Question

The Marketing and Operations functions have agreed on the demand for a new lawncare item. They have zero items on hand before April. It costs $5000 to hire someone and $5000 to lay someone off. Ending inventory has a holding cost of $1.00 per unit per month. The company starts with 10 workers on the line. Each worker on the line can produce 3000 of these items per month.

1. Generate an optimal hybrid plan: (5)

Month	April	May	June	July	August
Forecast	30,000	24,000	30,000	45,000	36,000
Workers
Items Produced
End Inventory
Hire/Fire Costs
Inventory Costs

2. Total cost hybrid plan ______________ (2)
   3. If the holding costs were to increase to $1.5 per unit per month, which S&OP strategy will have the lower costs? ________________ (2)
   4. If the job was technically demanding, state two good reasons why a level strategy might be preferred even if the S&OP showed that there may be some dollar savings using a chase strategy. (2)

Answer 1

a.

Use Linear programming to develop a minimum cost hybrid plana as follows:

Month		Apr	May	Jun	Jul	Aug
Forecast		30,000	24,000	30,000	45,000	36,000
Workers	10	10	10	11	12	12
Items Produced		30,000	30,000	33,000	36,000	36,000
End Inventory		0	6,000	9,000	0	0
Hire		0	0	1	1	0
Fire		0	0	0	0	0
Prod + B.I - E.I		30,000	24,000	30,000	45,000	36,000
Inventory Costs		$0	$6,000	$9,000	$0	$0
Hire Costs		$0	$0	$5,000	$5,000	$0
Fire costs		$0	$0	$0	$0	$0
						$25,000

(b)

Total cost hybrid plan = $25,000

(c)

Hybrid plan with 1.5 holding cost

Month		Apr	May	Jun	Jul	Aug
Forecast		30,000	24,000	30,000	45,000	36,000
Workers	10	10	10	11	12	12
Items Produced		30,000	30,000	33,000	36,000	36,000
End Inventory		0	6,000	9,000	0	0
Hire		0	0	1	1	0
Fire		0	0	0	0	0
Prod + B.I - E.I		30,000	24,000	30,000	45,000	36,000
Inventory Costs		$0	$9,000	$13,500	$0	$0
Hire Costs		$0	$0	$5,000	$5,000	$0
Fire costs		$0	$0	$0	$0	$0
						$32,500

This depends on the given alternatives: Which one did you make before the optimal hybrid strategy? Compare with that and answer.

(d)

The two main advantages of Level strategy over a Chase strategy are:

• The level strategy will have minium hire and fire resulting is holding of a skilled worker pool.
• Production consistency will be found in Level strategy due to consistency in skill and learning rate.