A given firm has the following demand outlook for the next several months:
# of Work Days
It takes one person 5 hours to make the product, and workdays are 8 hours. You can start with any workforce level for January at no cost. In other words, you may choose your own starting workforce. Workforce changes may only be made at the start of each month. Following additional cost information is available:
Inventory holding cost: $1.50/units/month
Hiring and training cost: $200.00/worker
Layoff cost: $250.00/worker
Regular labor cost: $4.00/hour
Overtime labor cost: $6.00/hour
Undertime labor cost: $4.00/hour
Further, beginning inventory before January is 400 units. We also need to have additional 25% of monthly demand as safety stock every month. For each month, to the extent possible, you should aim to have Ac€A?at leastAc€?? safety stock as your ending inventory. So, for example, your safety stock for January would be 25% of 1800, which is 450, which means that your actual production requirements are Ac€A?demand – beginning inventory + safety stock = 1800-400+450 = 1850Ac€?? products for January.
A] Use the chase strategy to formulate the aggregate production plan. In other words, produce exact monthly production requirements using a regular eight-hour day by varying workforce size. After meeting the safety stock constraint, having undertime is preferable to holding inventory.