Based on the following information, ¿which of the following aggregates plans is

Question

Based on the following information, ¿which of the following aggregates plans is more economical?

Plan 1: Keep a workforce equal to the smallest month requirement, supplementing with overtime requirements.

Plan 2: Implement a “Chase strategy”.

  

Safety Stock=10% of the Demand Forecast
Costs:
Materials $35.00/unit
Inventory holding cost $1.75 unit/month
Marginal cost of stock out: $6.00
Hiring Costs: $350.00/employee
Layoff Costs: $650.00/employee
Required hours per unit: 1.25/hours
Straight-line cost (first eight hours): $15.00/hour
Overtime cost: $35.00/hour
Initial Inventory: 500 Units

Month Jan Feb Mar Apr May Jun Forecast 1950 1650 1700 1850 1550 1850 Working Days 21 19 21 20 21 22

Explanation / Answer

Strategy one could be implemented. Keeping the workforce to the smallest month requirement. Reasons for this are as below.

Starting from the first month, which has the higher demand, all the other months having only a smaller demand gradually.

The number of working days for the higher demand month is on the higher side. Hence it could be compensated with the smaller number of employees.

The hiring costs and the layoff costs are on the higher side when compared to the overtime cost.

Per employee produces 10 units in 8 hours. By going by the lowest value 1550/(21 days x 10units) = 7.38 ~ 8 employees.

You can effectively manage the show with the 8 employees. If any excess requirement is there it could be done with the over time

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