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Chap009.doc

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Department
Economics
Course
ECON 1540
Professor
George Georgopoulos
Semester
Summer

Description
Chapter 12 - Sales and Operations Planning CHAPTER 12 SALES AND OPERATIONS PLANNING Review and Discussion Questions 1. What is the major difference between aggregate planning in manufacturing and aggregate planning in services? Variable affecting services operations can increase the need for overtime, a costly alternative. Also, services operations often have unique rules concerning the hours an employee may work (e.g., airlines, and trucking). Also intangibility of the product can make the use of MRP difficult. 2. What are the basic controllable variables of a production planning problem? What are the four major costs? Basic controllable variables: production rate, work force levels, and inventories. Major costs: production costs (fixed and variable), production rate change costs, inventory holding costs, and backlog costs. 3. Distinguish between pure and mixed strategies in production planning. Pure strategies use only one variable to absorb demand fluctuations. Mixed strategies involve two or more pure strategies. 4. Define level scheduling. How does it differ from the pure strategies in production planning. A Japanese approach, level scheduling focuses on holding production constant over a period of time. It is more like a combination of strategies in that for the period it keeps work force constant, inventory low and depends on a demand backlog to pull products through. 5. How does forecast accuracy relate, in general, to the practical application of the aggregate planning models discussed in the Chapter? A highly accurate forecast encourages the use of deterministic techniques such as linear programming which in turn permits the development of near optimal plans. Clearly, though, any reduction in uncertainty enhances the likely accuracy of any production planning method. 6. In which way does the time horizon chosen for an aggregate plan determine whether it is the best plan for the firm? Many factors affect the selection of an appropriate time horizon. Perhaps, the most important is what the firm intends to plan during that time period. An aggregate plan implies a period of up to 18 months wherein the firm takes its forecast and plans production using inventory, work force size, overtime and under time, subcontracting, and backlogging orders to achieve a reasonable schedule at reasonable costs. A very stable firm in a very stable environment with a very stable demand really doesn’t need to go out very far with its aggregate plan. However, when there is variation, especially when this variation is considerable, then a longer aggregate 12-1 Chapter 12 - Sales and Operations Planning plan will show the need to find subcontractors, new workforce availability, etc. Planning for these can start early. 7. Review the opening vignette, how does sales and operations planning help resolve product shortage problems? Sales and Operations planning helps reduce shortages by getting all the key players (sales, finance, operations and product development) to work tog ether to help balance supply and demand. When a firm does a good job of sales and operations planning it is less likely to have demand and supply so far out of balance that there is product shortages. The opening vignette shows that better communication between the executives my have averted the problem they are discussing. 8. How would you apply yield management concepts to a barbershop? A soft drink vending machine? The first step would be to determine when peak and off-peak times existed. For the barbershop, lower prices could be given during off-peak times. For example, price discounts could be given during days of the week, or times of the day when demand is low. Another approach would be to offer a discount and an appointment to people that walk-in during peak times, thus transferring them to an off-peak time. Hopefully, lack of capacity would not be a problem for a vending machine, so reallocating peak demand should not be an issue. But, trying to increase usage during non-peak times is difficult because most vending machine can charge only one price. However, new technology could allow the prices to be changed based on time of day, or even the day of the week. Therefore, during off-peak times, a lower price could be charged to stimulate sales. 12-2 Chapter 12 - Sales and Operations Planning Problems 1. Answers will vary, but Production Plan 2 is very difficult to beat in terms of total cost. 2. Forecast Beginnin Productio Productio Productio Overtime Actual Ending Workers Workers g n required n hours n hours hours productio inventor hired laid off inventory required available n y Fall 10000 500 9500 19000 14400 7200 -2300 Winter 8000 -2300 10300 20600 14400 6200 10300 0 Spring 7000 0 7000 14000 14400 7200 200 * Summer 12000 200 11800 23600 14400 11800 0 20 20 Back Overtime Hiring Lay off Inventory Straight Total order time Fall $23,000 $72,000 $95,000 Winter $49,600 $72,000 $121,60 0 Spring $1,000 $72,000 $73,000 Summer $2,000 $4,000 $118,000 $124,00 0 Total $413,60 0 *Workers hired = (23,600-14400)/(8*60) = 19.17 workers 3. Forecast Beginnin Productio Productio Productio OvertimActual Ending Workers Workers g n n hours n hours hours production inventor hired laid off Inventory requiredrequired available y February 80000 0 80000 20000 16000 80000 0 25* March 64000 0 64000 16000 16000 64000 0 25 April 100000 0 100000 25000 16000 5000 84000 -16000 May 40000 -16000 56000 14000 16000 64000 8000 Back Overtime Hiring Lay off Inventory Straight Total order time February $1,250 $200,000 $201,250 March $1,750 $160,000 $161,750 April $320,00 $75,000 $160,000 $555,000 0 May $80000 $160,000 $240,000 Total $1,158,000 *(20,000-16,000)/(8*20) = 25 workers 12-3 Chapter 12 - Sales and Operations Planning 12-4 Chapter 12 - Sales and Operations Planning 4. Forecast Beginning Productio Productio Productio Overtime Actual Ending Workers Workers Inventory n n hours n hours hours production inventor hired laid off required required available y Spring 20000 1000 19000 38000 28000 10000 19000 0 Summer 10000 0 10000 20000 28000 10000 0 20 Fall 15000 0 15000 30000 20000 15000 0 25 Winter 18000 0 18000 36000 30000 15000 -3000 Back Overtime Hiring Lay off Inventory Straight Total order time Spring $150,000 $280,000 $430,000 Summer $4,000 $200,000 $204,000 Fall $2,500 $300,000 $302,500 Winter $24,000 $300,000 $324,000 Total $1,260,500 5. Jan. Feb. March April May June July August Sept. Oct. Nov. Dec. Ave. Forecast 2500 3000 4000 3500 3500 3000 3000 4000 4000 4000 3000 3000 Beginning 500 1250 1500 2000 1750 1750 1500 1500 2000 2000 2000 1500 inventory Production 3250 3250 4500 3250 3500 2750 3000 4500 4000 4000 2500 3000 3458.3 requirements Ending 1250 1500 2000 1750 1750 1500 1500 2000 2000 2000 1500 1500 inventory Total Cost Forecast 2500 3000 4000 3500 3500 3000 3000 4000 4000 4000 3000 3000 40500 Beginning 500 1360 1720 1080 940 800 1160 1520 880 240 -400 -40 inventory Production 3360 3360 3360 3360 3360 3360 3360 3360 3360 3360 3360 3360 40320 $403,200 plan Ending 1360 1720 1080 940 800 1160 1520 880 240 -400 -40 320 inventory Safety stock 1250 1500 2000 1750 1750 1500 1500 2000 2000 2000 1500 1500 Excess 110 220 20 350 $1,750 inventory Back order 400 40 440 $8,800 Total $413,750 Next, try increasing or decreasing the number of workers by one, and recalculate the total cost. A better solution may be found. 12-5 Chapter 12 - Sales and Operations Planning 6. There is more then one solution. January February March April May June Unused Total Capacity Capacity January 30.00 35.00 40.00 45.00 50.00 55.00 RT 0 4000 3800 200 45.00 50.00 55.00 60.00 65.00 70.00 January 0 1200 OT 1200 40.00 30.00 35.00 40.00 45.00 50.00 February 0 4000 RT 3800 200 February 55.00 45.00 50.00 55.00 60.00 65.00 0 1200 OT 600 600 March 50.00 40.00 30.00 50.00 40.00 45.00 RT 4000 0 4000 March 65.00 55.00 45.00 50.00 55.00 60.00 OT 0 1200 1200 April 60.00 50.00 40.00 30.00 35.00 40.00 RT 0 4000 4000 April 75.00 65.00 55.00 45.00 50.00 55.00 0 1200 OT 1200 70.00 60.00 50.00 40.00 30.00 35.00 May 0 4000 RT 200 3800 May 85.00 75.00 65.00 55.00 45.00 50.00 0 1200 OT 1200 June 80.00 70.00 60.00 50.00 40.00 30.00 RT
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