MSCI432 Lecture Notes - Shortage, Carrying Cost

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Ans. a) smoothing costs are those that result from making changes from one planning period to the next. In aggregate planning, the most disruptive change usually is changing the work force level. Even with fixed work force sizes, however, changes in production levels can also be disruptive: a bottleneck occurs when the capacity of the productive system is insufficient to meet a sudden surge in the demand. Bottlenecks can also occur in a particular part of the productive system due to the breakdown of a key piece of equipment or the shortage of a critical resource: system capacity is related to the idea of bottlenecks. If the horizon is too short, there may be insufficient time to build inventories to meet future demand surges and if it is too long the reliability of the demand forecasts is likely to be low. Ans the primary difficulty would be to properly define an aggregate unit of production.

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