Developing an Aggregate Plan

questions + prompt and data Questions

prompt & data

uestions 1. Prepare an aggregate plan for the coming year, assuming that the sales forecast is perfect. Use the spread. sheet "Bradford Manufacturing." In the spreadsheet, 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. The Situation Yo are the operations manager for a manufacturing plant The demand for this product fluctuates from month to tw produces pudding food products. One of your impor- month. In addition, there is a seasonal component, with peak aat responsibilities is to prepare an aggregate plan for the sales before Thanksgiving. Christmas, and Easter each year. plet This plan is an important input into the annual budget To complicate matters, at the end of the first quarter of each prees. The plan provides information on production rates, year the marketing group runs a promotion in which special naufacturing labor requirements, and projected finished deals are made for large purchases. Business is going well. gods inventory levels for the next year. and the company has been experiencing a general increase You make those little boxes of pudding mix on packag- in sales. ing lines in your plant. A packaging line has a number of The plant sends product to four large distribution wareacchines that are linked by conveyors. At the start of the houses strategically located in the United States. Trucks move line, the pudiding is mixed; it is then placed in small pack- product daily. The amounts shipped are based on maintainax. These packets are inserted into the small pudding boxes, ing target inventory levels at the warehouses. These targets vhich are collected and placed in cases that hold 48 boxes of are calculated based on anticipated weeks of supply at each puding. Finally, 160 cases are collected and put on a pallet. warehouse. Current targets are set at two weeks of supply. The pallets are staged in a shipping area from which they are In the past, the company has had a policy of producing sat to four distribution centers. Over the years, the technol- very close to what it expects sales to be because of limited ogy of the packaging lines has improved so that all the dif- capacity for storing finished goods. Production capacity has ferent flavors can be made in relatively small batches with been adequate to support this policy. bosetup time to switch between flavors. The plant has 15 of A sales forecast for next year has been prepared by the teee lines, but currently only 10 are being used. Six employ- marketing department. The forecast is based on quarterly to are required to run each line. for the salespeople. Sales are mainly to the large U.S. retail to just carry that case in inventory is $1.00. If a case grocers. The pudding is shipped to the grocers from the distriis carried for only one week, the cost is $1.00152, or bution warehouses based on orders taken by the salespeople. $0.01923. The cost is proportional to the time carried Your immediate task is to prepare an aggregate plan for in inventory. There are 200,000 cases in inventory at the coming year. The technical and economic factors that the beginning of Q1 (this is 200 cases in the 1,000 must be considered in this plan are shown next. 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. Technical and Economic Information - Overtime must be used over an entire quarter and 1. The plant runs five days each week and currently is runshould be based on hours per day over that time. Technical and Economic Information 1. The plant runs five 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 8 hours' work. It is possible to run up to 2 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