1. [15 points] What are the three aggregate planning strategies? Briefly explain
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Question
1. [15 points] What are the three aggregate planning strategies? Briefly explain them providing an example for each.
2. [15 points] Explain which aggregate planning strategy is best suitable for the following scenarios:
a. Inventory carrying cost is very high and cost of chancing levels of machines and labor capacities are low.
b. Inventory carrying costs are relatively high, machine capacity is relatively inexpensive, work force cannot be adjusted on short notice.
c. Inventory carrying costs and stock out (backlog) costs are relatively low.
3. [70 points] Vega computers is a subdivision of a major computer manufacturer. Managers of Vega computers is making production plans for the coming year. Customer demand forecast for Vega computers is given in the table below.
Month
Demand
January
60,000
February
40,000
March
45,000
April
50,000
May
60,000
June
60,000
July
65,000
August
75000
September
60,000
October
55,000
November
90,000
December
100,000
Vega computers assembly the parts made by its suppliers in the production process. Production capacity is governed by the number of the employees on the production line. The production capacity operates for 20 days a month, 8 hours each day. To assemble a computer, one employee needs 15 minutes. Hourly wage for assembly line employees is $30. When employees work for overtime, they are paid 50% more than the normal wage. The production facility has 100 employees on the assembly line. Component costs for each computer is $200. Inventory carrying cost per computer per month is $5. Due to the difficulty of finding qualified workers, Vega computers has a no-layoff policy in place. Labor union rules enforce the overtime per employee to 20 hours per month. In the beginning of the next calendar year, the starting inventory will be 5,000 units. At the end of the planning year, Vega computers wants to carry 5,000 units of inventory to the next year.
Using the aggregate planning principles, a Linear Programming model for Vega computer’s production planning has been implemented in Excel. (See the Excel file named LOGM Assignment 04.xlsx). Using the Excel template for production planning, answer following questions.
a. What is the optimum production schedule? What is the annual cost of this schedule? (Assume no stock outs is allowed, no subcontracting, and no new hires). What is the average cost per unit for this production schedule?
b. Is there any value for management to negotiate an increase of allowed overtime per employee per month from 20 hours to 30 hours? Explain your answer with analytical reasoning. (Hint: make the decision based on the cost per unit).
c. If Vega computers has 120 employees, does negotiating an increase in overtime hours important? Explain your answer (with analytical reasoning).
d. Reconsider the original scenario where Vega computers has 100 employees and number of overtime hours per employee is 20 hours. Vega computers has found a third-party contractor who offered to provide the assembled computers for $220 per unit. (This includes the component cost of $200 per unit). Due to the capacity limitations of the contractor, only 10,000 computers can be subcontracted per month. Should Vega computers use the third-party contractor? Provide analytical reasoning for your answer.
e. Reconsider the original scenario where Vega computers has 100 employees and number of overtime hours per employee is 20 hours. Assume that subcontracting is not an option. Vega computers has a team of 50 people who are willing to work as seasonal employees. The cost of bringing them on is $750 per employee and the layoff cost is $1000 per employee. Should Vega computers consider using a temporary workforce? Provide analytical reasoning for your answer.
Month
Demand
January
60,000
February
40,000
March
45,000
April
50,000
May
60,000
June
60,000
July
65,000
August
75000
September
60,000
October
55,000
November
90,000
December
100,000
Explanation / Answer
Answer -1
Aggregate Planning Strategies: It is the planning tool or operational activity for the organization which focuses for the long term goal of the organization along with the success in short term production. Thus it creates the balance between the long term strategic aim and the short term capacity and production managements.
There are three types of aggregate planning strategies along with their examples are as below:
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