Aggregate Planning

The Waldorf Sport Boat Company has demand forecast for its aluminum fishing
boats under 15 feet for the next 6 months. The forecast is:
Month: January February March April May June
Demand : 250 300 420 560 610 580
There are currently 10 workers assigned to the production line, each capable of
producing approximately 15 boats per month. We assume each month has the
same number of production days. They can hire more worker at hiring and
training costs of taka 400 per worker. If they layoff any workers, the
unemployment cost is taka 1000 per worker. The boats have a standard cost(
labor, material and overhead) of taka 300 per boat. They can use overtime to
produce boats, but a boat produced in overtime adds taka 60 in labor costs, and
each worker can only produce an extra 3 boats per month using. If they keep
any boat in inventory it will cost them taka 6 per boat per month. Failure to
market demand typically will imply customer will buy from other suppliers
and therefore the cost of the company taka 120 in profits.. They recognize this
lost profit ( selling price – standard costs) as a stock out costs. They currently
have no boats in inventory. Using these data, formulate an aggregate plan using
chase, level and Combination strategy.
 APP PROBLEMS
Solution:
Using Chase strategy

Month Demand Workers Regular Over Hire Fire Hiring Firing Regular Over
Required Productio Time Cost Cost Prod. Time
n Prod. taka taka Costs Cost
taka taka
Jan 250 16 240 10 +6 0 2,400 0 75,000 600
Feb 300 20 300 0 +4 0 1,600 0 90,000 0
March 420 28 420 0 +8 0 3,200 0 1,26,000 0
April 560 37 555 5 +9 0 3,600 0 1,68,000 300
May 610 40 600 10 +3 0 1,200 0 1,83,000 600
June 580 38 570 10 0 2 0 2,000 1,74,000 600
12,000 2,000 8,16,000 2,100
 The grand total cost of the plan: 1( Chase strategy) is
12,000+2,000+8,16,000+ 2,100= 8,32,000.00.
Level Strategy
Month Demand Regular Inventory Shortage Hire Fire Hiring/Firi Shortage Regular Inventory
Productio ng Cost Prod. Cost
n(Approx. Cost taka Costs taka
Average) taka taka
Jan 250 450 200 0 20 0 8,000 0 1,35,000 1,200
Feb 300 450 350 0 0 0 0 0 1,35,000 2,100
March 420 450 380 0 0 0 0 0 1,35,000 2,280
April 560 450 270 0 0 0 0 0 1,35,000 1,620
May 610 450 110 0 0 0 0 0 1,35,000 660
June 580 450 0 20 0 0 0 2,400 1,35,000 0
8,000 2,400 8,10,000 7,860
The grand total cost of the plan: 2 ( Level strategy) is = 8,000+
2,400+ 8,10,000 + 7,860= 8,28,260.00
Which is lower by taka 8,32,100 – 8,28,260= taka 3840
over the six months.
• Using Combination strategy
In this alternative we will start with 25 workers- plenty of
workers to meet early year demand and build some
inventory. As demand grows, we will use inventory and
start to authorize overtime. We want to meet all
demand, so eventually we will have to add workers.
Month Demand Regular Inventory Over time Workers Hire/ Hiring/Firi Overtime Regular Inventory
Productio productio Fire ng Cost Prod. Cost
n(Approx. n Cost taka Costs taka
Average) taka taka
Jan 250 375 125 0 25 +15 6000 0 112500 750
Feb 300 375 200 0 25 0 0 0 112500 1200
March 420 375 155 0 25 0 0 0 112500 930
April 560 375 0 30 25 0 0 1800 112500 0
May 610 510 0 100 34 +9 3600 6000 183000 0
June 580 495 0 85 33 -1 1000 5100 174000 0
10600 12900 816000 2880
 The grand total cost of the plan: 3
( Combined strategy) is = 10,600+ 12,900+ 8,16,000 + 2,880=
8,42,380.00.
Problem:2
Manager of ABC Company, a producer of leaf blower engines, must develop an
aggregate plan given the forecast for engine demand Shown below. The
department has a normal capacity 130 engines per month. Normal output has a
costs of taka 60 per engine. The beginning inventory is zero engines. Overtime has
a cost of taka 90 per engine.
a. Develop a chase plan that matches the forecast and compute the total cost of your
plan.
b. Compare the costs to a level plan that uses inventory to absorb fluctuations.
Inventory carrying costs is taka 2 per engine per month.
Month: 1 2 3 4 5 6 7 8 Total
Forecast: 120 135 140 120 125 125 140 135 1040 .
Solution :
Using Chase Strategy:
Month Demand Regular Inventory Over time Overtime Regular Inventory
Productio productio Cost Prod. Cost
n(Approx. n taka Costs taka
Average) taka

1 120 120 0 0 0 7200 0

2 135 130 0 5 450 7800 0
3 140 130 0 10 900 7800 0
4 120 120 0 0 0 7200 0
5 125 125 0 0 0 7500 0
6 125 125 0 0 0 7500 0
7 140 130 0 10 900 7800 0
8 135 130 0 5 450 7800 0
Total 1040 2700 60600 00
Total cost of production in chase plan=
60600+2700+0= Taka 63300.00
Mont Demand Regular Inven Shortage Product Invento Shortage
h Producti tory ion ry costs costs(Taka
on Costs (taka) )
(taka)
1 120 130 10 0 7800 20 0
2 135 130 5 0 7800 10 0
3 140 130 0 5 7800 0 450
4 120 130 5 0 7800 10 0
5 125 130 10 0 7800 20 0
6 125 130 15 0 7800 30 0
7 140 130 5 0 7800 10 0
8 135 130 0 0 7800 0 0
N=8 62400 100 450
Total cost of production in Level plan= 60400+450+100= Taka
60,950.00.
The total cost in level plan is lower by taka (63300-60950)=2350. So it
is better for the firm to follow Level Production Plan.
 Master Production Scheduling(MPS)
Master Production Schedule ( MPS)
Problem:1- A manufacturing plant is in the process of
updating its MPS for its product. The plant produces a product
on a produce-to stock basis. The estimated demand for the
product for the next 6 weeks are given below;
Week: 1 2 3 4 5 6
Required demand: 810 , 1350, 1100, 1000, 610, 1300
The safety stock, minimum lot size and beginning inventory
are 500 units, 2000 units, and 1500 units respectively.
Prepare a Six-week MPS for the product. Assume there is
ample production capacity at the plant.
 Master Production Scheduling for six week period
Particulars Week: 1 Week:2 Week: 3 Week: 4 Week: 5 Week: 6

Gross 810 1350 1100 1000 610 1300

requirements/
Demand
Beginning 1500 690 1340 2240 1240 630
inventory
Required - 2000 2000 - - 2000
production
Ending Inventory 690 1340 2240 1240 630 1330
The plant has to formulate plan to produce @ 2000 units on the 2nd,
3rd, and 6th week.

Material Requirements Planning ( MRP)

Problem: 1
Given the following information, how many units are on hand at the
end of week 9? Which are the weeks in which order maybe placed?
The lot size is 200 units; lead time 2 weeks, Beginning inventory on
hand at the end of period: 110. The requirements for the 1 to 9 week
period are: 90, 10, 140, 55, 5, 15, 115, 95, and 100 respectively.