Manufacturing Plan to Minimize cost and Maximize Profit

Aggregate Demand and Stockout Costs

The sales department of a manufacturing company projects the following aggregate demand Jan 1500 Feb 1700 Mar 1900 Apr 1900 May 2300 Jun 2300 Jul 1900 Aug 1500 You have been hired as a consultant to help develop a manufacturing plan which will minimize cost (and maximize profit). It is expected that the year will begin with 200 units on hand. Stockout cost of lost sales is $100 per unit, Inventory holding cost is $20 per unit. You my ignore idle time costs You consider the following options Plan A: In any given month vary the workforce to produce the quantity required in the prior month (This would be considered a chase strategy). The December build was 1600 units. The cost of hiring additional workers is $5000 per 100 units, the cost of laying of workers is $7500 per 100 units Plan B: Produce at 1500 per month, which will meet minimum demand. Then use subcontracting at a price premium of $75 per unit to make up any production shortfall Plan C: Keep a stable workforce by maintaining a constant production rate equal to the average monthly demand and allow varying inventory levels Evaluate these plans and provide a report to management with specific recommendations