Question
There are two candle manufacturing companies: company 1 and company 2. Both companies face seasonal demand, especially, the demand is high during the last quarter
There are two candle manufacturing companies: company 1 and company 2. Both companies face seasonal demand, especially, the demand is high during the last quarter of a year, i.e., holiday season. To handle the high demand during the holiday season, companies 1 and 2 have different strategies as explained below.
Company 1: Company 1 changes its production capacity throughout the year as follows. To respond to the high demand during the holiday season, company 1 schedules overtime for its workers, and arranges work hours during weekends.
Company 2: Company 2 has fixed production capacity throughout the year. In order to respond to the high demand during the holiday season, company 2 produces more than what is demanded during the low-demand periods and builds up inventory to be used during the holiday season.
- What is the aggregate planning strategy of Company 1? How are the inventory holding and capacity varying costs incurred by Company 1 compare under this strategy? (That is, which one, inventory holding or capacity varying costs incurred are high compared to the other)
- What is the aggregate planning strategy of Company 2? How are the inventory holding and capacity varying costs incurred by Company 2 compare under this strategy? (That is, which one, inventory holding or capacity varying costs incurred are high compared to the other
- Suppose that holding one candle in inventory is very costly because of temperature-controlled storage requirements. Furthermore, hourly overtime wage is relatively low and very close to regular hourly wage in candle manufacturing. Which strategy, Company 1's or Company 2's, is more suitable for candle manufacturing? Why?
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