Resource Management

Critical thinking Exercises

1. Service operations often face more difficulty in planning than their manufacturing
counterparts. However, service does have certain advantages that manufacturing often does not.
Explain service planning difficulty, and the advantages and disadvantages.
2. Name several behaviors related to aggregate planning or master scheduling that you
believe would be unethical, and the ethical principle that would be violated for each.

Exercises:
1. a. Given the following forecast and steady regular output of 550 every month, what total
cost would result if overtime is limited to a maximum of 40 units a month, and subcontracting is
limited to a maximum of 10 units a month? Unit costs are:
 Regular output $20
 Overtime $30
 Subcontract $25
 Average Inventory $10
 Backlog $18
Month 1 2 3 4 5 6
Forecast 540 540 570 590 650 680
b. Suppose now that backlogs are not allowed. Modify your plan from part a to accommodate
that new condition as economically as possible. The limits on overtime and subcontracting
remain the same.
2. Nowjuice, Inc., produces Shakewell® fruit juice. A planner has developed an aggregate
forecast for demand (in cases) for the next six months.
Month May Jun Jul Aug Sep Oct
Forecast 4,000 4,800 5,600 7,200 6,400 5,000

Use the following information to develop aggregate plans.

 Regular production cost $10 per case
 Regular production capacity 5,000 cases
  Overtime production cost $16 per case
 Subcontracting cost $20 per case
 Holding cost $1 per case per month
 Beginning inventory 500 case
Develop an aggregate plan using each of the following guidelines and compute the total
cost for each plan. Which plan has the lowest total cost? Note: Backlogs are not allowed.
a. Use level production. Supplement using overtime as needed.
b. Use a combination of overtime (500 cases per period maximum), inventory, and
subcontracting (500 cases per period maximum) to handle variations in demand.
c. Use overtime up to 700 cases per period and inventory to handle variations in demand.
3. Demand and capacity (in units) are forecast as follows:

Capacity Source (units) Jan Feb Mar Ap Ma June July Aug

r y

Regular time 235 255 290 300 300 290 300 290
Overtime 20 24 26 24 30 28 30 30
Subcontract 12 16 15 17 17 19 19 20
Demand 255 294 321 301 330 320 345 340

- The cost of producing each unit is 1000$ on regular time, 1300$ on overtime, and 1800$ on
a subcontract. Inventory carrying cost is 200$ per unit per month. There are 10 units beginning
inventory in stock, and no backorders are permitted from period to period
- Let the production (workforce) vary by using regular time first, then overtime, and then
subcontracting.
a) Set up a production plan by producing exactly what the demand is each month. What is
this plan’s cost?
b) Regular time can be set exactly the same amount, 275 units per month. If demand cannot
be met there is no cost assigned to shortages and they will not be filled. Does this alter solution?
Why?
c) If overtime costs per unit rise from 1300$ to 1400$, will your answer to (a) change?
Why? What if overtime costs then fall to 1200$?
 4. Filling in these blanks.(Maximum overtime is 20% production, backlogs are not allowed)

Month 1 2 3 4 5 6 7 8 9 Total
Demand 550 500 480 600 800 650 620 700 820 ……….
Beginning
INV 40 …. …. …. …. …. …. …. …. ……….
Production 600 600 600 600 600 600 580 580 580 ……….
Overtime …. …. …. …. …. …. …. …. …. ……….
Ending INV
…. …. …. …. …. …. …. …. 80 ……….
Increased/
Decreased
Production …. …. …. …. …. …. …. …. …. ……….

Case
Eight Glasses a Day (EGAD)
The EGAD Bottling Company has decided to introduce a new line of premium bottled water
that will include several “designer” flavors. Marketing manager Georgianna Mercer is predicting
an upturn in demand based on the new offerings and the increased public awareness of the health
benefits of drinking more water. She has prepared aggregate forecasts for the next six months, as
shown in the following table (quantities are in tankloads):
Month May Jun Jul Aug Sept Oct Total
Forecast 50 60 70 90 80 70 420
Production manager Mark Mercer (no relation to Georgianna) has developed the following
information. (Costs are in thousands of dollars.)
 Regular production cost $1 per tankload
 Regular production capacity 60 tankloads
 Overtime production cost $1.6 per tankload
 Subcontracting cost $1.8 per tankload
 Holding cost $2 per tankload per month
 Backordering cost Backlogs are not allowed
 Beginning inventory 0 tankloads
Among the strategies being considered are the following:
1. Level production supplemented by up to 10 tankloads a month from overtime.
 2. A combination of overtime, inventory, and subcontracting. Regular production should
be the same each month.
3. Using overtime for up to 15 tankloads a month, along with inventory to handle
variations. Regular production should be the same each month.
Questions
1. The objective is to choose the plan that has the lowest cost. Which plan would you
recommend?
2. Presumably, information about the new line has been shared with supply chain partners.
Explain what information should be shared with various partners, and why sharing that
information is important.