Problem -
Southeast Soda Pop, Inc., has a new fruit drink for which it has high hopes. John Mittenthal, the production planner, has assembled the following cost data and demand forecast:
|
QUARTER
|
FORECAST
|
|
1
|
1,800
|
|
2
|
1,100
|
|
3
|
1,600
|
|
4
|
900
|
|
Costs/Other Data
|
|
Previous quarter's output = 1,300 cases
|
|
Beginning inventory = 0 cases
|
|
Stockout cost = $150 per case
|
|
Inventory holding cost = $40 per case at end of quarter
|
|
Hiring employees = $40 per case
|
|
Terminating employees = $80 per case
|
|
Subcontracting cost = $60 per case
|
|
Unit cost on regular time = $30 per case
|
|
Overtime cost = $15 extra per case
|
|
Capacity on regular time = 1,800 cases per quarter
|
John's job is to develop an aggregate plan. The three initial options he wants to evaluate are:
Plan A: a strategy that hires and fi res personnel as necessary to meet the forecast.
Plan B: a level strategy.
Plan C: a level strategy that produces 1,200 cases per quarter and meets the forecast demand with inventory and subcontracting.
a) Which strategy is the lowest-cost plan?
b) If you are John's boss, the VP for operations, which plan do you implement and why?