Suppose you have been given responsibility for developing the 6-month aggregate production plan at Soda Galore, a manufacturer of soft drinks. Your company makes 3 types of soft drinks: regular, diet, and super-caffeinated. Fortunately, all three types are made using the same production process, and the costs related to switching between the three types can are so minimal that they can be ignored. Thus, you can treat your problem as an aggregate planning exercise where the "planning unit" is cases of soft drinks, regardless of what types of drinks they are.

The S&OP team has developed a forecast of demand for the first 6 months of the year as shown in Table 13-3.

Table 13-3 Monthly Demand at Soda Galore

Month

Demand Forecast

January

24,000 cases

February

32,000 cases

March

32,000 cases

April

48,000 cases

May

60,000 cases

June

44,000 cases

Total Demand

240,000 cases

Average Monthly Demand

40,000 cases

The S&OP team has also provided you with the following cost data in Table 13-4:

Table 13-4 Soda Galore Planning Data

Current workforce

8 workers

Average monthly output per worker

4,000 cases per month

Inventory holding cost

$.30 per case per month

Regular wage rate

$20.00 per hour

Regulation production hours/month

160 hours

Overtime wage rate

$30.00 per hour

Hiring cost

$1,000 per worker

Subcontracting Cost

$1.15 per case

Firing/layoff cost

$1,500 per worker

Beginning Inventory

5000 (all safety stock)

The material cost of a case of soda is the same regardless of whether it is produced in regular time or overtime. Also assume that Soda Galore always plans to hold 5,000 cases of safety stock to meet unanticipated customer demand. Table 13-4 shows that at the beginning of January the only inventory on hand is safety stock.

Before comparing alternative aggregate production plans, it is necessary to convert some of the given data into common values for planning purposes. In this instance it is simplest to convert

the labor costs into a cost per case. A worker earns $3,200 per month in regular wages (160 hours x $20.00 per hour). This equates to a labor cost of $.80/case, since the monthly output per worker is 4,000 cases of soda ($3,200/4,000 cases). The overtime wage rate of $30.00 per hour is times the regular wage, therefore a case of soda produced using overtime has a labor cost of $1.20 per case.

You have been asked to evaluate the labor cost of a level plan, a chase plan, and a hybrid plan in order to make a recommendation to the S&OP team.