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 impor- tant responsibilities is to prepare an aggregate plan for the plant. This plan is an important input into the annual bud- get 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 pack- aging 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 pud- ding 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 be- tween flavors. The plant has 15 of these lines, but cur- rently 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 promo- tion in which special deals are made for large purchases. Business is going well, and the company has been experi- encing a general increase in sales. The plant sends 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 ware- houses. 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 produc- ing 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 quar- terly 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. Employee The technical and economic factors that must be considered in this plan are shown next. Nene 4 l Lee 6. Shannon Mcarthu Forecast Demand by Quarter (1,000 Case Units) 3,000 2,500 2.000 1.500 1.000 500 0 1st (1-13) 2nd (1426 3rd (27-39) 4th Ist (40-52) (Next Year) . 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 ex- cess of the safety stock requirement. Backorder costs are incurred on the negative deviation from the planned safety stock require- ment, 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. . . An Home Technical and Economic Information 1. The plant runs five days each week, and currently is running 10 lines with no overtime. Each line re- quires 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: Q12,000; Q22,200; Q32,500; 24-2,650; 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 pud- ding 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: Q1338; Q2385; Q3408; Q4338. 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 propor- tional 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 Questions 1. Prepare an aggregate plan for the coming year, assuming that the sales Employee forecast is perfect. Use the work- sheet Bradford Manufacturing" 6. Shannon Mcarthu that is in the 19 Sales and Opera- tions Planning spreadsheet. In the worksheet, an area has been designated for your ag- gregate plan solution. Supply the number of pack- aging 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 quar- ter. (Solutions that require 8.9134 lines and 1.256 hours of overtime are not feasible.) It is important that your spreadsheet calcula- tions 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