Suppose you have been given responsibility for developing the six-month aggregate production plan at Fizzy Galore, a manufacturer of soft drinks. Your company makes three types of soft drinks: regular, diet, and super-caffeinated. Fortunately, all three types are made using the same production process, and the costs related to switching between the three types are so minimal that they can be ignored. Thus, you can treat your problem as an aggregate planning exercise where the planning unit is cases of soft drinks, regardless of what types of drinks they are. The S&OP team has developed a forecast of demand for the first six months of the year as shown in Table. The S&OP team has also provided you with the cost data shown in Table 13-4.
The material cost of a case of soda is the same regardless of whether it is produced in regular time or overtime.
Monthly Demand at Soda Galore
MonthDemand Forecast
January24,000cases
February36,000cases
March32,000cases
April40,000cases
May24,000cases
June84,000cases
Total Demand240,000cases
Average Monthly Demand40,000cases
TABLE Soda Galore Planning Data
Current workforce 8workers
Average monthly output per worker 4,000cases per month
Inventory holding cost$0.60per case per month
Regular wage rate$16per hour
Regular production hours/month/worker 240hours
Overtime wage rate$24.00per hour
Hiring cost$1,000per worker
Subcontracting cost$1.70per case
Firing/layoff cost$1,500per worker
Beginning inventory 7,000(all safety stock)
Assume that employees negotiate an increase in the regular production wage rate to $20 per hour and $30 per hour for overtime. Also assume that Soda Galore always plans to hold at least 7,000 cases of safety stock to meet unanticipated customer demand. Assume that hiring and layoff/firing, if necessary, occur at the beginning of the month.
a. Using the planning information and the newly negotiated wage rates, develop a six-month production plan based on level production.
b. Determine the cost of the level production plan.
c. Using the planning information and the newly negotiated wage rates, develop a six-month production plan based on chase production. For the Overtime or Subcontract Plan, use the lowest monthly demand value to compute the size of the fixed workforce.
d. Determine the cost of the chase production plan.
e. After much internal discussion, the company decides to maintain a permanent workforce of 8 production workers. Given the same planning information and this new requirement, develop a six-month production plan based on hybrid production.
f. Determine the cost of the hybrid production plan. Use the overtime cost.