Question

Sales and Operations Planning You are assigned the task of developing the SOP for your company. The Demand Management module has carried out the forecast and then has already developed the sales plan. The Sales Plan is given below (the numbers are in 1000’s). Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec 300 400 475 575 620 100 100 150 150 250 400 420 Other problem parameters are: Initial worker level = 500, Initial inventory = 100,000, Required ending inventory = 100,000, Cost per unit = $50, one worker can produce 600 units/month Hiring cost = $150 per worker, Firing cost = $300 per worker, Inventory holding cost = 0.5% of item cost/month, Shortage cost = 1% of item cost/month. Develop a Chase plan Develop a Level plan For each plan, calculate the end of month inventory (or shortage) level, monthly hiring and firing schedule and costs, monthly inventory and shortage costs, and the total cost.

Answer 1

In the level plan, the workforce is kept constant whereas in the chase plan the workforce is changed as per the production requirements so that there is no shortage or excess inventory in the system. So, in the level plan, there would be inventory shortage cost and inventory holding cost while in the chase plan there would be hiring and firing cost only.

The data is modelled in the excel as below:

and for chase strategy:

thus the output obtained for total cost, monthly inventory and shortage cost etc. are as displayed in the output below for the level as well as chase strategy plan:

Level Plan:

Chase plan:

Thus we find that the total cost of level plan is less than that of chase plan.