Aggregate Planning Math

Problem :1 Compare the monthly production, ending

inventory/backlog and workforce level using the level and
chase production strategy for the forecasted demand given
below:
Month Jan Feb Mar Apr May June Total

Demand 2000 3000 5000 6000 6000 2000 24000

Assume a worker is capable of producing 100 units per month. If hiring

and lay off costs are Tk.50 And Tk.100 respectively and inventory
carrying cost is Tk.10 per unit per month and stock out cost is Tk.20 per
unit. Which production plan is less costly. Assume no beginning
inventory and the company also expects no ending inventory.
• Chase strategy:

Month Demand MPS Ending Work force hiring Layoff hiring cost Layoff cost Inventory
inventory/ba cost
ck log

Jan 2000 2000 0 20 20 0 1000 - -

Feb 3000 3000 0 30 10 0 1500 - -

Mar 5000 5000 0 50 20 0 1000 - -

Apr 6000 6000 0 60 10 0 500 - -

May 6000 6000 0 60 0 0 0 - -

June 2000 2000 0 20 - 40 0 4000 -

• Level Strategy:
month demand production Inventory?back Work-force hiring Lay off Hiring cost Inventory cost Stockout/backlog
log cost

Jan 2000 4000 2000 40 40 - 2000 20000

Feb 3000 4000 3000 40 - - 30000

Mar 5000 4000 2000 40 - - 20000

Apr 6000 4000 0 40 - - 0

May 6000 4000 (2000) 40 - - - 40000

june 2000 4000 0 40 - - -

Total cost:2000+70000+40000=112000
Hence chase strategy is less costly
 Problem 2 :Compare the monthly production, ending inventory/backlog and workforce level
using the level and chase production strategy for the forecasted demand given below

month may jun jul aug sep oct Total

demand 60 55 65 70 60 50 360

one worker can produce only 5 units per month and initial workforce was 10 people.
Assume no beginning inventory and no ending inventory.
If hiring and lay off costs are Tk 50 and tk100 respectively and inventory carrying cost
is Tk 10 per unit per month and stock out cost is Tk20 per unit. Which production
plan is less costly?
Solution: Chase strategy
month demand Mps Ending workforce hiring Firing/lay Hiring Firing cost
inventory off cost
/backlog

May 60 60 0 12 2 - 100 -
Jun 55 55 0 11 - 1 - 100
Jul 65 65 0 13 2 - 100 -
Aug 70 70 0 14 1 - 50 -
Sep 60 60 0 12 - 2 - 200
Oct 50 50 0 10 - 2 - 200
250 500
 Level Strategy
month demand Mps Ending workforce hiring Firing/ Hiring Inventor Stock
inventor lay off cost y cosr out cost
y/backlo
g
May 60 60 0 12 2 - 100
Jun 55 60 5 12 - - 50
Jul 65 60 0 12 - -
Aug 70 60 (10) 12 - - 200
Sep 60 60 (10) 12 - - 200
Oct 50 60 0 12 - -
100 50 400
• So total cost=hiring cost+ inventory cost+ stockout cost
=100+50+400
=550
Hence level strategy is less costly for production.
• Problem:3
• Planners for a company that make s several model of skateboards are about to prepare the aggregate plan that will cover six periods. They have
assembled the following information:

period 1 2 3 4 5 6 Total
Forecast 200 200 300 400 500 200 1800

Costs
Output
regular time = $2 per skateboard
Overtime = $3 per skateboard
subcontract =$6 per skateboard
Inventory =$ 1 per skateboard per period on average inventory
Backorder = $5 per skateboard per period
They now want to evaluate a plan that calls for a steady rate of regular time output, mainly using inventory to absorb the uneven
demand but allowing some backlog. overtime and subcontracting are not used because they want steady output. They intend
to start with zero inventory on hand in the first period. prepared an aggregate plan and determine its cost using the preceding
information. Assume a level output rate of 300 units (skateboards) per period with regular time (i.e.,1800/6=300).note that the
planned ending inventory is zero. There are 15 workers, and each can produce 20 skateboards per period.
 Solution:

period 1 2 3 4 5 6 total
forecast 200 200 300 400 500 200 1800
Output
regular 300 300 300 300 300 300 1800
overtime - - - - - - -
subcontract - - - - - - -

Output-forecast 100 100 0 (100) (200) 100 0

Inventory
Beginning 0 100 200 200 100 0
ending 100 200 200 100 0 0
average 50 150 200 150 50 0 600

backlog 0 0 0 0 100 0 100

 COST:

period 1 2 3 4 5 6 total
Output
regular 600 600 600 600 600 600 3600
overtime - - - - - - -
subcontract - - - - - - -

Inventory
average 0
50 150 200 150 50 0 600
0

backlog 0 0 0 0 500 0 500

TOTAL 650 750 800 750 1150 600 4700
• After reviewing the plan developed in the preceding example, planners
have decide to develop an alternative plan. They have learned that one
person is about to retire from the company. Rather than replace that
person, they would like to stay with the smaller workforce and use
overtime to make up for the lost output. The reduced regular time output
is 280 units per period. The maximum amount of overtime output per
period is 40 units. Develop a plan and compare it to previous one.
 Solution:

period 1 2 3 4 5 6 total
forecast 200 200 300 400 500 200 1800
Output
regular 280 280 280 280 280 280 1680
overtime - - 40 40 40 120
subcontract - - - - - - -

Output-forecast 80 80 20 (80) (180) 80 0

Inventory
Beginning 0 80 160 180 100 0
ending 80 160 180 100 0 0
average 40 120 170 140 50 0 520

backlog 0 0 0 0 80 0 80
 COST:

period 1 2 3 4 5 6 total

Output
regular 560 560 560 560 560 560 3360
overtime - - 120 120 120 - 360
subcontract - - - - - - -

Inventory
average
40 120 170 140 50 0 520

backlog 0 0 0 0 400 0 400

TOTAL 600 680 850 820 1130 560 4640

Problem 5:

• Beg worker-8
• Average monthly output/worker-4000
• Inv.holding cost-0.30 per case per month
• Reg wage rate -20 per hour
• Reg prd hour/month-160
• Hiring cost-1000
• Subcontracting cost-1.15 per case
• Firing cost-1500 per worker
• Begning inv.-5000(all safety stocks)
24000 40000 - 21000 10 2 0

32000 40000 - 29000 10 0 0

32000 40000 - 37000 10 0 0

48000 40000 - 29000 10 0 0

60000 40000 - 9000 10 0 0

44000 40000 - 5000 10 0 0

month Demand rp over ei wrker h f
Jan 24000 24000 - 5000 6 2
Feb 32000 32000 - 5000 8 2
Mar 32000 32000 - 5000 8 0
Apr 48000 48000 - 5000 12 4
May 60000 60000 - 5000 15 3
jun 44000 44000 - 5000 11 4
240000 30000 9 6
 Hybrid approach: always maintain our eight workers and handle any excess
production capacity with overtime.

m d rp over ei wrker h f
Jan 24000 32000 - 13000 8 - -
Feb 32000 32000 - 13000 8 - -
Mar 32000 32000 - 13000 8 - -
Apr 48000 32000 8000 5000 8 - -
May 60000 32000 28000 5000 8 - -
jun 44000 32000 12000 5000 8 - -
total 240000 192000 48000 54000 - -
Total cost 0.80 1.20 .30 1000 1500
per category
Problem 6:

A manager obtained a forecast of expected demand for the planning horizon. The plan must deal with
highly seasonal demand, demand relatively high in periods 3 and 4 and again in period 8, as can be
seen from the following forecasts:
Perio 1 2 3 4 5 6 7 8 9 total
d
foreca 190 230 260 280 210 170 160 260 180 1940
st

The department now has 20 full-time employees, each of whom produces 10 units of output per period
at a cost of tk6 per unit. Beginning inventory for period 1 is zero. Inventory carrying cost is tk 5 per unit
per period, and backlog cost is tk 10 per unit per period.
1Will the current work force be able to handle the forecast demand?
2.Determine the total cost of the plan, including production, inventory, and backorder costs.
3.With the current workforce of 20 people each producing 10 units per period, regular capacity is 1800
units for the 9 month period. That is 140 units less than expected demand. So there will be a backlog
unfilled demand if actual demand equals the forecast.