A manufacturer of men’s wear needs help planning production for coming year. Demand for the clothing follows a seasonal pattern as shown in Table 2 below. Given the following costs and demand forecasts test these four strategies for meeting forecast demand: (a) level production with overtime and subcontracting, (b) level production with backorders as needed, (c) chase demand and (d) 3000 units in regular production from April through September and as much overtime, and subcontracting production in the other months as needed to meet annual demand. Determine the cost of each strategy. Which strategy would you recommend?
Table 2: Monthly demand forecasts
Month Demand forecast
January 1000
February 500
March 500
April 2000
May 3000
June 4000
July 5000
August 3000
September 1000
October 500
November 500
December 3000
Beginning workforce 8 workers
Subcontracting capacity unlimited
Overtime capacity 2000 units per month
Production rate per worker 250 units/month
Regular wage rate $ 15 per unit
Overtime wage rate $ 25 per unit
Subcontracting cost $ 30 per unit
Hiring cost $ 100 per worker
Firing cost $ 200 per worker
Inventory holding cost $ 0.50 per unit/month
Backordering cost $10 per unit/month