EPT 432 Production Management

Laboratory Module

A) Graphical Approaches
A manufacturer of roofing supplies has developed monthly forecasts for family of
products. Data for 6 moth period January to June are presented in Table below, The firm
would like to begin development of an aggregate plan.

Month
January
February
March
April
May
June

Expected
Demand
900
700
800
1200
1500
1100

Production
Days
22
18
21
21
22
20

Solution:

Average requirement =

Total expected demand

Number of production days

There is a few plan can be made:-

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= 6200 = 50 units / day

124

EPT 432 Production Management

Laboratory Module

1st plan is to maintain a constant workforce through out the whole year.
2nd strategy is to maintain a constant workforce at level necessary to meet the lowest
demand and to meet all the balance demand and subcontracting.
Both plan 1 and 2 have a level production, so its called level strategies.
3rd plan is to hire and layoff workers as needed to produce exact monthly requirements
a chase strategy.
Table below provides cost information necessary for analyzing these three alternatives:

Inventory carrying cost

Subcontracting cost per unit
Average per rate
Overtime per rate

$5 per unit / month

$10 / unit
$5 / hour ($40 / day)
$7 / hour (above 8 hours /
day)
1.6 hours per unit
$ 300 / unit

Labor hours to produce a unit

Cost of increasing daily production rate
(hiring and training)
Cost of decreasing daily production rate $ 600 / unit
(layoffs)
(i) Plan 1 - A constant workforce

Assume that 50 units are produced per day and that we have a constant workforce, no
overtime or idle time, no safety stock, and no subcontractors. The firm accumulates
inventory during the slack period of demand, January through March and depletes it
during the higher demand warm season, April through June. Assume beginning inventory
= 0 and planned ending inventory = 0

Solution:

(1) Find the production for 50 units/ day

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EPT 432 Production Management

Laboratory Module

(2) Find the monthly inventory change

(3) Ending inventory

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EPT 432 Production Management

Laboratory Module

Total units of inventory = 1850 units

(4) Find the total of man needed to produce 50 units / day

1 man who worker for 8 hours can produce 5 units. To produce 50 units a days, we need
10 men.
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EPT 432 Production Management

Laboratory Module

(5) Find the total cost for the above figure

Inventory carrying = (1850 units in inventory x $5 per unit) = $9250
Regular time labor = (10 workers x $40 per day x 124 days) = $49600
Other cost (overtime, hiring, layoffs, subcontracting)
=0
Total cost
= $58,850

*Note the significant cost of carrying the inventory

(ii) Plan 2 Subcontractors and constant workforce

Although constant workforce is maintained, it is set low enough to meet demand only in
March, the lowest demand per day month. To produce 38 units per day in house, 7.6
workers are needed. (You can think of this as 7 full time workers and 1 part timer). All
other demand is met by subcontracting. Subcontracting is thus required in every other
month. No inventory holding costs are incurred in plan 2.
Solution:

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EPT 432 Production Management

Laboratory Module

Because 6200 units are required during the aggregate plan period, we must compute how
many can be made by the firm and how must be subcontracted:
(1) Find the in house and subcontract total production

(1) In-House production = 38 units per day x 124 production days

= 4,712 units
(2) Subcontract units
= 6,200 4,712
= 1,488 units

(2) Find the total cost for regular time labor and subcontractor

Regular time labor

Subcontracting

= (7.6 workers x $40 per day x 124 days)

= (1,488 units x $10 per unit)
Total cost

* Note the lower cost of regular labor but the added subcontracting cost

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= $37,696.00
= $ 14,880.00
= $52,576.00

EPT 432 Production Management

Laboratory Module

(iii) Plan 3 Hiring and Firing

This plan involves varying the workforce size by hiring and firing as necessary. The
production rate will equal the demand, and there is no change in production from the
previous month, December
Solution:
Below show the calculations and total cost plan 3. Recall that it costs $600 per unit
produced to reduce production from the previous months daily level and $300 per unit
change to increase the daily rate of production hiring.
Thus, the total cost, including production, hiring, and layoffs for plan 3 is $68, 200
* Note the substantial cost associated with changing (both increasing and decreasing) the
production levels.

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EPT 432 Production Management

Laboratory Module

(iv) Final step in graphical method

The final step in the graphical method is to compare the costs of each proposed plan and
to select the approach with the least total cost. A summary analysis is provided below.
We can see that plan 2 has the lowest cost, it is the best of the 3 options.

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EPT 432 Production Management

Laboratory Module

B) Mathematical Approaches
The transportation method of linear programming is not a trial-and-error method like
graphing but is rather produces an optimal plan for minimizing costs. Example below
shows the supply consists of on hand inventory and units produced by regular time,
overtime and subcontracting.

Farnsworth Tire Co. would like to develop an aggregate plan via the transportation
method. Data that relate to production, demand, capacity and cost at its West Virginia
Plant are shown in the table below:Sales Period
March
April
Demand Capacity:
800
1000
Regular 700
700
Overtime 50
50
Subcontracting 150
150
Beginning Inventory 100 tires

Regular time
Overtime
Subcontract
Carrying cost

May
750
700
50
130

Costs
$40 per tire
$50 per tire
$70 per tire
$2 per tire per month

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EPT 432 Production Management

Laboratory Module

Illustration below showed the structure the transportation table and initial feasible
solution. However, the transportation method is flexible when costs are linear but does
not work when costs are non-linear.

The total cost for the initial solution is $105,900.

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EPT 432 Production Management

Laboratory Module

EXERCISE
1. The president of Hill Enterprise, Terri Hill, projects the firms aggregate demand
requirements over the next 8 months as follows:

January
February
March
April

1400
1600
1800
1800

May
June
July
August

2200
2200
1800
1400

Her operations manager is considering a new plan, which begins in January with 200
units on hand and ends with zero inventories. Stock out cost of lost sales in $100 per
unit. Inventory holding cost is $20 per unit per month. Ignore any idle time costs. The
plan is called plan A.
Plan a: Vary the workforce level to execute a chase strategy by producing the
quantity demand in the prior month. The December demand and rate of production
are both 1,600 units per month. The cost of hiring additional workers is $5000 per
100 units. The cost laying off workers is $7500 per 100 units. Evaluate the plan.

2. Haifa Instruments, an Israeli producer of portable kidney dialysis units and other
medical products, develops a 4 months aggregate plan. Demand and capacity in
units are forecasts as follows:

Capacity
Source
Labor
Regular time
Overtime
Subcontract
Demand

Month 1

Month 2

Month 3

Month 4

235
20
12
255

255
24
15
294

290
26
15
321

300
24
17
301

The cost of producing each dialysis units is $985 on regular time, $1319 on overtime and
$1500 on a subcontract. Inventory carrying cost is $100 per unit per month. There is to be
no beginning or ending inventory in stock and backorders are not permitted. Set up a
production plan that minimizes cost using the transportation method.

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EPT 432 Production Management

Laboratory Module

LAB 2
AGGREGATE PLANNING

Lab Result

SCHOOL / PROGRAMME OF

:___________________________

DATE OF LABORATORY

:___________________________

GROUP MEMBERS NAME

(Reminder: Do not accept your group member to sign if his/her contribution is not satisfy)

1)_______________________________signature:__________

2)_______________________________signature:___________

3)_______________________________signature:__________

Marks:

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