The president of Hill Enterprises, Terri Hill, projects the firm’s aggregate demand requirements over the next 8 months as follows:
Jan. 1,400
Feb. 1,600
Mar. 1,800
Apr. 1,800
May 2,200
June 2,200
July 1,800
Aug. 1,800
Her operations manager is considering a new plan, which begins in January with 200 units on hand. Stock out 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.
Note: Both hiring and layoff costs are incurred in the month of the change. For example, the month of the change. For example, going from 1,600 in January to 1,400 in February incurs a cost of layoff for 200 units in February.
Hill is now considering plan C: Keep a stable workforce by maintaining a constant production rate equal to the constant production rate equal to the average requirements and allow varying inventory levels. Beginning inventory, stock out costs, and holding costs are provided in Problem 13.3. Plot the demand with a graph that also shows average requirements. Conduct your analysis for January through August.