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The president of Hill Enterprises, Terri Hill, projects the firm’s aggregate demand requirements over the next 8 months as follows:
Jan. 1,400 May 2,200
Feb. 1,600 June 2,200
Mar. 1,800 July 1,800
Her operations manager is considering a new plan, which begins in January with 200 units on hand. Stockout cost of lost sales is $100 per unit. Inventory holding cost is $20 per unit per month. Ignore any idle-time costs. The plan is called plan A.
Plan A: Vary the workforce level to execute a chase strategy by producing the quantity demanded in the prior month. The December demand and rate of production are both 1,600 units per month. The cost of hiring additional workers is $5,000 per 100 units. The cost of laying off workers is $7,500 per 100 units. Evaluate this plan.
What problems can account for this poor acceptance? What is the shape of the trash compactor life cycle?
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If demand is expected to be 80 percent of the current level in five years and management wants to have a capacity cushion of just 4 percent, what capacity requirement should be planned?
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What are the 2s control limits for the third model? Plot the error terms. What is your conclusion about the forecasting model?
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