One possible strategy (call it plan 1) for the manufacturer described in Example 1 is to maintain a constant workforce throughout the 6-month period. A second (plan 2) is to maintain a constant workforce at a level necessary to meet the lowest demand month (March) and to meet all demand above this level by subcontracting. Both plan 1 and plan 2 have level production and are, therefore, called level strategies.

Plan 3 is to hire and lay off workers as needed to produce exact monthly requirements—a chase strategy. Table 13.3 provides cost information necessary for analyzing these three alternatives.

ANALYSIS OF PLAN 1 APPROACH c Here we assume that 50 units are produced per day and that we have a constant workforce, no overtime or idle time, no safety stock, and no subcontractors. The firm accumulates inventory during the slack period of demand, January through March, and depletes it during the higher-demand warm season, April through June. We assume beginning inventory = 0 and planned ending inventory = 0.

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TABLE 13.3 Cost Information Inventory carrying cost Subcontracting cost per unit Average pay rate Overtime pay rate Labor-hours to produce a unit Cost of increasing daily production rate (hiring and training) Cost of decreasing daily production rate (layoffs) $ 5 per unit per month $ 20 per unit $ 10 per hour ($80 per day) $ 17 per hour (above 8 hours per day) 1.6 hours per unit $300 per unit $600 per unit