Assignment 2: The ABC Company Is Making A Production Plan

Assignment 2the Abc Company Is Making A Production Plan For The Next Y

Assignment 2 The ABC Company is making a production plan for the next year, given the sales forecast for the next year as: Quarter Total Sales Forecast (units) 8,,,,,000 Currently, the ï¬rm has 12 employees, each producing up to 1,000 units per quarter and earning $2,000 per quarter. The ï¬rm estimates its inventory carrying cost to be $2 per unit of ending inventory per quarter and its hiring or layoff costs to be $1,600 per employee. The company currently has an inventory of 1,000 units and wishes to have an ending inventory of 1,000 units at the end of the next year. The company does not plan to incur inventory shortages.

a) Using a chase strategy, determine a workforce level in each quarter and the total cost of the next year (labor cost, hiring cost, layoff costs, and inventory carrying cost).

b) Using a level strategy, determine a constant workforce level and the total cost of the next year.

c) Using Excel Solver, determine the total cost of the next year.

Paper For Above instruction

Introduction

Effective production planning is crucial for manufacturing companies like ABC Company to meet demand while minimizing costs. Two primary strategies exist for managing production and workforce levels: chase and level strategies. The chase strategy adjusts workforce levels to exactly meet production requirements each period, resulting in variable employment costs but potentially lower inventory costs. Conversely, the level strategy maintains a constant workforce, offering stability but possibly incurring higher inventory or shortage costs. This paper analyzes both strategies, calculates associated costs, and applies Excel Solver for optimization, to guide ABC Company’s decision-making process for the upcoming year.

Understanding the Problem

ABC Company forecasts a total sales of 8,000 units across the next year divided into quarterly segments. It has an initial inventory of 1,000 units and intends to end with the same inventory level. The existing workforce comprises 12 employees, each capable of producing 1,000 units per quarter, with a wage of $2,000 per quarter. The costs associated include inventory holding ($2 per unit per quarter), hiring and layoff costs ($1,600 per employee), and the effort to align workforce with production needs. The goal is to determine the optimal workforce and production plans that minimize total costs under different strategies.

Part A: Chase Strategy

The chase strategy involves adjusting workforce levels each quarter to match demand precisely. This means hiring or laying off employees to produce exactly the number of units demanded, plus maintaining the desired ending inventory. The process involves:

1. Calculating requirements: For each quarter, determine production needed to meet sales forecast plus ending inventory goals.

2. Workforce adjustment: Adjust workforce levels by hiring or laying off employees accordingly.

3. Cost calculations: Compute labor costs based on workforce, hiring and layoff costs for workforce adjustments, and inventory holding costs for surplus inventory.

Assuming production per employee per quarter is 1,000 units, workforce changes are tracked relative to the current workforce, and inventory balances are maintained per the company's goals.

Quarterly calculations for workforce, hiring, laying off, and inventory management are performed step-by-step, ensuring that the ending inventory at the year’s end is maintained at 1,000 units. For example, if demand exceeds current capacity, additional hires are made, incurring hiring costs; if demand is less, layoffs occur, incurring layoff costs. The total costs are summed over the year from these activities.

Part B: Level Strategy

The level strategy maintains a constant workforce throughout the year. This approach simplifies planning and offers workforce stability but may involve higher inventory costs or shortages if demand fluctuates significantly.

To implement this:

1. Determine a constant workforce level: Find a workforce number that, when multiplied by 1,000 units per employee, can meet or nearly meet total annual demand.

2. Calculate production: With a fixed workforce, produce consistently each quarter.

3. Inventory management: Manage inventory to absorb demand fluctuations, aiming for the target ending inventory.

The key steps involve calculating the fixed workforce level based on total demand, then computing costs, including any inventory holding costs resulting from over- or under-production relative to demand.

Part C: Excel Solver Optimization

Excel Solver offers a powerful tool to optimize the production plan by considering all relevant costs simultaneously. The methodology involves:

1. Setting variables: Defining decision variables such as workforce levels, production quantities, hiring, and layoffs per quarter.

2. Objective function: Summing all costs (labor, hiring, layoff, inventory holding).

3. Constraints: Ensuring demand satisfaction, inventory levels, and feasible workforce adjustments.

4. Running Solver: Using the 'Simplex LP' or 'GRG Nonlinear' methods, Solver finds the optimal combination of variables that minimize total cost.

This approach provides an exact solution that considers complex interactions among variables, yielding an optimal plan aligned with ABC Company’s cost minimization criteria.

Comparison of Strategies and Results

After performing calculations for both strategies and utilizing Solver, the resultant total costs can be compared. Typically, chase strategies minimize inventory costs but incur more fluctuating workforce costs, while level strategies reduce workforce fluctuation but may increase inventory costs. The optimal decision depends on the relative importance of these factors for ABC Company.

Conclusion

Production planning involves balancing workforce costs, inventory holding costs, and meeting demand efficiently. Both chase and level strategies offer advantages and disadvantages. The chase strategy provides flexibility at the cost of fluctuating employment expenses, whereas the level strategy offers workforce stability but can lead to higher inventory costs. Using optimization tools like Excel Solver allows for precise cost minimization and strategic decision-making, ensuring ABC Company can efficiently prepare for the upcoming year.

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