span can be shorter depending on a given company's

negotiating strengths. Several viable leasing options

exist for the SPC plant, all more favorable than the

option of building a new facility. Lease rates average

$$4$ per square foot per quarter in each location. On

average one square foot is required per thousand

pounds in storage.

Private warehousing also results in operating

costs, both variable and fixed. Private warehousing is

available from a third$-$party logistics provider who

has agreed to charge SPC a variable operating cost

of $$4$ per $1,000$ pounds of plastic sheet stored per

quarter. To obtain this rate, SPC must sign the lease

for a full three years. As a result, SPC will pay for the

space each quarter even if it is not used for storage.

SPC must take this cost into account when making

its decision.

SPC must consider several variables when

determining the amount of warehouse space it

requires. Usable warehousing space is the fraction of

a warehouse that can actually be used to store

inventory. Considerations are made for aisle space,

shipping and receiving dock space, administrative

office space, and ceiling height. Storage density is

another consideration. SPC must also take into

account velocity and times of materials movement

because the staffing level required and storage con$-$

figurations are dependent on both. For example, if

materials must be retrieved readily, the warehouse

layout must include a greater ratio of aisle and stag$-$

ing space to actual storage space.

THE ACTIONS AND DECISIONS

Julie and her group must take two actions. The first,

given a three$-$year forecast as shown in Table $8\mathrm{.}7,$ is

to come up with an aggregate production plan. The

second is to choose from the following three

options:

Continue with the strategy of storing

materials off$-$site in public warehousing

Lease and run a private warehouse to handle

off$-$site inventory

Use a combination of both public and

private warehousing

In the case of private warehousing, Julie must

make a decision regarding the square footage to be

leased. This decision will apply over the period $2003$

to $2005.$ Clearly, this decision must be made in con$-$

junction with the preparation of an aggregate plan

over the three$-$year period. Ideally, the two decisions

should be made jointly as each will affect the other.

What factors do you think influence the

actions and decisions? For example, do you think

that the price the subcontractor charges has any

relationship to the amount of private warehousing

space to be leased?

Julie also has to decide how to handle any

potential error in the demand forecast. How do you

recommend she handle these errors?