CHAPTER 13: AGGREGATE PLANNING

Teaching Notes
In the earlier chapters, we have looked at certain problems that involve long range planning such as facility location, layout and major equipment purchase decisions. Aggregate planning involves medium range planning. The planning horizon for medium range plans varies from a couple of months to 18 months. A major component of aggregate planning is to plan aggregate production and inventory levels to achieve a desired level of customer service. In preparing the aggregate plan, a major consideration is to check the desired production plan against the estimated capacity. On the other hand, in determining the estimated capacity, we must take into account the expected demand and the resulting medium range production plan. We use the term aggregate plan in lieu of medium range production plan for two reasons: 1. 2. It generally involves the production plan for a group or a family of products (aggregation of products). It aggregates daily or weekly (short-range) demand and the resulting production plan (aggregation of time periods).

Even though the aggregate plan is a function of many different factors, the key factor is the forecasted demand over the length of the medium-range planning horizon. After developing an aggregate plan consistent with the forecasted demand and capacity, it is disaggregated into shorter time periods. The process of disaggregation is the beginning of short range planning using master scheduling and operations scheduling. Both master scheduling and operations scheduling are designed to implement the medium range plan on the shop floor. In determining the aggregate plan, integration and communication between various functions of the firm are vital. Expected changes in the work force levels need to be communicated to the human resources department, while any major equipment purchases, layout changes and capacity additions must involve the approval of the finance department. On the other hand, changes in anticipated inventory levels and especially, expected stockouts must be discussed with the marketing department.

Answers to Discussion and Review Questions

1. Three levels of planning that involve operations managers are: a. Business plan: It establishes production and capacity strategies. b. Production plan: It establishes production capacity and intermediate term aggregate production schedule. c. Master schedule: It establishes schedules for specific products (disaggregation of production plan). 2. The three phases are forecasting demand, aggregate planning, and disaggregating the overall plan. 3. Aggregate planning involves developing a general plan for employment, output, and inventory levels. The goal is to develop a plan which makes efficient use of the resources of an organization. Planners attempt to determine the best way to meet forecasting demand requirements within the constraints imposed by long-term decisions.

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4. The need for aggregate planning is to begin to translate long-term decisions into short-term operating plans. Aggregate planning constitutes the intermediate step in this process. 5. In both manufacturing and service, managers can vary the size of the workforce and subcontract work. Manufacturers have the additional option of varying the size of inventories. 6. The difficulty relates to finding a common unit on which to base aggregate plans when there is a variety of products or services to contend with. 7. a. Maintaining a constant workforce has the advantage of making estimation of labor costs relatively easy, is good for morale, and minimizes hiring and layoff costs. However, inventory carrying costs tend to be high. b. Since labor force has to be continually adjusted, hiring and layoff costs tend to be high. Due to the instability of the labor force, employee morale is low. However, the inventory carrying costs are very low because production is matched with demand, resulting in little or no inventory. c. Varying the workforce can cause morale problems. Moreover, working overtime generally is less productive, increases quality problems, and increases the risk of accidents. 8. Informal techniques are visual, easy to comprehend, and enable planners to compare alternatives. Their chief limitation is that they do not necessarily produce optimum solutions. a. Spreadsheets are intuitively appealing and easy to understand, but solutions are not necessarily optimal. b. Linear Programming (LP): LP approach is a method of obtaining optimal solutions to problems involving allocation of limited resources. The objective of linear programming is either maximization of profit or minimization of cost. In Aggregate Planning, the objective is usually the minimization of costs related to labor time (regular and overtime), inventory carrying, hiring and layoffs. LP is a valid approach if the cost and variable relationships and assumptions are linear and demand can be treated as deterministic. Even for fairly small problems, LP approach requires computerization due to massive data manipulation and calculations. c. Simulation: It is a highly flexible computerized trial-and-error approach that provides testing of the model under different conditions, assumptions or scenarios. It provides a what-if capability to identify possible options to a given aggregate planning problem based on trial-and-error. Simulation requires the use of the computer. Therefore, computer programming and customization of different conditions and scenarios may be time consuming. 10. The master schedule has three inputs: the beginning inventory, forecasts for each period of the schedule, and customer outputs. Its outputs are projected inventory, production requirements, and uncommitted (available-to-promise) inventory.

9.

Taking Stock
1. When we freeze a portion of the master schedule, we make the schedule more stable and reduce the nervousness of the schedule. However, freezing the schedule also leads to inflexibility and reduced customer service because we will not be able to respond to the demands of the customers in a timely fashion.
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2. Purchasing agents, production planning and control manager, planners, schedulers, and marketing personnel need to interface with the master schedule. Purchasing agents, planners and schedulers need direct information from the MPS to order the parts, manage the inventories of the parts and schedule the machines in producing the parts going into the end items master scheduled. The production planning and control manager needs the MPS information to determine capacity needs of the labor, machinery and equipment. Marketing personnel need this information so that they could let their customers know if there is a delay in the completion of an order. In the case of capacity constrained manufacturing, marketing personnel also need to provide the master scheduler with key information as to which orders to delay and which orders are crucial to try to complete on time. 3. The new communication tools made it easier to communicate changes in the master schedule. Therefore, when a change is necessary in the master schedule (addition or a deletion of an order, change in the due date or the quantity of an order), it can be communicated to the master scheduler faster through new communication tools (e-mail, fax, etc.). The master scheduler can take this information, and through the utilization of a computerized production planning and control system, incorporate the changes to the schedule (assuming the changes are feasible). After incorporating the changes and making sure that the MPS is feasible he/she can disseminate the information to the appropriate parties and to the shop floor very quickly so that the manufacturing system can respond to the changes in a timely fashion.

Critical Thinking Exercise

Compared to manufacturing environments, service environments often experience more pronounced variations in demand over shorter time intervals. Moreover, employing inventory as a cushion is not always an option for a service organization. However, services often have a higher degree of flexibility than manufacturing operations, which allows more ability to respond to demand fluctuations with relatively quick changes in capacity. Services are able to make quick adjustments to capacity relatively easily, while changing capacity for a manufacturing firm can be a difficult and more time consuming proposition.

Memo Writing Exercise (included on the DVD)

1. Aggregate Planning is the planning of the overall, general use of resources based on expected demand. It involves determining the levels of production or service for one quarter to 1.5 years into the future. Based on the forecasted demand, capacity levels, current inventory level, size of the workforce, production and service requirements are aggregated into one product or service. Aggregate Planning determines the level of output for a given service or product by managing the capacity using different production strategies. After it is developed, Aggregate Planning is disaggregated into separate products and shorter time periods. An important feature of Aggregate Planning is that the Master Schedule is formed by disaggregating it. In other words, it serves as the basis of the Master Schedule (MRP) and the resulting detailed shop floor schedule. The absence of a clear aggregate plan can cause serious problems in capacity planning, workforce scheduling, customer service and production efficiency. 2. Chase strategy matches production with varying demand rates. This strategy involves either varying the workforce levels or varying the capacity by using either overtime or subcontracting. The primary advantage of using Chase strategy is that inventory carrying cost is minimized. The main disadvantage is the additional cost of changing the workforce level (hiring, layoffs and employee morale) or the cost of overtime/subcontracting.

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Level strategy maintains a constant workforce and constant production. It has the advantage of minimizing hiring and layoff costs and keeping employee morale high. However, inventory carrying costs tend to be high.

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Solutions
1. From example 1. Period Forecast Output Regular Overtime Subcontract OutputForecast Inventory Beginning Ending Average Backlog Costs: Output Regular Overtime Subcontract Inventory Backorder @ 5 Total 1 200 300 2 200 300 3 300 300 4 400 0 5 500 450 6 200 450 Total 1,800 1,800

100 0 100 50 0

100 100 200 150 0

0 200 200 200 0

(400) 200 0 100 200

(50) 0 0 0 250

250 0 0 0 0 500 450

$600 50 0 $650

600 150 0 750 2 200 290 90 90 180 135 0

600 200 0 800 3 300 290 20 10 180 190 185 0

0 100 1,000 1,100 4 400 290 20 (90) 190 100 145 0

900 0 1,250 2,150 5 500 290 20 (190) 100 0 50 90

900 0 0 900 6 200 290 90 0 0 0 0

3,600 500 2,250 6,350 Total 1,800 1,740 60

2. a. (Other plans are possible) Period 1 Forecast 200 Output Regular 290 Overtime OutputForecast 90 Inventory Beginning 0 Ending 90 Average 45 Backlog 0 Costs: Regular @ 2 Overtime @ 3 Inventory @ 1 Backorder @ 5 Total

560 90

$580 0 45 0 $625

580 0 135 0 715

580 60 185 0 825

580 60 145 0 785

580 60 50 450 1,140

580 $3,480 0 180 0 560 0 450 580 4,670

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Solutions (continued) 2. b. (Other plans are possible) Period 1 Forecast 200 Output Regular 290 Subcontract OutputForecast 90 Inventory Beginning 0 Ending 90 Average 45 Backlog 0 Costs: Regular @ 2 Subcontract @ 6 Inventory @ 1 Backorder @ 5 Total 2 3 200 300 290 290 90 (10) 4 400 290 10 5 500 290 50 6 200 290 90 0 0 0 0 Total 1,800 1,740 60

(100) (160) 170 70 120 0 70 0 35 90

90 180 180 170 135 175 0 0

510 90

$580 0 45 0 $625

580 580 0 0 135 175 0 0 715 755

580 60 120 0

580 300 35 450

580 $3,480 0 0 0 360 510 450

760 1,365 580 $4,800

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Solutions (continued) 3. Period Forecast Output Regular Overtime Subcontract OutputForecast Inventory Beginning Ending Average Backlog 1 200 280 0 0 80 0 80 40 0 2 3 200 300 280 280 0 40 0 0 80 20 4 400 280 40 0 (80) 180 100 140 0 5 6 500 200 280 280 40 0 0 0 (180) 100 0 50 80 80 0 0 0 0 Total 1,800 1,680 120 0

80 160 160 180 120 170 0 0

520 80

Costs: Output Regular @ 2 $560 Overtime @ 3 0 Subcontract @ 6 0 Inventory @ 1 40 Backorder @ 5 0 Total 4. Period Forecast Output Regular Subcontract OutputForecast Inventory Beginning Ending Average Backlog 1 200 280 0 80 0 80 40 0 $600

560 560 0 120 0 0 120 170 0 0 680 850 2 200 280 0 80 80 160 120 0 3 300 280 20 0 160 160 160 0

560 120 0 140 0 820 4 400 280 50 (70) 160 90 125 0

560 560 $3,360 120 0 360 0 0 0 50 0 520 400 0 400 1,120 560 $4,640 5 6 500 200 280 280 50 0 (170) 90 0 45 80 80 0 0 0 0 Total 1,800 1,680 120

490 80

Costs: Regular @ 2 $560 Subcontract @ 6 0 Inventory @ 1 40 Backorder @ 5 0 Total $600

560 0 120 0 680

560 120 160 0 840

560 300 125 0 985

560 560 $3,360 300 0 720 45 0 490 400 0 400 1,305 560 $4,970

No. The above plan costs: ($4,970 4,640) = $330 more than the plan in example 2.

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Solutions (continued) 5. a. Period Forecast Output Regular Overtime Subcontract Output - Forecast Inventory Beginning Ending Average Backlog Costs: Output Regular @ 60 Overtime @ 90 Subcontract Inventory @ 5 Backorder Total
1 120 120 0 2 135 130 5 (5) 3 140 130 10 (10) 4 120 120 0 5 125 125 0 6 125 125 0 7 140 130 10 (10) 8 135 130 5 (5) Total 1,040 1,010 30

$7,200 7,800 450

7,800 900

7,200

7,500

7,500

7,800 900

7,800 $60,600 450 2,700

7,200

8,250

8,700

7,200

7,500 5 125 130 5 5 10 7.5

7,500 6 125 130 5 10 15 12.5

8,700 7 140 130 (10) 15 5 10

8,250 $63,300 8 135 130 (5) 5 0 2.5 Total 1,040 1,040

b. Period 1 2 3 4 Forecast 120 135 140 120 Output Regular 130 130 130 130 Overtime Subcontract Output - Forecast 10 (5) (10) 10 Inventory Beginning 0 10 5 0 Ending 10 5 0 5 Average 5 7.5 2.5 2.5 Backlog 5 Costs: Output Regular @ 60 $7,800 7,800 7,800 7,800 Overtime Subcontract @ 50 Inventory @ $2 10 15 5 5 Backorder @ $90 450 Total $7,810 7,815 8,255 7,805

7,800 15 7,815

7,800 25 7,825

7,800 20 7,820

7,800 5 7,805

$62,400 100 450 $62,950

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Solutions (continued) 6. a. Period Forecast Output Regular Overtime Subcontract Output - Forecast Inventory Beginning Ending Average Backlog Costs: Output Regular @ 40 Overtime @ 60 Subcontract Inventory Backorder Total b. Period Forecast Output Regular Overtime Subcontract Output - Forecast Inventory Beginning Ending Average Backlog Costs: Regular Overtime Subcontract Inventory Backorder Total
1 250 250 2 300 275 25 3 250 250 4 300 275 25 5 280 275 5 6 275 275 7 270 250 20 Total 1,850 75

$10,000 11,000 1,500

10,000

11,000 1,500

11,000 300

11,000

10,000 1,200

$74,000 4,500

$10,000 12,500

10,000

12,500

11,300

11,000

11,200

$78,500

1 250 275 25 0 25 12.5 0 11,000 25 11,025

2 300 275 25 25 0 12.5 0 11,000 25 11,025

3 250 275 25 0 25 12.5 0 11,000 25 11,025

4 300 275 25 25 0 12.5 0 11,000 25 11,025

5 280 275 5 0 0 0 0 0 11,000 250 11,250

6 275 275 0 0 0 0 0 11,000

7 270 250 20 0 0 0 0 0 10,000 1,000

Total 1,925 1,900 25

50 0 76,000 0 1,250 100 0 77,350

11,000

11,000

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Solutions (continued) 7. a. Period Forecast Output Regular Overtime Subcontract Output - Forecast Inventory Beginning Ending Average Backlog Costs: Regular Overtime Subcontract Inventory Total b. Period Forecast Output Regular Overtime Subcontract Output - Forecast Inventory Beginning Ending Average Backlog Costs: Regular Overtime Subcontract Inventory Backlog Total No backlogs are allowed Mar. Apr. May 50 44 55
40 8 2 0 0 0 0 0 3,200 960 280 0 4,440 40 8 0 4 0 4 2 0 3,200 960 0 20 4,180 40 8 3 4 4 0 2 0 3,200 960 420 20 4,600 Jun. 60 40 8 12 0 0 0 0 0 3,200 960 1,680 0 5,840 July 50 40 8 2 0 0 0 0 0 3,200 960 280 0 4,440 Aug. 40 40 3 0 3 0 3 1.5 0 3,200 360 0 15 3,575 Sep. 51 40 8 0 3 3 0 1.5 0 3,200 960 0 15 4,175 Total 350 280 51 19

7 0 22,400 6,120 2,660 70 31,250

Level strategy Mar. Apr. 50 44

40 8 2 0 0 0 0 0 3,200 960 280 4,440 40 8 2 6 0 6 3 0 3,200 960 280 30 4,470

May 55 40 8 2 5 6 1 3.5 0 3,200 960 280 35 4,475

Jun. 60 40 8 2 10 1 0 .5 9 3,200 960 280 5 180 4,625

July 50 40 8 2 0 0 0 0 9 3,200 960 280 0 180 4,620

Aug. 40 40 8 2 10 0 1 .5 0 3,200 960 280 5 4,445

Sep. 51 40 8 2 1 1 0 .5 0 3,200 960 280 5 4,445

Total 350 280 56 14

8 18 22,400 6,720 1,960 80 360 31,520

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Solutions (continued) 8. a. Period Forecast Output Regular Overtime Output - Forecast Inventory Beginning Ending Average Backlog Costs: Regular @ 10 Overtime @ 16 Inventory @ 1 Back orders @ 10 Total Level production supplemented with overtime as needed. 1 2 3 4 5 6 Total 4,000 4,800 5,600 7,200 6,400 5,000 33,000
5,000 1,000 1,000 500.0 0 50,000 0 500 0 50,500 5,000 200 5,000 600 5,000 1,600 600 600 0 300.0 0 50,000 25,600 300 0 75,900 5,000 1,400 0 0 0 0.0 0 50,000 22,400 0 0 72,400 5,000 0 0 0 0.0 0 50,000 0 0 0 50,000 30,000 3,000 0

1,000 1,200 1,200 600 1,100.0 900.0 0 0 50,000 0 1,100 0 51,100 50,000 0 900 0 50,900

2,800 0 300,000 48,000 2,800 0 350,800

b. Combination of overtime, inventory and subcontracting to handle variations in demand. Max. overtime = 500, max. subcontracting = 500 units. Period 1 2 3 4 5 6 Total Forecast 4,000 4,800 5,600 7,200 6,400 5,000 33,000 Output Regular 5,000 5,000 5,000 5,000 5,000 5,000 30,000 Overtime 500 500 500 500 500 2,500 Subcontract 500 500 Output - Forecast 1,500 700 100 1,700 400 0 0 Inventory Beginning 1,500 2,200 2,100 400 0 Ending 1,500 2,200 2,100 400 0 0 Average 750.0 1,850.0 2,150.0 1,250.0 200.0 0.0 6,200 Backlog 0 0 0 0 0 0 0 Costs: Regular @ 10 50,000 50,000 50,000 50,000 50,000 50,000 300,000 Overtime @ 16 8,000 8,000 8,000 8,000 8,000 0 40,000 Subcontract @ 20 0 0 0 0 10,000 0 10,000 Inventory @ 1 750 1,850 2,150 1,250 200 0 6,200 Back orders @ 10 0 0 0 0 0 0 0 Total 58,750 59,850 60,150 59,250 68,200 50,000 356,200

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Solutions (continued) c.
Period Forecast Output Regular Overtime Output - Forecast Inventory Beginning Ending Average Backlog Costs: Regular @ 10 Overtime @ 16 Hire/Lay off Inventory @ 1 Back orders @ 10 Total

Overtime up to 750 units per period maximum to handle variations in demand. 1 2 3 4 5 6 Total 4,000 4,800 5,600 7,200 6,400 5,000 33,000
5,000 1,000 1,000 500 0 50,000 0 500 0 50,500 5,000 750 950 1,000 1,950 1,475 0 50,000 12,000 1,475 0 63,475 5,000 750 150 1,950 2,100 2,025 0 50,000 12,000 2,025 0 64,025 5,000 750 1,450 2,100 650 1,375 0 50,000 12,000 1,375 0 63,375 5,000 750 650 650 0 325 0 50,000 12,000 325 0 62,325 5,000 0 0 0 0.0 0 50,000 0 0 0 50,000 30,000 3,000 0

5,700 0 300,000 48,000 0 5,700 0 353,700

We should choose the plan generated in part a because $350,800 < 353,700 < 356,200. 9. Period Forecast Output Regular Overtime Subcontract Output- Forecast Inventory Beginning Ending Average Backlog Costs: Regular Overtime Subcontract Inventory Backlog Total

1 160 150 10 0 0 0 0 0 0 7,500 750 0 0 8,250

2 150 150 10 0 10 0 10 5 0 7,500 750 0 20 0 8,270

3 160 150 0 10 0 10 10 10 0 7,500 0 800 40 0 8,340

4 180 150 10 10 10 10 0 5 0 7,500 750 800 20 0 9,070

5 170 160 10 0 0 0 0 0 0 8,000 750 0 0 9,050

6 140 160 10 0 0 0 0 0 0 8,000 750 0 0 8,750

Total 960 920 50 20

20 0 46,000 3,750 1,600 80 51,430

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Solutions (continued) 10. Plan B: Hire one worker and subcontract. Workforce = 20 + 1 = 21 workers. Period 1 2 3 4 5 6 7 8 9 Forecast 190 230 260 280 210 170 160 260 180 Output Regular 210 210 210 210 210 210 210 210 210 Overtime Subcontract 10 20 20 OutputForecast 30 0 (30) (70) 0 40 50 (50) 30 Inventory Beginning 0 30 30 0 0 0 0 20 0 Ending 30 30 0 0 0 0 20 0 0 Average 15 30 15 0 0 0 10 10 0 Backlog 0 0 0 70 70 30 0 30 0
Costs: Output Regular @ 6 Overtime Subcontract @ 8 Inventory @ 5 Backorder @ 10 Total Total 1,940 1,890 50

80 200

$1,260 80 75 0 $1,415

1,260 160 150 0 1,570

1,260 160 75 0 1,495

1,260 0 0 700 1,960

1,260 0 0 700 1,960

1,260 0 0 300 1,560

1,260 0 50 0 1,310

1,260 0 50 300 1,610

1,260 $11,340 0 $400 0 $400 0 $2,000 1,260 $14,140

The total cost for Plan B is $14,140 plus $200 to hire one additional worker. Total = $14,340. Plan C: No additional workers are to be hired. It is assumed that the present workforce is retained. Only subcontracting is to be used with a maximum of 20 per period. Period 1 2 3 4 5 6 7 8 9 Total Forecast 190 230 260 280 210 170 160 260 180 1,940 Output Regular 200 200 200 200 200 200 200 200 200 1,800 Overtime Subcontract 20 20 20 20 20 20 0 20 0 140 OutputForecast 30 (10) (40) (60) 10 50 40 (40) 20 Inventory Beginning 0 30 20 0 0 0 0 20 0 Ending 30 20 0 0 0 0 20 0 0 Average 15 25 10 0 0 0 10 10 0 70 Backlog 0 0 20 80 70 20 0 20 0 210
Costs: Output Regular @ 6 Overtime Subcontract @ 8 Inventory @ 5 Backorder @ 10 Total

$1,200 160 75 0 $1,435

1,200 160 125 0 1,485

1,200 160 50 200 1,610

1,200 160 0 800 2,160

1,200 160 0 700 2,060

1,200 160 0 200 1,560

1,200 0 50 0 1,250

1,200 160 50 200 1,610

1,200 0 0 0 1,200

$10,800 $1,120 $350 $2,100 $14,370

Plan Total Cost Rank A $14,290 3 B 14,370 2 C 14,370 1 The lowest cost is for Plan A = $14,290.

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Solutions (continued) 11. Assume that the $5 cost per unit for the temporary workers is in addition to $6 per unit for regular time cost. Part-time workers are to be hired to produce at least 170 units. Period 1 2 3 4 5 6 7 8 9 Forecast 190 230 260 280 210 170 160 260 180 Output Regular 200 200 200 200 200 200 200 200 200 Part-Time 50 50 50 Subcontract OutputForecast 10 20 (10) (30) (10) 30 40 (60) 20 Inventory Beginning 0 10 30 20 0 0 10 50 0 Ending 10 30 20 0 0 10 50 0 10 Average 5 20 25 10 0 5 30 25 5 Backlog 0 0 0 10 20 0 0 10 0
Costs: Output Regular @ 6 Part-Time @ 11 Subcontract Inventory @ 5 Backorder @ 10 Total

Total 1,940 1,800 150

125 40

$1,200 25 0 $1,225

1,200 550 100 0 1,850

1,200 550 125 0 1,875

1,200 550 50 100 1,900

1,200 0 200 1,400

1,200 25 0 1,225

1,200 150 0 1,350

1,200 125 100 1,425

1,200 $10,800 $1,650 25 $625 0 $400 1,225 $13,475

20 x 9 = 180 30 x 6 = 180 40 x 5 = 200 50 x 4 = 200 60 x 3 = 180 70 x 3 = 210

The same number of part-time workers must be used in any period where they are used. It is assumed that a worker (part-time) will work for the entire period producing 10 units. With these constraints it is necessary to produce more than 170 units by using part-time workers. Employ 5 temporary workers during periods 2, 3, and 4 with a total cost of $13,475.

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Solutions (continued) 12. Objective here is to minimize backlogs. Period 1 2 3 Forecast 190 230 260 Output Regular 200 200 200 Overtime 25 25 25 Subcontract 0 0 0 OutputForecast 35 (5) (35) Inventory Beginning 0 35 30 Ending 35 30 0 Average 17.5 32.5 15 Backlog 0 0 5

4 280 200 25 0 (55) 0 0 0 60

5 210 200 25 0 15 0 0 0 45

6 170 200 15 0 45 0 0 0 0

7 160 200 0 40 0 40 20 0

8 260 200 0 (60) 40 0 20 20

9 180 200 0 20 0 0 0 0

Total 2,570 2,400 170

252 130

Costs: Output Regular @ 6 $1,200 1,200 1,200 1,200 1,200 1,200 1,200 1,200 1,200 $10,800 Overtime @ 9 225 225 225 225 225 135 0 0 $1,260 Subcontract 0 0 0 0 0 0 0 0 0 Inventory @ 5 87.5 162.5 75 0 0 0 100 100 0 $525 Backorder @ 10 0 0 50 600 450 0 0 200 0 $1,300 Total $1,512.5 1,587.5 1,550 2,025 1,875 1,335 1,300 1,500 1,200 $13,885 If minimization of cost is the primary objective (instead of Min. backlogs), overtime units in period 6 could be reduced to 0. The cost for this plan is $13,885.

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Solutions (continued) 13. Several solutions are possible. Here is one. Period Forecast Output Regular Overtime Subcontract OutputForecast Inventory Beginning Ending Average Backlog 1 190 210 2 230 210 10 20 10 20 30 25 0 3 260 210 25 20 (5) 30 25 27.5 0 4 280 210 25 20 (25) 25 0 12.5 0 5 210 210 6 170 180 7 160 180 20 0 0 0 0 0 10 0 10 5 0 40 10 50 30 0 8 260 180 10 20 (50) 50 0 25 0 9 180 180 Total 1,940 1,770 70 100

20 0 20 10 0

0 0 0 0 0

135

Costs: Output Regular @ 6 $1,260 Overtime @ 9 0 Subcontract @ 8 0 Hiring @ 200 200 Layoff-firing @100 0 Inventory @ 5 50 Backorder @ 10 0 Total 1,510

1,260 90 160 0 0 125 0 1,635

1,260 1,260 225 225 160 160 0 0 0 0 137.5 62.5 0 0 1,782.5 1,707.5

1,260 0 0 0 0 0 0 1,260

1,080 0 0 0 300 25 0 1,405

1,080 0 160 0 0 150 0 1,390

1,080 90 160 0 0 125 0 1,455

1080 0 0 0 0 0 0 1,080

$10,620 $630 $800 $200 $300 $675 $0 $13,225

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Solutions (continued) 14. Period +1 61 81 91 60 80 90 59 79 89 3 2 1 1 1 100 450 0 0 4 4 4 8 8 8 550 2 1 100 450 0 0 5 5 5 10 10 10 550 0 2 0 50 50 30 500 50 20 4 4 4 700 0 2 0 50 50 0 500 50 50 5 5 5 700 1 3 0 0 0 0 0 0 100 500 50 100 750 2 3 0 0 0 30 0 0 70 500 50 100 750 91 Unused Cap 0 90 0 30 0 10 0 90 0 31 0 11 0 1 0 32 0 12 0 2 90 92 4 +90 +30 +10 90 +32 +12 +2 +34 +14 +4 90 Total 100 500 50 120 500 50 120 500 50 100 2,090 Total Cap. 100 500 50 120 500 50 120 500 50 100 2,090

Beg. Inv. Reg. Over. Sub. Reg. Over. Sub. Reg. Over. Sub. Demand

0 60 80 90 63 83 93 66 86 96

1 61 81 91 60 80 90 63 83 93

2 62 82 92 61 81 91 60 80 90

15. Period 21 62 82 92 60 80 90 58 78 88 3 2 1

Beg. Inv. Reg. Over. Sub. Reg. Over. Sub. Reg. Over. Sub. Demand

0 60 80 90 63 83 93 66 86 96

2 62 82 92 60 80 90 63 83 93

4 64 84 94 62 82 92 60 80 90

0 0 0 0 0 0 0 0 0 0

The solution is optimal with a total cost of $124.960.

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Solutions (continued) 16.

Number of sources: 10 1 0 60 80 90 63 83 93 66 86 96 550 2 1 61 81 91 60 80 90 63 83 93 700 Number of destinations: 4 Destinations 3 2 62 82 92 61 81 91 60 80 90 750

Sources

1 2 3 4 5 6 7 8 9 10

4 0 0 0 0 0 0 0 0 0 0 30

Supply 100 500 50 120 500 50 120 440 50 100

Demand Iteration: 3

Total cost: $126,650 1 ( 100 ) ( 450 ) 0 0 4 4 4 8 8 8 2 0 ( 50 ) ( 50 ) ( 90 ) ( 500 ) ( 10 ) 0 4 4 4

Sources

1 2 3 4 5 6 7 8 9 10

Destinations 3 0 0 0 0 0 ( 40 ) ( 120 ) ( 440 ) ( 50 ) ( 100 )

4 90 30 10 ( 30 ) 31 11 1 32 12 2 30

Supply 100 500 50 120 500 50 120 440 50 100

Demand 550 700 750 ( ) = number of units to ship, other entries are reduced costs.

Optimal solution: Iteration: 3 Total shipping cost : $126,650 Ship 100 units from source Ship 450 units from source Ship 50 units from source Ship 50 units from source Ship 90 units from source Ship 500 units from source Ship 30 units from source Ship 40 units from source Ship 120 units from source Ship 440 units from source Ship 50 units from source Ship 100 units from source Ship 10 units from source

1 2 2 3 4 5 4 6 7 8 9 10 6

to dest. to dest. to dest. to dest. to dest. to dest. to dest. to dest. to dest. to dest. to dest. to dest. to dest.

1 1 2 2 2 2 4 3 3 3 3 3 2

Additional cost = $126,650 $124,730 = $1,920

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17.
Problem title: 914 AP Number of sources: 10 1 2 3 4 5 6 7 8 9 10 1 0 60 80 90 63 83 93 66 86 96 550 2 2 62 82 92 60 80 90 63 83 93 700 Number of destinations: 4 Destinations 3 4 64 84 94 62 82 92 60 80 90 750 4 0 0 0 0 0 0 0 0 0 0 30 Supply 100 500 50 120 500 50 120 440 50 100

Sources

Demand Iteration: 3 Total Cost: $127,000 1 2 3 4 5 6 7 8 9 10

Sources

1 ( 100 ) ( 450 ) 0 0 5 5 5 10 10 10

2 0 ( 50 ) ( 50 ) ( 90 ) ( 500 ) ( 10 ) 0 5 5 5

Destinations 3 0 0 0 0 0 ( 40 ) ( 120 ) ( 440 ) ( 50 ) ( 100 )

4 90 30 10 ( 30 ) 32 12 2 34 14 4 30

Supply 100 500 50 120 500 50 120 440 50 100

Demand 550 700 750 ( ) = number of units to ship, other entries are reduced costs.

Optimal solution: Iteration: 3 Total shipping cost: $127,00 Ship 100 units from source Ship 450 units from source Ship 50 units from source Ship 50 units from source Ship 90 units from source Ship 500 units from source Ship 30 units from source Ship 40 units from source Ship 120 units from source Ship 440 units from source Ship 50 units from source Ship 100 units from source Ship 10 units from source Additional cost = $127,000 $126,650 = $350

1 2 2 3 4 5 4 6 7 8 9 10 6

to dest. to dest. to dest. to dest. to dest. to dest. to dest. to dest. to dest. to dest. to dest. to dest. to dest.

1 1 2 2 2 2 4 3 3 3 3 3 2

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Solutions (continued) 18. a. Initially, David should develop one aggregate plan for the next six months in order to determine his output rate, employment levels and changes, inventory levels and changes, back orders, and subcontracting. This will help him to achieve a plan that will more effectively and efficiently utilize the organizations resources to satisfy expected demand. For the first two months though, David will need to disaggregate his plan into a short-run master schedule for each size wheel. Adjustments will be made in the planning process as needs arise over time and the planning horizon gets shorter. b. and c. Nov. Dec. Jan. Feb. Mar. April Forecast 1,500 1,400 900 1,200 1,500 1,700 Output Reg. 1,400 1,400 1,400 1,400 1,400 1,400 Output 17 17 17 17 17 15 Overtime Output Minus (83) 17 517 217 (83) (285) Forecast Inventory 0 0 0 451 668 585 Begin Ending 0 0 451 668 585 300 Average 0 0 225.5 559.5 626.5 442.5 Backlog 83 66 0 0 0 0 Cost Reg. 7,000 7,000 7,000 7,000 7,000 7,000 Overtime 127.50 127.50 127.50 127.50 127.50 112.50 Inventory 0 0 225.50 559.5 626.5 442.5 Backorders $498 396 0 0 0 0 Personnel 800.00 Layoffs Totals $8,425.50 $7,523.50 $7,353.00 $7,687 $7,754 $7,555 Total 8,200 8,400 100 300 300 1,854 149.0 42,000 750 1,854 894 800 $46,298

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Solutions (continued) 19. 64 Forecast Customer Orders Projected on-hand inventory MPS ATP 1 30 33 31 31 June 2 3 30 30 20 71 70 36 10 41 4 30 4 11 5 40 2 41 70 68 71 70 70 31 61 70 70 July 6 7 40 40 8 40

Week

Inventory Net Projected From PreInventories On-Hand vious Wk. Requirements Before MPS (70) MPS Inventory

1 2 3 4 5 6 7 8 20. 64 Forecast Customer Orders Projected on-hand inventory MPS ATP 1 30 33 31 6 June 2 3 30 30 25 1 16 41 70 43

64 31 71 41 11 41 71 31

33 30 30 30 40 40 40 40

31 1 41 11 29 1 31 9 July 6 7 40 40 3 1 31 70 70 61 70 70

70 70 70 70

31 71 41 11 41 71 31 61

4 30 11 11

5 40 8 41 70 59

8 40

Week

Inventory Net Projected From PreInventories On-Hand vious Wk. Requirements Before MPS (70) MPS Inventory

1 2 3 4 5 6 7 8

64 31 1 41 11 41 1 31

33 30 30 30 40 40 40 40

31 1 29 11 29 1 39 9

70 70 70 70

31 1 41 11 41 1 31 61

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Solutions (continued) 21. Forecast Customer Orders Projected on-hand inventory MPS ATP 1 50 52 23 75 23 June 2 3 50 50 35 48 75 40 20 73 75 43 4 50 12 23 48 75 75 73 75 75 23 48 75 75 5 50 July 6 7 50 50 8 50

Week

Inventory Net Projected From PreInventories On-Hand vious Wk. Requirements Before MPS (70) MPS Inventory

1 2 3 4 5 6 7 8 22.

0 23 48 73 23 48 73 23

52 50 50 50 50 50 50 50

52 27 2 23 27 2 23 27

75 75 75 75 75 75

23 48 73 23 48 73 23 48

Starting Inventory = 0 units Period 1 Forecast 50 Customer Orders 52 Projected On-Hand 23 MPS 75 ATP 23 Starting Inventory = 20 units Period 1 Forecast 80 Customer Orders 82 Projected On-Hand 8 MPS 70 ATP 8

2 50 35 48 75 40 2 80 80 -2 70 0

3 50 20 73 75 43 3 60 60 8 70 8

4 50 12 23 0 0 4 60 40 10 62 72 5 60 20 10 60 40

23.

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Case: Eight Glasses a Day

Strategy 1: Level production supplemented by up to 10 tank loads a month from overtime.
Period Forecast Output Regular Overtime Subcontract Output - Forecast Inventory Beginning Ending Average Backlog Costs: Regular @ $10 Overtime @ $16 Inventory Backlog Total May 50 60 10 20 0 20 10 0 600 160 20 0 780 Jun. 60 60 10 10 20 30 25 0 600 160 50 0 810 Jul. 70 60 10 0 30 30 30 0 600 160 60 0 820 Aug. 90 60 10 20 30 10 20 0 600 160 40 0 800 Sep. 80 60 10 10 10 0 5 0 600 160 10 0 770 Oct. 70 60 10 0 0 0 0 0 600 160 0 0 760 Total 420 360 60

90 3,600 960 180 0 4,740

Strategy 2: A combination of overtime, inventory and subcontracting. Period May Jun. Jul. Aug. Sep. Oct. Forecast 50 60 70 90 80 70 Output Regular 60 60 60 60 60 60 Overtime 10 10 10 10 10 Subcontract 10 Output - Forecast 10 10 0 20 0 0 Inventory Beginning 0 10 20 20 0 0 Ending 10 20 20 0 0 0 Average 5 15 20 10 0 0 Backlog 0 0 0 0 0 0 Costs: Regular @ $10 600 600 600 600 600 600 Overtime @ $16 0 160 160 160 160 160 Subcontract @ $18 180 Inventory 10 30 40 20 0 0 Backlog 0 0 0 0 0 0 Total 610 790 800 780 940 760

Total 420 360 50 10

50 0 3,600 800 180 100 0 4,680

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Strategy 3: Using inventory up to 15 tank loads a month from overtime.

Period Forecast Output Regular Overtime Subcontract Output - Forecast Inventory Beginning Ending Average Backlog Costs: Regular @ $10 Overtime @ $16 Subcontract @ $18 Inventory Backlog Total May 50 60 10 0 10 5 0 600 0 10 0 610 Jun. 60 60 5 5 10 15 12.5 0 600 80 25 0 705 Jul. 70 60 15 5 15 20 17.5 0 600 240 35 0 875 Aug. 90 60 15 15 20 5 12.5 0 600 240 25 0 865 Sep. 80 60 15 5 5 0 2.5 0 600 240 5 0 845 Oct. 70 60 10 0 0 0 0 0 600 160 0 0 760 Total 420 360 60

50 0 3,600 960 100 0 4,660

Since $4,660 < $4,680 < $4,740, the company should choose the third strategy.

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