Question

What is aggregate planning? In the sample aggregate planning problem, change "for fudge for the next four months is 120, 150, 100, and 70 pounds," to "130, 150, 110, and 60 pounds." Carry out the rest of the solution, with changed numbers, making sure, you follow the procedure used for "Level Strategy."

The forecasted demand for fudge for the next four months is 120, 150, 100, and 70 pounds.

a. What is the recommended production rate if a level strategy is adopted with no back orders or stock outs? What is the ending inventory for month 4 under this plan?

To ensure no backorders or stock outs, a level production strategy would require producing at peak demand or 150 pounds/month. This would result in an inventory at the end of month 4 of 600 - (120 + 150 + 100 + 70) = 160 pounds. You might also want to ask students the implications of this strategy. Using Equation 13.1 we find

Production Demand Ending Inventory

Month 1 150 units 120 30

Month 2 150 units 150 30

Month 3 150 units 100 80

Month 4 150 units 70 160

Average monthly inventory = 75 units (300/4)

b. What is the level production rate with no ending inventory in month 4?

To ensure no ending inventory, the production rate must be

(120 + 150 + 100 + 70)/4 = 110 pounds/month; however, this would result in backorders or stock outs as shown below:

Production Demand Ending Inventory

Month 1 110 units 120 -10

Month 2 110 units 150 -50

Month 3 110 units 100 -40

Month 4 110 units 70 0

Answer 1

A.

The demand for next four months is 130, 150, 110, and 60 pounds

To ensure no backorders or stock outs, a level production strategy would require producing at peak demand or 150 pounds/month. This would result in an inventory at the end of month 4 of (4 x 150) - (130 + 150 + 110 + 60) = 150 pounds.

Production Demand Ending Inventory

Month 1 150 units 130 150-130            = 20

Month 2 150 units 150 20 + 150 – 150 = 20

Month 3 150 units 110 20 + 150 – 110 = 60

Month 4 150 units 60 60 + 150 – 60 = 150

Average inventory for 4 months = (20 + 20 + 60 + 150)/4 = 250/4 = 62.5 units

b.

To ensure no ending inventory, the total 4 months production should be equal to total 4 months demand. Thus, production rate must be equal to average of 4 months demand.

Production rate = (130 + 150 + 110 + 60)/4 = 112.5 pounds/month. Since, if production rate is not allowed in fraction, produce 112 units for two months and 113 units for another 2 months; however, this would result in backorders or stock outs as shown below:

Production Demand Ending Inventory

Month 1 113 units 130 113-130 = -17

Month 2 113 units 150 -17+113-150 = -54

Month 3 112 units 110 -54+112-110 = -52

Month 4 112 units 60 -52+112-60 = 0