Aggregate Planning

Problem 2

Listing out the known data:

Cost data
Regular-time labor cost per hour	$   10.00
Overtime labor cost per hour	$   15.00
Subcontracting cost per unit (labor only)	$   84.00
Holding cost per unit per period	$   20.00
Back-order cost per unit per period	$   10.00
Hiring cost per employee	$ 600.00
Firing cost per employee	$ 450.00
Capacity data
Beginning workforce	210
Beginning Inventory	400
Labor standard per unit	6
Regular time available per period	160
Overtime available per period	32
Subcontracting maximum per period	1000
Subcontracting minimum per period	500
Demand data
Period 1	6000
Period 2	4800
Period 3	7840
Period 4	5200
Period 5	6560
Period 6	3600
Total Number of periods	6

To develop the aggregate plan:

Choose the kind of aggregate plan. We will use a level plan.

Calculate the aggregate production rate. Since back-orders are not allowed, the period with the highest production rate will determine the aggregate production rate to be used in this plan.

Calculate the workforce size given the aggregate production rate.

The plan is shown below.

Level Aggregate Plan, using inventories but no back orders
Detailed plan computations	Period
	1	2	3	4	5	6	Total
Demand (units)	5600	4800	7840	5200	6560	3600
Cumulative demand (units)	5600	10400	18240	23440	30000	33600
Cumulative demand/periods	5600	5200	6080	5860	6000	5600
Period production (units)	6080	6080	6080	6080	6080	6080	36480
Cumulative production (units)	6080	12160	18240	24320	30400	36480
Cum.Dem. Minus Cum.Prod.	-480	-1760	0	-880	-400	-2880
Ending Inventory (units)	480	1760	0	880	400	2880	6400
Back-orders (units)	0	0	0	0	0	0	0
Compute Level Production Rate and Workforce Needed
Production Rate (units)	6080
Units per Employee per Period	26.67
Employees Needed	228
Number to Hire	18
Number to Fire	0
Cost Calculations for Plan B
Regular-time labor cost	$   2,188,800
Overtime labor cost	$                  –
Inventory holding cost	$         64,000
Back-order cost	$                  –
Hiring cost	$         10,800
Firing cost	$                  –
Total Cost	$   2,263,600

Table 2: Plan 1 – Level Aggregate Plan

• From the above table, Aggregate Production Rate is 6,080
• The workforce required to produce the aggregate production rate (6,080)

Since the production rate per employee during regular time is 20.666 units per period, the requirement for this plan is 228 employees. Therefore, an additional 18 employees are needed.

• If this plan was implemented, there would be an increase in holding costs in the future as the plan creates a high inventory level after the first three periods.

From Table 2, the various costs are:

Regular-time labor cost = $2,188,800

Inventory holding cost = $64,000

Hiring cost = $10,800

Total Cost = $2,263,600

To Evaluate the plan in terms of cost, customer service, operations, and human resources. Develop a second table for comparison.

Level Aggregate Plan, using inventories and back orders
Detailed plan computations	Period
	1	2	3	4	5	6	Total
Demand (units)	5600	4800	7840	5200	6560	3600
Cumulative demand (units)	5600	10400	18240	23440	30000	33600
Cumulative demand/periods	5600	5200	6080	5860	6000	5600
Period production (units)	5600	5600	5600	5600	5600	5600	33600
Cumulative production (units)	5600	11200	16800	22400	28000	33600
Cum.Dem. Minus Cum.Prod.	0	-800	1440	1040	2000	0
Ending Inventory (units)	0	800	0	0	0	0	800
Back-orders (units)	0	0	1440	1040	2000	0	4480
Compute Level Production Rate and Workforce Needed
Production Rate (units)	5600
Units per Employee per Period	26.67
Employees Needed	210
Number to Hire	0
Number to Fire	0
Cost Calculations for Plan B
Regular-time labor cost	$   2,016,000
Overtime labor cost	$                  –
Inventory holding cost	$         8,000
Back-order cost	$         89,600
Hiring cost	$                 –
Firing cost	$                  –
Total Cost	$   2,113,600

Table 3. Plan 2 – Aggregate Level Plan

Comparing the two plans:

1. There is a decrease in total cost for the second plan compared to the first plan, $2,113,600 compared to $2,263,600.
2. The amount of production plan units for the second plan has also reduced from 36,480 units to 33,600 units. This would signify an increased
3. The unit cost for the two plans compare as follows:

Unit cost for plan 1=2,263,600/36,480=62.05
Unit cost for plan 2=2,113,600/33,600=62.90

The unit cost for plan 1 is lower, with a better customer service score as there are no back orders.

Aggregate Planning Worksheet For Attached Tables

References

Reid, R. D., & Sanders, N. R. (2016). Operations Management, Binder Ready Version: An Integrated Approach. John Wiley & Sons.

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[u08a2] Unit 8 Assignment 2 Aggregate Planning

Complete problem 2 on page 511 of your textbook. For help on how to complete this problem, see the Solved Problems on pages 504–510.

When completed, submit your answers as an attachment in the assignment area. Be sure to include your work with the answer.

Resources

Aggregate Planning Scoring Guide

• Due Date:Unit 8
  Percentage of Course Grade: 2%.

CRITERIA	DISTINGUISHED
Accurately solves all computation aspects of the aggregate planning problem. 50%	Accurately solves all computation aspects of the problem and shows work.
Provides summary, and/or rationale useful in interpreting the aggregate planning results. 50%	Accurately summarizes salient points with supporting rationale for interpreting results.