Question: You are a manufacturer of widgets, the demand for which is given below
| Month |
Demand |
| January |
240 |
| February |
270 |
| March |
300 |
| April |
300 |
| May |
400 |
| June |
250 |
| July |
100 |
| August |
100 |
| September |
80 |
| October |
60 |
| November |
80 |
| December |
100 |
An employee can make ten widgets per month, it costs $400 to hire someone, $600 to fire someone, storage costs are $10 per widget per month, and for the level production scenario you will keep exactly as many units of safety stock as are needed. For each scenario, you will start the year with the number of employees you left off with in the prior year using that same strategy.
Determine the costs of a level and a chase scenario per the above assumptions. Which production scheme is better? Why? Next, use a mixed strategy by noticing and taking advantage of a delineation of demand levels in two parts of the year. Use exactly the amount of safety stock needed so as not to encounter a stockout situation (you can use one level of safety stock for the entire year to simplify). Is it better than pure level or chase? If so, why?