Consider the following modifications to the Good and Rich Candy Company example
ID: 454395 • Letter: C
Question
Consider the following modifications to the Good and Rich Candy Company example from class. How would the aggregate planning strategy change in each case provided? Data from class lecture include:
Spring: forecasted demand=80,000
Summer: forecasted demand=50,000
Fall: forecasted demand=120,000
Winter: forecasted demand=150,000
Hiring cost = $100 / worker
Firing cost = $500 / worker
Regular Production Cost = $2 / pound
Inventory carrying cost = $0.50 / pound / quarter
Production per employee = 1,000 pounds / quarter
Beginning work force = 100 workers
Beginning inventory = 0
Cost of level production strategy = $870,000
Cost of chase demand strategy = $835,000
a) Inventory carrying cost is reduced to $0.25 per lb. per quarter. Consider both level production and chase demand strategies. Which planning strategy is best?
b) Inventory carrying costs remain at $0.25 per lb. per quarter. Sales promotions are successful in shifting demand of 25,000 lbs. of candy from Fall to Summer and 20,000 lbs. from Winter to Spring. Which planning strategy is best?
Level Production Strategy
Quarter
Sales
Production
Inventory
Spring
Summer
Fall
Winter
Cost =
Chase Demand Strategy
Quarter
Sales
Production
Workers Needed
Workers Hired
Workers Fired
Spring
Summer
Fall
Winter
Cost =
Level Production Strategy
Quarter
Sales
Production
Inventory
Spring
Summer
Fall
Winter
Explanation / Answer
Since both the strategies cost equal, hence financially noth can be used.
Hence, in this case, Level Production strategy is the best as it costs lower than the Chase Demand strategy.
a) Inventory carrying cost is reduced to $0.25 per lb. per quarter. Carrying Cost 0.25 $/lb/qtr Level Production Strategy: Season Demand no. of labor beg Inv production End inv. No hired no fired hiring cost firing cost production cost carrying cost Spring 80000 100 0 100000 20000 0 0 0 0 200000 5000 Summer 50000 100 20000 100000 70000 0 0 0 0 200000 17500 Fall 120000 100 70000 100000 50000 0 0 0 0 200000 12500 Winter 150000 100 50000 100000 0 0 0 0 0 200000 0 $ - $ - $ 8,00,000 $ 35,000 Avg seasonal production 1,00,000 prod. / employee 1000 hence no of employees needed / season 100 (=100000/1000) Cost of level production strategy = $ 8,35,000 Chase DemandStrategy: Season Demand no. of labor beg Inv production End inv. No hired no fired hiring cost firing cost production cost carrying cost Spring 80000 80 0 80000 0 0 20 0 10000 160000 0 Summer 50000 50 0 50000 0 0 30 0 15000 100000 0 Fall 120000 120 0 120000 0 70 0 7000 0 240000 0 Winter 150000 150 0 150000 0 30 0 3000 0 300000 0 $ 10,000 $ 25,000 $ 8,00,000 $ - Cost of chase demand strategy = $ 8,35,000