Aggregate varies. The success of this strategy depends

Aggregate Plan – Bradford
Manufacturing Report

 

The goal of this report is to prepare
an aggregate plan for Bradford manufacturing to meet the demand forecast for
the coming year (Q1 – Q4) with possible lowest total cost. Three strategy:
chase strategy (exact production), constant workforce-overtime and level
strategy (vary inventory) are analyzed in this report to addition, each quarter
budget and the total cost is calculated to compare in different strategy
analysis.

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The
forecast demand by quarter (1.000 case unites) for the next year in Branford
Manufacturing, Q1—2,000; Q2—2,200; Q3—2,500; Q4—2,650; and Q1 (next
year)—2,200. These numbers are in 1,000-case units. Each number represents a 13-week
forecast, and the ending inventory target levels for each quarter are: Q1—338;
Q2—385; Q3—408; Q4—338, the working days per quarter is Q1—63; Q2—62; Q3—64;
Q4—60. The planning data are :

Initial
number of employees: 60 employees

Employees
per line: 6     

Standard
production rate (each line)      :  450   Cases
per hour

Employee
pay rate:         $20.00 per hour

Overtime
pay rate: $30.00          per hour

Standard
hours per shift: 7.5      hours

Maximum
overtime per day        : 2        hours

Inventory
carry cost: $1.00         per case per
year 0.25

Backorder
cost: $2.40    

Employee
hiring and training cost:         $5,000.00        per employee

Employee layoff cost:               
$3,000.00         per employee

Also In this production
planning, we make the following assumptions:

·        
Assume
that the total demand must be satisfied (i.e., there is no backorder) at the
end of the coming year.

·        
Assume
also that the ending inventory target level each quarter must be satisfied even
having backorders.

Chase strategy

Chase
strategy is a way to match the production rate to the order rate by hiring and
laying off employees as the order rate varies. The success of this strategy
depends on having a pool of easily trained applicants to draw on as order
volumes increase. Table 1 shows the process and data to analyze the production
planning, including production requirement(demand forecast + ending inventory –
beginning inventory ), production hours required(lines run*6*7.5*working days
per quarter), hiring and training cost, laying off cost, inventory cost,
straight time cost( production hours required * $20) and then the quarter
budget and the total cost. For example the hiring and training cost for the
third quarter is 6*$5,000=$30,000, inventory cost equals ending inventory
*$0.25=$102,000, in this chase strategy, each quarter has the safety stock. The
total cost for this chase strategy is $2,758,850.

 

Table 1 Chase strategy production
planning

Aggregate
plan 1

Production Plan 1:  Exact Production; Vary Workforce

Quarter

1st
(1-13)

2nd
(14-26)

3rd
(27-39)

4th
(40-52)

1st
(nest year)

Beginning
Inventory

200,000

338,000

385,000

408,000

338,000

Ending
inventory

338,000

385,000

408,000

338,000

 

Lines
Run

10

10

10.4=11

10.4=11

 

Production
Requirement

2138,000

2247,000

2523,000

2580,000

Expected
Demand

2000,000

2200,000

2,500,000

2,650,000

Production
Hours Required

28,350

27,900

31,680

29,700

Working
days per quarter

63

62

64

60

 

New workers
hired

0

0

6

0

Hiring
and Training cost

$0

$0

$30,000

$0

Layoff
cost

$0

$0

$0

$0

Straight
time cost

$567,000

$585,000

$633,600

$663,300

Inventory
Cost

$84,500

$96,250

$102,000

84,500

 

Quarter
budget

$575,450

$681,250

$195,360

$747,800

 

Total
cost

$2,758,850

 

Level strategy

Level
stragety works by maintaining a stable workforce working at a constant output
rate, shortage and surplus are absorbed by fluctuating inventory levels, order backlogs,
and lost sales. Table2 shows the data calculation of level strategy. Production
hours available is lines run*6*7.5*working days per month, actual production is
lines run* 450*7.5*working days per quarter, units available before backorder
is actual production+ beginning inventory- demand forecast, backorder is safety
stock- units available before backorder, the total cost for this strategy is
$6,286,000.

 

                                   Table 2 level
strategy aggregate planning

Aggregate Plan 2:  Constant Workforce; Vary Inventory and
Stockout

1st
(1-13)

2nd
(14-26)

3rd
(27-39)

4th
(40-52)

Beginning
Inventory

200,000

360,000

385,000

408,000

Working
Days per quarter

63

62

64

60

Lines
run

10

10

10

10

Production
Hours Available

28,350

27,900

31,680

29,700

Actual
Production

2,126,250

2,092,500

2,160,000

2025,000

Demand
Forecast

2000,000

2200,000

2500,000

2650,000

Ending
Inventory 

360,000

385,000

408,000

338,000

Safety
Stock

338,000

385,000

408,000

338,000

Units
available before backorder

0

252,500

45,000

-217,000

Inventory
Cost

$90,000

 $96,250

$102,000

$84,500

Back
order

0

$318,000

$871,200

$1332,000

Straight Time Cost

 $623,700

$613,800

 $633,600

$594,000

Quarter Budget

$713,700

$1,028,050

$1,606,800

$2,937,000

 

 

 

Total Cost

$6,286,000

 

Constant workforce-over
time strategy

Constant
workforce-variable work hours is a way to meet the expected demand by varying
the number of hours worked through flexible work schedules or overtime. Table 3
shows the necessary data for this strategy to calculate the total cost, units
available before overtime is regular shift production+ beginning inventory-
demand forecast, units produced by overtime is safety stock- units available
before overtime. Over time cost is units (overtime/450)*6* $30, the total cost
is $3647, 930.

 

aggregate
Plan 3:  Constant Workforce; Overtime

1st
(1-13)

2nd
(14-26)

3rd
(27-39)

4th
(40-52)

Beginning Inventory

200,000

360,000

385,000

408,000

Lines run

10

10

10

10

Working Days per Quarter

63

62

64

60

Production Hours Available

28,350

27,900

31,680

29,700

Regular Shift Production

2,126,250

2,092,500

2,160,000

2025,000

Demand Forecast

2000,000

2200,000

2500.000

2650,000

Units Available before Overtime

360,000

353,750

45,000

-217,500

Units Overtime

0

31,250

363,000

555,500

Overtime Cost

$0

 $12,600

$145,260

$222,120

Safety Stock

338,000

385,000

408,000

338,000

Inventory
Cost

$90,000

 $96,250

$102,000

$84,500

Straight
time cost

 $623,700

$613,800

 $633,600

$594,000

Quarter Budget

$713,000

$822,650

$920,860

$900,320

 

 

 

Total cost

$3647,930

 

 

 

 

 

 

 

 

          Conclusion $3647,930

From
the analysis and calculation above, the total cost of three strategies are very
different, especially the level strategy, the total cost is the most, it is
$6,286,000, and the overtime strategy, of which the cost is $3647,930, while
the chase strategy can make an aggregate planning which cost least, it is
$2,758,850. Therefore chase strategy should be applied to prepare an aggregate
plan for Bradford manufacturing to meet the demand forecast for the coming year
(Q1 – Q4) with possible lowest total cost. 

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