Problem:
The Shine-on Specialty Lamp Company has made the following quarterly forecast for aggregate specialty lamps requirements for the next four quarters:
Quarter Forecast
1------------ 2900
2------------ 5200
3------------ 3500
4------------ 4400
Each employee currently averages 300 lamps per quarter. To avoid hiring and associated benefit costs, they will authorize each employee to produce up to 30 lamps per quarter on overtime, although they will never authorize using overtime to build inventory. They want to avoid stockouts or backorders at all cost, so if regular work and overtime fail to produce enough, they will hire new workers. Any new hire can also be assumed to be able to work the overtime. Once they do have a new person, they will stop all overtime before they will consider putting anyone on layoff, but have no problem with a layoff if necessary. The current cost to hire a new employee is $2000 and the layoff cost is $1200. If they do use overtime, each lamp will cost an additional $40. If inventory is built up, they will incur a $3 per lamp per quarter inventory cost for each lamp in inventory at the end of the quarter.
Question 1) Develop a modified chase strategy where overtime and inventory can be used, but the approach is to minimize inventory levels. Assume there are currently 10 employees. What is the total extra (inventory, hire/layoff, and overtime) cost of the plan?
Question 2) Now develop a modified level strategy where you can hire (or layoff) at the beginning of the year only. There are to be no backorders, but inventory and overtime is allowed. What is the total additional cost of this plan?
Solve the numerical problem and show step by step calculation.