You are the director of supply chain planning over at PlushToysInc Corp. and you

Question

You are the director of supply chain planning over at PlushToysInc Corp. and you are tasked with implementing an aggregate planning strategy.

Your CEO meets with you and says it’s time to roll out the newest stuffed animals for the holiday season.

The company recently completed a sales forecast totaling 7,000 units to satisfy customer demand.

You have two options:

Option 1 - make 6,000 stuffed animals with a marketing budget of $600,000. This makes you work under demand and with less inherent risk.

Option 2 – make 7,000 stuffed animals to meet the forecast with a marketing budget of $700,000.

Look at both options and which methods will work best to carry out your directives and why.

Explanation / Answer

Both optionscarry their own advantages and disadvantages:

Option-1: The forecast is of 7000 units, under producing by producing 6000 units will reduce the risk as well as increase the per unit profit margin. However, considering the forecast as accurate, underproducing can create problems in terms of dissatisfied customer that may look for subsitutes and competetors's production in case of demand is not met. This can prove costly.

Option-2: Similarly, in this case, producing what the forecast say is a good strategy, however it will increse the risk as well as cost. The profit margin per unit will also decrease as the marekting costs of the program increased. However, this will lead to a improved customer satisfaction level and fill rate in comparision to the option-1.

I believe that the compaby is using agressive strategy to capture the market, in that case it is recommended that the company should use the option-2. It will provide a better customer satisfaction level, which is quite important in case of products like toys.

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