Reference no: EM13363363

Operation Management: Best production plan for company selling antifreeze solution

Aggregate Planning Case

A firm produces antifreeze solution in gallons. This product has a very seasonal demand pattern during the year, with higher demand during the winter. Given the following costs and quarterly sales forecasts, the firm needs to develop production plans in order to meet their needs. Click here to view the following table:

Quarter Forecasts (Gallons)
1 80000
2 50000
3 120000
4 150000

The workforce in the company can be adjusted, based on requirements. To hire a worker, it costs the company $100 per person for interviewing and other initiation costs. If they lay off a worker, it costs them $500 per worker for severance compensation and extended health-care-benefits-related costs (COBRA costs). The company started the year with 100 workers. Each employee can produce 1,000 gallons per quarter. There is also a cost for carrying inventory from one quarter to the next. This cost is $0.50 per gallon per quarter.

In order to devise the most efficient production plan based on costs and other factors, the company wants to determine the following:

The average quarterly demand.
The total cost of using a pure level strategy.
The total cost of using a pure chase strategy.

Based on the above, determine the best production plan that the company should adopt when the sole objective is to minimize costs. Then consider other non-cost factors that may be pros or cons for a specific strategy in determining the best production plan for the company. Submit your answer by Tuesday, December 1, 2009 to this Discussion Area.