Aggregate

Planning at
Green Mills
SYNDICATE 2
Dina Rizkia Rachmah (29120431)
Muhammad Ikhlas Dharma (29120398)
Desman Hansen Sagala (29120481)
Anton Herutomo (39020905)
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General Overview
Overview of the Aggregate
Planning at Green Mills Case

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 Green Mills Inc.

Management Considering
Operated lumber mills
for Expanding operation to
Produced a variety of throughout the
Chile expect to reduce
wood products. Northwestern United
Green Mill’s raw materials
States. costs.

The cost transporting

Previously, Green Mills Purchase forestland in
lumber from Chile $50
bought raw softwoods Chile with estimated
with shipping capacity
$400 per thousand board production cost $150 per
1.500.000 board feet per
feet. thousand board feet.
month.

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 Green Mills Inc.
Condition in Chile :

❖ One worker could harvest 50,000 board feet of raw lumber per month
based on a 160-hours-per-month work schedule.
❖ The forest property under consideration currently had 20 employees.
❖ Maximum inventory capacity of 3,000,000 board feet per month.
❖ Workers were hired on a monthly basis.
❖ Overtime was limited to 25 per cent of the regular-time hours worked.
❖ Backordering was not permitted due to the competitive nature of the
lumber products marke•
❖ Hiring and training costs in Chile were $1,000 per new employee.
❖ Layoff costs were $500 per employee.

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 Exhibit 1 Exhibit 2
MONTHLY DEMAND FORECAST (000 BOARD FEET)
Cost Summary (Per 1.000 Board Feet)

Month Demand (000)

January 1.000
Cost Factor Cost ($)
February 1.100
Regular Time 150
Maret 1.300

April 1.500 Overtime 200

May 1.800
Holding 25
Juny 2.200
Shipping 50
July 2.500

August 2.400 U.S Spot Market 400

September 2.000

October 1.600

November 1.200

December 800
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 Condition and Cost in Chile Capacity (Board Feet) Per Month

Information Cost
Production cost ($/000 board feet) $150 No. of products per employee 50.000

Shipping cost ($/000 board feet) $50 Maximum Inventory 3.000.000

Maximum shipping capacity (000 board Maximum Shipping 1.500.000
feet/month) 1.500
Hiring and Training cost per employee $1.000
Lead time (month) 1
Layoff cost per Employee $500
Production rate (000 board feet/month/worker) 50
160 hours per
Work hour (hour/month/worker) 160 Work Schedule
month.
Hiring and training cost ($/employee) 1.000

Layoff cost ($/employee) $500

Overtime cost ($/000 board feet) $200

Holding cost ($/000 board feet) $25

Current worker 20

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02
Discussion Questions
Answers to the discussion
questions given on the Aggregate
Planning at Green Mills Case

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1. Determine the workforce and production schedule based on a level policy, a chase policy, and a
mixed policy that meet the forecasted demand at minimum total cost.(⅓)

Level Policy

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1. Determine the workforce and production schedule based on a level policy, a chase policy, and a
mixed policy that meet the forecasted demand at minimum total cost.(⅔)

Chase Policy

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1. Determine the workforce and production schedule based on a level policy, a chase policy, and a
mixed policy that meet the forecasted demand at minimum total cost. (3/3)

Mixed Policy

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2. Present a cost comparison between the three plans
and recommend the most attractive option based on
minimizing total costs.

Level Policy Chase Policy Mixed Policy

Total costs $5,057,500 $4,698,000 $4,700,500

in a year

The Chase Policy produced the lowest total cost in a year

with the value of $4,698,000. On the other hand, the
other two policies (Level & Mixed) are not suitable for the
company in achieving competency in the market in
terms of cost.
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3. Perform a sensitivity analysis on the following based on the
mixed policy:
● Hiring costs increase by 25%.
● Inventory costs increase by 25%.
● Spot market prices decrease by 10%.

HC 25% IC 25% SMP 10%

Total costs $4,701,500 $4,704,875 $4,560,500

in a year

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 4. Which one of the constraints has the largest
impact on the case?
Original HC 25% IC 25% SMP 10%

Total costs $4,700,500 $4,701,500 $4,704,875 $4,560,500

in a year

The decrease in spot market prices by only 10% has the highest
impact on the case compared to the change in hiring cost and
inventory carrying cost, the total cost has decreased from
$4,700,500 to $4,560,500.

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5. Define the term “undertime” within the context of
this case.

It is stated on the case that undertime was paid, whereas

overtime was limited to 25% of the regular-time hours worked.

Based on the context of this case, undertime may be

defined as the time less than the minimum time
required to perform any activity, or can also be
defined as the time less than the full-time
(regular-time).

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6. Discuss some of the advantages and disadvantages of the level and chase policies.

Level Policy Chase Policy

It allows the company to maintain a Flexible in adjusting the capacity

uniform daily production in order to and demand in order to match
meet the demand by adjusting the output rates for each period.
inventory levels according to the change
of the forecasted demand
Advantages (increase/decrease).

Level plan might have backordering Able to maintain the inventory at

that may avoid overtime and keeps a the minimum level.
constant capacity.

Disadvantages Due to the possibility of backordering, Might lead to a drastic hiring or

there might be costs added. As well as layoff of employees, higher holding
overtime/subcontracting and excess costs and unhappy employees.
inventory costs/
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 7. Discuss the impact of economies of scale on this
application.
● The economies of scale is not applicable on this case due to the production
carried out by employee’s contribution with each employee producing
50,000 board feet per month that costs $150 per 1000 board feet per
month.
● The production capacity and the number of employees are directly
proportional to one another in which, if one increases the other would
increase as well.
● If the production capacity of the company expands, the number of
employees might have to get increased too or have them do overtime to
meet the demand.
● Hence, the economies of scale that could be applied to this case is to
increase the number of production in order to reduce the production cost.

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Thank You

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