The president of Hill Enterprises, Terri Hill, projects the firm’s aggregate demand requirements over the next 8 months as follows:
Jan. 1,400 May 2,200
Feb. 1,600 June 2,200
Mar. 1,800 July 1,800
Her operations manager is considering a new plan, which begins in January with 200 units on hand. Stockout cost of lost sales is $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 demanded 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 $5,000 per 100 units. The cost of laying off workers is $7,500 per 100 units. Evaluate this plan.