1 of 1 SKF is a leading global technology provider, manufacturing high variety o
ID: 352853 • Letter: 1
Question
1 of 1 SKF is a leading global technology provider, manufacturing high variety of products including shafts. The firm is to plan workforce and production levels of the shafts for the one-year period January to December. Forecast demands over the next 12 months for a plant is shown in the table below 2018 Forecasted Demands Working Days 20 24 18 20 24 26 24 1230 1115 1005 880 650 20 Currently there are 270 workers employed and the ending inventory in December 2017 is 200 units. (end of December), The firm would like to have 450 units at the end of December 2018. C Cost of hiring one worker $300, C Cost of firing one worker $800, C Cost of holding one unit of inventory for one month $25 Number of shafts produced by one worker in one day is 0,27 a) Using the above information calculate the total cost with the level strategy b) Using the above information calculate the total cost with chase strategy c) Compare your results in section a and b, what are your conclusions?Explanation / Answer
(a) Level Strategy -
Annual Demand = sum of all month demand = 10253;
For level strategy; production per month remains same through out;
Total production quantity = Annual Demand - Initial inventory + Balance inventory = 10503
Average monthly production quantity = 10503/12 = 875.25 units;
Total Employee hired and fired over the year is as follows -
No. of employee required = production quantity / (no. of days in month * no of shaft produced by one worker in 1 day)
No. of Employee hired (fired) = current month employee required - last month employee required
Positive value mean - hiring ; negative value - firing
so, total hired employee over the year = 98 ; total employees fired = 205;
Inventory carrying cost is calculated as -
Inventory available = last month inventory + Production quantity - demand for that month
Total Inventory carried = sum of inventory available from Jan - Nov ; as dec month inventory will be cost to jan's inventory cost; = 7143.5;
so total cost = total cost of inventory + total cost of hiring +total cost of firing
= 7143.5* cost of carrying one month inventory + 98 * cost of hiring one employee + 205 * cost of firing one employee
total cost under level strategy = $ 371987.5
(b) Chase Strategy -
For chase strategy production is done as per demand of that month.
So, hiring and firing cost is calculated as -
Production quantity = demand - last month inventory (for first month);
= demand + closing inventory (for Last month)
= demand (rest of the month)
total hired employees = 277 ; total employees fired = 343;
Cost of inventory is calculated as -
since no inventory is carried in chase strategy ; cost = 0
thus total cost = total cost of inventory + total cost of hiring +total cost of firing
= 0 + 277*300 + 343*800 = $357500
total cost under Chase strategy = $ 357500.
(C) Total cost under chase strategy is lower than cost under level strategy.
Thus for this case chase strategy should be deployed.
Month No. of Days in month Production Quantity No of Employees required Employees Hired Employees Fired Jan 22 875.25 148 0 122 Feb 20 875.25 163 15 0 Mar 24 875.25 136 0 27 Apr 22 875.25 148 12 0 May 18 875.25 181 33 0 Jun 20 875.25 163 0 18 Jul 24 875.25 136 0 27 Aug 26 875.25 125 0 11 Sep 24 875.25 136 11 0 Oct 22 875.25 148 12 0 Nov 20 875.25 163 15 0 Dec 20 875.25 163 0 0Related Questions
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