Question

Management at the Kerby Corporation has determined the following aggregated demand schedule (in units):

1	500
2	800
3	1,000
4	1,400
5	2,000
6	3,000
7	2,700
8	1,500
9	1,400
10	1,500
11	2,000
12	1,200

An employee can produce an average of 10 units per month. Each worker on the payroll costs $2,000 in regular-time wages per month. Undertime is paid at the same rate as regular time. In accordance with the labor contract in force, Kerby Corporation does not work overtime or use subcontracting. Kerby can hire and train a new employee for $2,000 and lay off one for $500. Inventory costs $32 per unit on hand at the end of each month. At present, 140 employees are on the payroll and anticipation inventory is zero.

Prepare a production plan that only uses a level workforce and anticipation inventory as its supply options. Minimize the inventory left over at the end of the year. Layoffs, undertime, vacations, subcontracting, backorders, and stockouts are not options. The plan may call for a one-time adjustment of the workforce before month 1 begins.

a. Prepare a production plan using a chase strategy, relying only on hiring and layoffs.

b. Prepare a mixed-strategy production plan that uses only a level workforce and anticipation inventory through month 7 (an adjustment of the workforce may be made before month 1 begins) then switches to a chase strategy for months 8 through 12.

c. Contrast these three plans on the basis of annual costs from (a) and (b) on the basis of annual costs.

Please use excel if possible and show formulas (formula auditing mode) please.

Answer 1

Aggregate Capacity Planning is a process of organizing and maintaining the overall capacity of inventory and resources to meet the demand. It aims to produce a cost-effective production and maintains a balance between capacity and demand.

Consider the following given data to prepare a production plan for the Company KC as follows:

Average production by an employee = 10 unit per month

Regular-time wages = $ 2,000

Under time wages = $ 2,000

Hiring cost = $ 2,000

Layoff cost = $500

Inventory cost = $ 32 per unit

Number of employees = 140

Anticipated inventory = 0

Formulate production plan of the company without any lay-offs, under time, vacations, subcontracting, back orders and stock outs as shown below:

The output is shown below:

Hence, total cost of the firm would be $4,351,680.

Using the same data but with a chase strategy one gets:

The output is shown below:

Hence, total cost of the firm would be $4,523,000.

c)

Production plan containing a mixed strategy of level strategy with anticipated inventory up to period 7 and chase strategy thereafter is shown below:

The output is shown below:

The total cost for this mixed strategy is $4,457,180.

The level strategy will minimize the fluctuation of the workforce. Since company KC is required to have pay salaries to the workforce even if there is a lack of demand. The chase strategy will try to reduce the inventory cost by keeping the workforce exactly equal to the demand. However, it will cause too much of disruption by creating instability of workforce. Since company KC is paying fixed salary, there is no point in frequent hire and fire.

Therefore, from the cost-effectiveness point of view, the level strategy is preferred with the lowest cost of $4,351,680