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The S&OP team (see Problem 13.9) is considering two more mixed strategies. Using the data in Problem 13.9, compare plans  and  with plans  and  and make a recommendation.

â—† Plan C: Keep the current workforce steady at a level producing 1,300 units per month. Subcontract the remainder to meet demand. Assume that 300 units remaining from June are available in July.

â—† Plan D: Keep the current workforce at a level capable of producing 1,300 units per month. Permit a maximum of 20% overtime at a premium of $40 per unit. Assume that warehouse limitations permit no more than a 180- unit carryover from month to month. This plan means that any time inventories reach 180, the plant is kept idle. Idle time per unit is $60. Any additional needs are subcontracted at a cost of $60 per incremental unit.

Problem 13.9

The S&OP team at Kansas Furniture, has received the following estimates of demand requirements:

a) Assuming one-time stockout costs for lost sales of $100 per unit, inventory carrying costs of $25 per unit per month, and zero beginning and ending inventory, evaluate these two plans on an incremental cost basis:

â—† Plan A: Produce at a steady rate (equal to minimum requirements) of 1,000 units per month and subcontract additional units at a $60 per unit premium cost.

◆ Plan B: Vary the workforce, to produce the prior month’s demand. The firm produced 1,300 units in June. The cost of hiring additional workers is $3,000 per 100 units produced. The cost of layoffs is $6,000 per 100 units cut back.

Note: Both hiring and layoff costs are incurred in the month of the change, (i.e. going from production of 1,300 in July to 1,000 in August requires a layoff (and related costs) of 300 units in August, just as going from production of 1,000 in August to 1,200 in September requires hiring (and related costs) of 200 units in September).

b) Which plan is best and why?

 
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Dwayne Cole, owner of a Florida firm that manufactures display cabinets, develops an 8-month aggregate plan. Demand and capacity (in units) are forecast as follows:

The cost of producing each unit is $1,000 on regular time, $1,300 on overtime, and $1,800 on a subcontract. Inventory carrying cost is $200 per unit per month. There is no beginning or ending inventory in stock, and no backorders are permitted from period to period.

Let the production (workforce) vary by using regular time first, then overtime, and then subcontracting.

a) Set up a production plan that minimizes cost by producing exactly what the demand is each month. This plan allows no backorders or inventory. What is this plan’s cost?

b) Through better planning, regular-time production can be set at exactly the same amount, 275 units, per month. If demand cannot be met there is no cost assigned to shortages and they will not be filled. Does this alter the solution?

c) If overtime costs per unit rise from $1,300 to $1,400, will your answer to (a) change? What if overtime costs then fall to $1,200?

 
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Yu Amy Xia has developed a specialized airtight vacuum bag to extend the freshness of seafood shipped to restaurants. She has put together the following demand cost data:

Yu decides that the initial inventory of 250 units will incur the 20¢/unit cost from each prior quarter (unlike the situation in most other companies, where a 0 unit cost is assigned).

a) Find the optimal plan using the transportation method.

b) What is the cost of the plan?

c) Does any regular time capacity go unused? If so, howmuch in which periods?

d) What is the extent of backordering in units and dollars?

 
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Forrester and Cohen is a small accounting firm, managed by Joseph Cohen since the retirement in December of his partner Brad Forrester. Cohen and his 3 CPAs can together bill 640 hours per month. When Cohen or another accountant bills more than 160 hours per month, he or she gets an additional “overtime” pay of $62.50 for each of the extra hours: this is above and beyond the $5,000 salary each draws during the month. (Cohen draws the same base pay as his employees.) Cohen strongly discourages any CPA from working (billing) more than 240 hours in any given month. The demand for billable hours for the firm over the next 6 months is estimated below:

Cohen has an agreement with Forrester, his former partner, to  help out during the busy tax season, if needed, for an hourly fee of $125. Cohen will not even consider laying off one of his colleagues in the case of a slow economy. He could, however, hire another CPA at the same salary, as business dictates.

a) Develop an aggregate plan for the 6-month period.

b) Compute the cost of Cohen’s plan of using overtime and Forrester.

c) Should the firm remain as is, with a total of 4 CPAs?

 
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