hire and fire as needed. The production plan and resulting hiring and firing costs are given In 400,000 4 ch worker can produce 1000 fhe production requirements -y, where it remains until plish Exhibit 9.2. ‘Comparing the cost of level production with chase demand, chase demand is the best strategy for the Good and Rich line of chocolate candies. Exhibit 9.1 Level Production for Good and Rich Seen aetna ian Inventory atthe end a ins Sole 7 @ me Gla of summer quarter; |) @ @ i ie ary iOsE11-011 computed in cell FIL Z Pk Buaeiadl alii D False Feet hea H = 2 i Example 9.1 - Level Production Cost $70,000 + Cost of level production = ; inventory costs ‘ Beg Wiforce 100 Beg Inv. 0 Firing cost $500 meee : Unitstwker 1000 Inv. Cost. $0.50 Hiring cost $100 & 9 0 Quarter Demand Production Inventory mamas cf Spring 80,000 { "100,000 (20,000 Inventory calcul i ea” 420,000 | 100,000 | 60,000 lawarnady system | « Winter 150,000 | 100,000 J 0, 4. Total ‘400,000 400,000 140,000 Production input by user; level production = 400,000/4424 PART IT Managing the Supply Chi Exhibie 9.2 119. Gét gen nowt gm took ee Dehn ie vain Chase Demand for Good and Rich W of workers fired ees Go atate 1H 34+ a i Spring: computed 8 a ie 1 . Example 9.1 - Chase Demand Cost $36,000 5 ‘Sea Wntorce 100 | Begins. | 6 | Fking cost $600 8 Unitehwmer, 1000 Inv Cost $0850 Hndcent, $500 8 Workers Workers Workers 9 Quarter — Demand Production Needed. Hired Fired {10} Spring 90.000 | "enon Ngee His 1 Summer 60,000 | 0000 | ¢ ~~ 8 30 2 Fa 120.000 | 120,000 | 420 | wy 18 Winter 160,000 |_160,000_|_ 160 9p 8 14 Tota! 400,000 a 1 Production input by user, production = demand Although chase demand is the better strate Point of view, it may seem undul good “fit” between a company’s cha Hershey's, located in rural Pennsylvania, ’s production plan. During the winter, when demand ft hires farmers from surrounding areas, who are idleat that time of year. The farmers are let go during the spring and eammen, when they 2 elect agi urn to their fields and the demand for chocolate falls, The plan is cot effective, and the extra help is content with the sporadic hiring and firing practicesef the company. Probably the most common approach to production planning is trial and error sng mixed strategies and spreadsheets to evaluate different options quickly. Mixed sas an incorporate management policies, such as “no more than 2 percent of the worl can be laid off in one quarter” or “inves ‘tory levels cannot exceed x dollars.” They ee be adapted to the quirks of a company or industry. For example, many industries ee Ha Hence a slowdown during part of the year may simply shut down manufacturing en the low-demand season and schedule everyone’s vacation during that time, Furniture ufacturers typically close down for the month of July each year, and shipbuilde down for the month of December. For some industries, the producti materials, not the demand pattern, Faw material is available only 40 day. workers, but it normally consists of Pany’s payroll is made up of unempl Particular industry. of n planning task revolves around the son st “onsider Motts, the applesauce manufactU"e "sy S during a year. The workforce size at its Pre co around 350 workers, Almost 10 percent ob loyment benefits—the price of doing bus! yAGGREGATE CHAPTER 9 Capacity and Aggregate Planning 425 ‘ation’s action to Sige Y Sie follows a seasonal patern—growing through Wanucton id accessory ye See™bEH with smaller peaks in January (for after-season mark : €€SSOrY purchaye, NG USING Purchases) and July (for Christmas. ‘in-luly specials), Cs et MONTH DEMAND Gee ae . pone AND MID = AND (casts) MONTH De MAND (CASES) GIES nary STRATE ty 1000 Tuly 500 Mae 400 August 500 pa 400 September 1000 i 400 October 1500 nd 400 November 2500 ts 400 December 3000 Each worker Ce os eT When Produce on average 100 cases o 300 sases, and subcont ieee tracting is unl $10 per case for regu stockouts are allowed, action toys each month, Overtime is limited to tnited. No action toys are currently in invents ry. The wage rate is 8 Production, $15 for cd Overtime production, and $25 for subcontracting, No i8ing cost i $1 per case per month Ine in Kforce 3 : wrong Pet month. Increasing the worklorce costs approx imately $1,000 per worker, Decreasing the workforce costs $500, Per worker: Teel ) Management wishes to test the following scenarios for planning production: & Level production over the 12 monthe Exhibit9 3.xls b. Produce to meet demand each month, ¢. Increase or decrease the workforce in five-worker increments, é a Solution Excel was used to evaluate the three planning scenarios The solution prints 9.3,9.4, and 9.5, ‘esPectively From the scenarios tested, stp production yi outs are shown in Exhibits ields the lowest cost. Enhibit 9.3 Level Production for Quantum 182 U ee we oa. MANGI260136€134+F13.L130) i E c cf Example 9,2(a) -Level Production > ining $1,000 Regular $10 Hiring Overtime $15 Firing $600 Subk $25. Inventory $1 Wars fred Hired or 5 aS ° x + $ - to’ [ et et ° ar eel ° 7 A+ete [Calculated by stem] ° ° re A ° 2 Aeon 6 ° ° aon crepes woe ° 2 10 & ° ° ° w fo fe 4 ° ot w fe te gf ee eet ° — ° 2 te ea ia (Continued) Production input by wee production = 12,000/12iy Chain the supe 426 PARTI Managing 7 lait pean anelme sae chase Demand for Quantum nese a ee cA ASE Pte eg ee ao se Demand 9.290) er 1 reguar | $10. Hing 1.209 cost $149000 3 owerome 518 * 4 ‘subk c ; é “suk i 3 oe 3s oe 10 a) i sore m3 °° 2 ot 44) ; ° 8 oe a 18 ° ° 7 ie oe 8 s : 18 & it > ‘ame e 8 2 ee Production input by user; regular production = demand Exhibit 9.5 Step Production for Quantum i 1m i Yt Fr ek te rm el rir ese sah 4 _-e-A-AC TOS BALD M mente Gala Example 92(¢)- top Production 310 Hinng $1,000 120 Overome 818 a Subk $25 inventory st cone FEST] “Peg oF uth ing "30 (ie Sin mired seve { ° o | 100 6 ° 7 Tepe pitts cep meee cep meee oe} m oe ke oe Te te ty tt fb ° $f tae [10 hg ° ° of ie te To 8 sre tete ts cot $f eet 09 gry 8 oo ss Cost of step. production [ Number ot hited in com July, Cost of chase” demand strategy Calculated | by system puted in cl 1 Calculated by sy, [Latcutlated by system J