Introduction

The following report outlines the manufacturing plan options for a manufacturing
company that wants to minimize costs and maximize profits. It is expected that
the year will begin with 200 units on hand. The company faces a stock-out cost of
$100 per unit and an inventory holding cost of $20 per unit per month. As a
consultant, we aim to develop a manufacturing plan that minimizes the company's
costs while meeting the projected demand. Additionally, we will propose a plan
with slight variation to further reduce overall costs for the company during this
demand period.
The three plans under consideration are:
Plan A: Chase Strategy
Plan B: Subcontracting
Plan C: Stable Workforce

Plan A: Chase Strategy

In Plan A, the manufacturing company will vary the workforce to produce the
quantity required in the prior month (a chase strategy). The cost of hiring
additional workers is $5,000 per 100 units, and the cost of laying off workers is
$7,500 per 100 units. Both the December demand and build were 1600 units.
To evaluate the cost of Plan A, we need to calculate the inventory, Stockout, and
Hire units. We can use the following table to calculate the total cost for each
month:

Costs
$20/unit/
Inventory Holdings cost month
Stockout cost $100/unit
Hire cost $5000/100units
Layoff cost $7500/100units
 Plan A. Chase Strategy
Production
Perio Hire layoff
Demand (previous Inventory(units) Stockout(units)
d units units
month)
Jan 1500 1600 300 - - 100
Feb 1700 1500 100 - 200 -
Mar 1900 1700 - 100 200 -
Apr 1900 1900 - - - -
May 2300 1900 - 400 400 -
Jun 2300 2300 - - - -
Jul 1900 2300 400 - - 400
Aug 1500 1900 800 - - 400
Total 15000 15100 1600 500 800 900

Total inventory units cost would be = total units * cost per unit
=1600*20
=$32000

Total stockout cost = total stockout units * cost per unit

=500*100
=$50000

Total hiring cost =total hire units*hiring cost

=800*5000/100
=$40000
Total layoff cost = total layoff units*layoff cost
=900*7500/100
=$67500
The total cost for plan A would be
=$32000+$50000+$40000+$67500
=$189500

Plan B: Subcontracting
Under Plan B, the company would produce at a constant rate of 1500 units per
month. The company would then use subcontracting to meet any additional
demand above 1500 units. The subcontracting cost is $75 per unit

Costs
$20/unit/
Inventory Holdings cost month
Stockout cost $75/unit
 Plan B

Period Demand Production Inventory(units) Subcontract(units)

Jan 1500 1500 200 -

Feb 1700 1500 200 -
Mar 1900 1500 - 400
Apr 1900 1500 - 400
May 2300 1500 - 800
Jun 2300 1500 - 800
Jul 1900 1500 - 400
Aug 1500 1500 - -
Total 15000 12000 400 2800

Total inventory units cost would be = total units * cost per unit
=400*20
=$8000
Total subcontract cost would be = total subcontract units * cost per unit
=2800*75
=$210000
The total cost for plan B would be
=8000+210000
=$290000
Plan C: Stable Workforce

Under this plan, the company will maintain a constant production rate equal to
the average monthly demand and allow varying inventory levels. The plan
assumes that there are no idle time costs.

Costs
$20/unit/
Inventory Holdings cost month
Stockout cost $75/unit

Plan C

Average
Period Demand Inventory(units) Stockout(units)
Production

Jan 1500 1875 575 -

Feb 1700 1875 750 -
Mar 1900 1875 725 -
Apr 1900 1875 700 -
May 2300 1875 275 -
Jun 2300 1875 - 150
Jul 1900 1875 - 25
Aug 1500 1875 375
Total 15000 15000 3400 175
Total inventory units cost would be = total units * cost per unit
=3400*20
=$68000
Total stockout cost = total stockout units * cost per unit
=175*75
=$13125
The total cost for plan C would be
=68000+13125
=$81125

Executive Summary:
Based on the analysis from the sales department, the manufacturing firm has
three options for controlling production during the demand period. Plan A
proposes changing the workforce to produce the quantity required in the prior
month, Plan B suggests producing a constant rate of 1500 units per month and
using subcontracting to meet any extra demand above 1500 units, and Plan C
supports maintaining a dependable staff by maintaining a constant production
rate equal to the average monthly demand.
The total cost for plan A is = $189500
The total cost for plan B is = $290000
The total cost for plan C is = $81125

Therefore, we recommend the manufacturing company implement Plan C as it

balances production cost and inventory holding costs. By maintaining a stable
workforce, the company can save on hiring and layoff costs and keep production
at the effective level.
Additional Plan:

After evaluating the three plans, we suggest a slight variation in Plan C, which
could further reduce the overall cost to the company. From the provided cost the
invemtory holding cost is cheaper then stockout cost by increasing the by
increasing the production to 1900 units per month we can eliminate the stockout
cost

Plan D

Average
Period Demand Inventory(units) Stockout(units)
Production

Jan 1500 1900 600 -

Feb 1700 1900 800 -
Mar 1900 1900 800 -
Apr 1900 1900 800 -
May 2300 1900 400 -
Jun 2300 1900 0 -
Jul 1900 1900 0 -
Aug 1500 1900 400 -

Total 15000 15200 3800 0

Total inventory units cost would be = total units * cost per unit
=3800*20
=$76000
After evaluating the three plans, we also suggest an additional plan with slight
variation in Plan C, which could further reduce the overall cost to the company.