Reference no: EM132988690

The sales department of a manufacturing company projects the following aggregate demand

Jan 1500

Feb 1700

Mar 1900

Apr 1900

May 2300

Jun 2300

Jul 1900

Aug 1500

You have been hired as a consultant to help develop a manufacturing plan which will minimize cost (and maximize profit). It is expected that the year will begin with 200 units on hand. Stockout cost of lost sales is $100 per unit. Inventory holding cost is $20 per unit. You may ignore idle time costs.

You consider the following options:

Plan A: In any given month vary the workforce to produce the quantity required in the prior month (this would be considered a chase strategy). The December demand and build was 1600 units. The cost of hiring additional workers is $5,000 per 100 units. The cost of laying of workers is $7,500 per 100 units.

Plan B: Produce at 1,500 per month, which will meet minimum demand and use subcontracting at a price premium of $75 per unit to make up any production shortfall.

Plan C: Keep a stable workforce by maintaining a constant production rate equal to the average monthly demand and allow varying inventory levels.

Evaluate these plans and provide a report to management with specific recommendations.