Analytics Exercise: Developing an Aggregate Plan—Bradford Manufacturing

The Situation

You are the operations manager for a manufacturing plant that produces pudding food
products. One of your important responsibilities is to prepare an aggregate plan for the
plant. This plan is an important input into the annual budget process. The plan provides
information on production rates, manufacturing labor requirements, and projected finished
goods inventory levels for the next year.

You make those little boxes of pudding mix on packaging lines in your plant. A packaging
line has a number of machines that are linked by conveyors. At the start of the line, the
pudding is mixed; it is then placed in small packets. These packets are inserted into the
small pudding boxes, which are collected and placed in cases that hold 48 boxes of
pudding. Finally, 160 cases are collected and put on a pallet. The pallets are staged in a
shipping area from which they are sent to four distribution centers. Over the years, the
technology of the packaging lines has improved so that all the different flavors can be made
in relatively small batches with no setup time to switch between flavors. The plant has 15 of
these lines, but currently only 10 are being used. Six employees are required to run each
line.

The demand for this product fluctuates from month to month. In addition, there is a
seasonal component, with peak sales before Thanksgiving, Christmas, and Easter each year.
To complicate matters, at the end of the first quarter of each year the marketing group runs
a promotion in which special deals are made for large purchases. Business is going well, and
the company has been experiencing a general increase in sales.

The plant sends the product to four large distribution warehouses strategically located in
the United States. Trucks move product daily. The amounts shipped are based on
maintaining target inventory levels at the warehouses. These targets are calculated based on
anticipated weeks of supply at each warehouse. Current targets are set at two weeks of
supply.

In the past, the company has had a policy of producing very close to what it expects sales to
be because of limited capacity for storing finished goods. Production capacity has been
adequate to support this policy.

A sales forecast for next year has been prepared by the marketing department. The forecast
is based on quarterly sales quotas, which are used to set up an incentive program 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.

Technical and Economic Information

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 eight hours’
work. It is possible to run up to two 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 worksheet “Bradford Manufacturing” that is in the “19 Sales and Operations
Planning” spreadsheet. In the worksheet, 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.

APA 6th Edition (American Psychological Association) style citations and reference list
should be used when necessary. Additional references (other than those used for the
readings this week) are not required.