Forecast

Total( Qtr 1 and

Year Qtr Black Clear Qtr 2)
i 6650 7462 14112
ii 4576 18250 22826
2007
iii 6293 8894 15187
iv 13777 4064 17841
i 7509 8349 15858
ii 5149 20355 25504
2008
iii 7056 9891 16947
iv 15399 4507 19906
i 8367 9235 17602
ii 5721 22461 28182
2009
iii 7819 10889 18708
iv 17021 4950 21971
Total 105337 129307 234644
MAD 608 786 1394

Assumptions
1 Outsourcing cost for extrusion includes procurement cost
Safety stock is stored in factory , hence not inculded while
2
calculting inventory holding costs

Public warehouse charges have been taken as $16/ 1000 pounds

3

Inventory holding cost is calculated for closing stock of extrusion

and thermopressing output
4
Extrusion: Over here , Level strategy-using inventory as the lever has been utilized . Stable machine c
constant output rate has been decided on the basis of the average demand calculated for the 3 years s
extruders required has been calculated and these would be operated at full capacity so as not to incur r

Thermopressing: Level stratgey has been employed for a time horizon of 1 yr atleast. Level strategy h
The production output for any year has been set equal to the output of extrusion. This way layoff and re
in future esp in Qtr 2.

Quarter 1 2 3 4
Opening Stock 0 4561 408 3895
Black + Clear 14112 22826 15187 17841
Safety stock 1394 1394 1394 1394
Production Quantity 18673.2 18673.2 18673.2 18673.2
Closing Stock 4561 408 3895 4727

Total extrusion hours

required 6552 6552 6552 6552
Number of shifts
required 819 819 819 819
Number of extruders
required 13 13 13 13
Total no. of extruders
utlized at full capacity 13 13 13 13
Total output at full
capacity of extruders
utliized 18673.2 18673.2 18673.2 18673.2
Keeping the production level at 18673.2 for year 2007 so as not to incur restarting cos
Outsourcing cost 0 0 0 0

Idle shifts ( out of 882 ) 0 0 0 0

Overtime hours 0 0 0 0
Straight time cost 589680 589680 589680 589680
Over time cost 0 0 0 0
Restarting idle
extruder cost 0 0 0 0
Training cost for new
extruder - - - -
Total Cost 589680 589680 589680 589680

Th
Opening Stock 0 4561.2 408.4 3894.6
Black + Clear 14112 22826 15187 17841
Safety stock 1394 1394 1394 1394
Production Quantity 18673.2 18673.2 18673.2 18673.2
Closing stock 4561.2 408.4 3894.6 4726.8
Total machine hours 9337 9337 9337 9337
Number of shifts 1167.075 1167.075 1167.075 1167.075
Number of
thermopress 18.525 18.525 18.525 18.525
Number of
thermopress 19 19 19 19
Workers laid off 6 0
Workers hired
Overtime hours(max 0 0
1500)
Straight time cost 140049 140049 140049 140049
Layoff cost 15000 0 0 0
Hiring cost 0 0 0 0
Overtime cost
Total Thermopress
cost (B) 155049 140049 140049 140049
Total Cost (Extrusio

T
Cost 9122 817 7789 9454

In

Private lease - 15000

sft 60000 60000 60000 60000
Public WH Balance 0 0 0 0
Tot

Private lease - 12000

sft 48000 48000 48000 48000
Public WH Balance 0 0 0 0
Tot

Private lease - 14000

sft 56000 56000 56000 56000
Public WH Balance 0 0 0 0
Tot

Private lease - 14500

sft 58000 58000 58000 58000
Public WH Balance 0 0 0 0
Tot
Overall Total Cost Scenario A (Extrusion+ T
Overall Total Cost Scenario B (Extrusion+ T
Overall Total Cost Scenario C (Extrusion+ T
Overall Total Cost Scenario D (Extrusion+ T
 CASE A

n utilized . Stable machine capacity and workforce has been maintained with a constant output rate over a time
d calculated for the 3 years separately. The average demand is 17491.5,19553.75,21615.75 respectively. Based
capacity so as not to incur restarting costs.

1 yr atleast. Level strategy has been employed from quarter 2 and in the first quarter the production has been ma
usion. This way layoff and rehiring costs has been minimized to some extent. The extra inventory build up would h

5 6 7 8 9 10
4727 8979 3584 6747 6951 9458
15858 25504 16947 19906 17602 28182
1394 1394 1394 1394 1394 1394
20109.6 20109.6 20109.6 20109.6 20109.6 20109.6
8979 3584 6747 6951 9458 1386

Extrusion

7056 7056 7056 7056 7056 7056

882 882 882 882 882 882

14 14 14 14 14 14

14 14 14 14 14 14

20109.6 20109.6 20109.6 20109.6 20109.6 20109.6

t to incur restarting cost
0 0 0 0 0 0

0 0 0 0 0 0
0 0 0 0 0 0
635040 635040 635040 635040 635040 635040
0 0 0 0 0 0

0 0 0 0 0 0

18000 - - - - -
653040 635040 635040 635040 635040 635040

Thermopressing
4726.8 8978.4 3584 6746.6 6950.2 9457.8
15858 25504 16947 19906 17602 28182
1394 1394 1394 1394 1394 1394
20109.6 20109.6 20109.6 20109.6 20109.6 20109.6
 8978.4 3584 6746.6 6950.2 9457.8 1385.4
10055 10055 10055 10055 10055 10055
1256.85 1256.85 1256.85 1256.85 1256.85 1256.85

19.95 19.95 19.95 19.95 19.95 19.95

20 20 20 20 20 20
0 0
0 0 0

150822 150822 150822 150822 150822 150822

0 0 0 0 0 0
3000 0 0 0 0 0
0 0

153822 150822 150822 150822 150822 150822

Total Cost (Extrusion + Thermoprocess)

Transportation
17958 7169 13494 13901 18916 2772

Inventory cost
Scenario A

60000 60000 60000 60000 60000 60000

44358 0 0 0 58740 0
Total
Scenario B

48000 48000 48000 48000 48000 48000

89358 0 22404 28512 103740 0
Total
Scenario C

56000 56000 56000 56000 56000 56000

59358 0 0 0 73740 0
Total
Scenario D

58000 58000 58000 58000 58000 58000

51858 0 0 0 66240 0
Total
st Scenario A (Extrusion+ Thermoprocess+Transportation+Inventory)
st Scenario B (Extrusion+ Thermoprocess+Transportation+Inventory)
st Scenario C (Extrusion+ Thermoprocess+Transportation+Inventory)
st Scenario D (Extrusion+ Thermoprocess+Transportation+Inventory)
output rate over a time horizon of 1 year atleast. The
5 respectively. Based on this , the minimum no of

oduction has been made equal to the extrusion output.

entory build up would help in fulffilling spikes in demand

11 12 Total
1386 2787
18708 21971
1394 1394
20109.6 20109.6
2787 926 54410

7056 7056

882 882

14 14

14 14

17236.8 17236.8

0 0

0 0
0 0
635040 635040
0 0

0 0

- -
635040 635040 7,457,040

1385.4 2787
18708 21971
1394 1394
20109.6 20109.6
 2787 925.6
10055 10055
1256.85 1256.85

19.95 19.95

20 20
0
0

150822 150822
0 0
0 0

150822 150822 1784772

9,241,812

5575 1852 108,819

60000 60000 720,000

0 0 103,098
823,098

48000 48000 576,000

0 0 244,014
820,014

56000 56000 672,000

0 0 133,098
805,098

58000 58000 696,000

0 0 118,098
814,098
10,173,729
10,170,645
10,155,729
10,164,729
 CASE B
Extrusion: Level strategy has been used, The average demand for the 3 years is 19553.67. Rounding off , the production quant
would exceed the maximum capacity.

Quarter 1 2 3 4 5 6
Opening Stock 0 5488 2262 6675 8434 12176
Black + Clear 14112 22826 15187 17841 15858 25504
Safety stock 1394 1394 1394 1394 1394 1394
Production Quantity 19600 19600 19600 19600 19600 19600
Closing Stock 5488 2262 6675 8434 12176 6272

Extrusion
Total extrusion hours 6877 6877 6877 6877 6877 6877
Number of shifts 860 860 860 860 860 860
Number of extruders 14 14 14 14 14 14
Idle shifts ( out of 882 ) 22 22 22 22 22 22
Overtime hours 0 0 0 0 0 0
Straight time cost 618947 618947 618947 618947 618947 618947
Over time cost 0 0 0 0
Restarting idle extruder
cost 0 3000 3000 3000 3000 3000

Total Extrusion Cost (A) 618,947 621,947 621,947 621,947 621,947 621,947

Thermopressing
Thermopressing: Since the total capacity is 28,200 k lbs, the chase strategy can be followed. For year 1 , this has been done by keeping t
in sync with the demand rate ( although at a higher level to build inventory). For year 2 and 3 , level strategy has been used to prevent hiri

Opening Stock 0 4562 1370 5817 7610 11506

Black + Clear 14112 22826 15187 17841 15858 25504
Safety stock 1394 1394 1394 1394 1394 1394
Production Quantity 18674 19634 19634 19634 19754 19754
Closing stock 4562 1370 5817 7610 11506 5756
Total machine hours 9337 9817 9817 9817 9877 9877
Number of shifts 1167 1227 1227 1227 1235 1235

Number of thermopress 19 19 19 19 20 20

Number of thermopress 19 20 20 20 20 20
Workers laid off 6 0
Workers hired 1 0 0
Overtime hours(max
1500)
Straight time cost 140055 147255 147255 147255 148155 148155
Layoff cost 15000 0 0 0 0 0
Hiring cost 0 3000 0 0 0 0
Overtime cost 0
Total Thermopress cost
(B) 155055 150255 147255 147255 148155 148155

Total Cost (Extrusion + Thermoprocess)

Transportation
Cost 10976 4524 13350 16868 24352 12544

Inventory cost
Scenario A

Private lease - 12500 sft 50000 50000 50000 50000 50000 50000
Public WH Balance 0 0 0 53160 167730 0
Total
Scenario B
Private lease - 15000 sft 60000 60000 60000 60000 60000 60000
Public WH Balance 0 0 0 15660 130230 0
Total
Scenario C

Private lease - 20000 sft 80000 80000 80000 80000 80000 80000
Public WH Balance 0 55230 0 0 0 17700
Total
Overall Total Cost Scenario A (Extrusion+ Thermoprocess+Transportation+In
Overall Total Cost Scenario B (Extrusion+ Thermoprocess+Transportation+In
Overall Total Cost Scenario C (Extrusion+ Thermoprocess+Transportation+In
ASE B
ding off , the production quantitiy has been set to 19600. Chase strategy is not possibly has the demand

7 8 9 10 11 12 Total
6272 8925 8619 10617 2035 2927
16947 19906 17602 28182 18708 21971
1394 1394 1394 1394 1394 1394
19600 19600 19600 19600 19600 19600
8925 8619 10617 2035 2927 556 74986

xtrusion
6877 6877 6877 6877 6877 6877
860 860 860 860 860 860
14 14 14 14 14 14
22 22 22 22 22 22
0 0 0 0 0 0
618947 618947 618947 618947 618947 618947

3000 3000 3000 3000 3000 3000

621,947 621,947 621,947 621,947 621,947 621,947 7,460,368

mopressing
this has been done by keeping the production rate
egy has been used to prevent hiring and firing of workers

5756 8563 8411 10563 2135 3181

16947 19906 17602 28182 18708 21971
1394 1394 1394 1394 1394 1394
 19754 19754 19754 19754 19754 19754
8563 8411 10563 2135 3181 964
9877 9877 9877 9877 9877 9877
1235 1235 1235 1235 1235 1235

20 20 20 20 20 20

20 20 20 20 20 20
0 0 0
0 0 0

148155 148155 148155 148155 148155 148155

0 0 0 0 0 0
0 0 0 0 0 0
0

148155 148155 148155 148155 148155 148155 1,785,060

+ Thermoprocess) 9,245,428

sportation
17850 17238 21234 4070 5854 1112 149,972

ntory cost
cenario A

50000 50000 50000 50000 50000 50000 600,000

74820 67950 130200 0 0 0 493,860
1,093,860
cenario B
 60000 60000 60000 60000 60000 60000 720,000
37320 30450 92700 0 0 0 306,360
1,026,360
cenario C

80000 80000 80000 80000 80000 80000 960,000

0 0 0 824790 0 0 897,720
1,857,720
rmoprocess+Transportation+Inventory) 10489260
rmoprocess+Transportation+Inventory) 10421760
rmoprocess+Transportation+Inventory) 11253120
Extrusion: Level strategy has been used, The average demand for the 3 years is 19553.67. Ro
would exceed the maximum capacity.
Quarter 1 2 3 4
Opening Stock 0 5488 2262 6675
Black + Clear 14112 22826 15187 17841
Safety stock 1394 1394 1394 1394
Production Quantity 19600 19600 19600 19600
Closing Stock 5488 2262 6675 8434

Total extrusion hours 6877 6877 6877 6877

Number of shifts 860 860 860 860
Number of extruders 14 14 14 14
Idle shifts ( out of 882 ) 14 14 14 14
Overtime hours 22 22 22 22
Straight time cost 618947 618947 618947 618947
Over time cost 0 0 0 0
Restarting idle extruder
cost 0 3000 3000 3000
Total Extrusion Cost (A) 618,947 621,947 621,947 621,947

T
Thermopressing: Since the total capacity is 28,200 k lbs, the chase strategy can be followed.

Opening Stock 0 1394 1394 1394

Black + Clear 14112 22826 15187 17841
Safety stock 1394 1394 1394 1394
Production Quantity 15506 22826 15187 17841
Closing stock 1394 1394 1394 1394
Total machine hours 7753 11413 7594 8921
Number of shifts 969 1427 949 1115
Number of thermopress 15 23 15 18
Workers laid off 16 23 15 18
Workers hired 9 8

Overtime hours(max 1500) 7 3

Straight time cost 116295 171195 113903 133808
Layoff cost 22500 0 20000 0
Hiring cost 0 21000 0 9000
Overtime cost
Total Thermopress cost
(B) 138795 192195 133903 142808

Total Cost (Extrus

T
Cost 10976 4524 13350 16868

Private lease - 7500 sqft 30000 30000 30000 30000

Public WH Balance 0 0 8535 34920
T

Private lease - 10000 sft 40000 40000 40000 40000

Public WH Balance 0 0 0 0
T

Private lease - 12000 sft 48000 48000 48000 48000

Public WH Balance 0 0 0 0
T
Overall Total Cost Scenario A (Extrusion
Overall Total Cost Scenario B (Extrusion
Overall Total Cost Scenario C (Extrusion
 CASE C
years is 19553.67. Rounding off , the production quantitiy has been set to 19600. Chase strategy is no

5 6 7 8 9 10
8434 12176 6272 8925 8619 10617
15858 25504 16947 19906 17602 28182
1394 1394 1394 1394 1394 1394
19600 19600 19600 19600 19600 19600
12176 6272 8925 8619 10617 2035

Extrusion
6877 6877 6877 6877 6877 6877
860 860 860 860 860 860
14 14 14 14 14 14
14 14 14 14 14 14
22 22 22 22 22 22
618947 618947 618947 618947 618947 618947

3000 3000 3000 3000 3000 3000

621,947 621,947 621,947 621,947 621,947 621,947

Thermopressing
ategy can be followed. The prodquction quantity is equal to demand foreact for that quarter plus the av

1394 1394 1394 1394 1394 1394

15858 25504 16947 19906 17602 28182
1394 1394 1394 1394 1394 1394
15858 25504 16947 19906 17602 28182
1394 1394 1394 1394 1394 1394
7929 12752 8474 9953 8801 14091
991 1594 1059 1244 1100 1761
16 25 17 20 17 28
16 26 17 20 18 28
2 8 2

9 3 7
118935 191280 127103 149295 132015 211365
5000 0 20000 0 5000 0
0 27000 0 9000 0 21000
3420 33548

123935 221700 147103 158295 137015 265913

Total Cost (Extrusion + Thermoprocess)

Transportation
 24352 12544 17850 17238 21234 4070

Inventory cost
Scenario A
30000 30000 30000 30000 30000 30000
91050 2490 42285 37695 67665 0
Total
Scenario B
40000 40000 40000 40000 40000 40000
53550 0 4785 195 30165 0
Total
Scenario C
48000 48000 48000 48000 48000 48000
23550 0 0 0 165 0
Total
Scenario A (Extrusion+ Thermoprocess+Transportation+Inventory)
Scenario B (Extrusion+ Thermoprocess+Transportation+Inventory)
Scenario C (Extrusion+ Thermoprocess+Transportation+Inventory)
Chase strategy is not possibly has the demand

11 12 Total
2035 2927
18708 21971
1394 1394
19600 19600
2927 556 74986

6877 6877
860 860
14 14
14 14
22 22
618947 618947

3000 3000
621,947 621,947 7,460,368

t quarter plus the average MAD.

1394 1394
18708 21971
1394 1394
18708 21971
1394 1394
9354 10986
1169 1373
19 22
19 22
6

3
140310 164783
15000 0
0 9000

155310 173783 1,990,753

9,451,121
5854 1112 149,972

30000 30000 360,000

0 0 284,640
644,640

40000 40000 480,000

0 0 88,695
568,695

48000 48000 576,000

0 0 23,715
599,715
10245733
10169788
10200808
 Total Cost
Case A Case B Case C
Extrusion 7,457,040 7,460,368 7,460,368
Thermoprocess 1,784,772 1,785,060 1,990,753
Transportation 108,819 149,972 149,972
Warehouse Scenario A 823,098 1,093,860 644,640
Warehouse Scenario B 820,014 1,026,360 568,695
Warehouse Scenario C 805,098 1,857,720 -
Warehouse Scenario D 814,098 - -
Total Cost with Warehouse
10,173,729 10489260 10245733
Scenario A
Total Cost with Warehouse
10,170,645 10421760 10169788
Scenario B
Total Cost with Warehouse
10,155,729 11253120 -
Scenario C
Total Cost with Warehouse Sce 10,164,729 - -

Hence , the option that will be chosen is CASE A. Also, in none of the
cases , outsourcing option has been considered as its rate of $60/1000
pounds is almost double of what is being incurred while producing the
sheets of plastics in the first process.
 Questions
The three-year period. Ideally, the two decisions should be made jointly, as each will affect the other. What factors do you think influence the actio
decisions? For example, do you think that the price the subcontractor charges has any relationship to the amount of private warehousing space to be
Julie also has to decide how to handle any potential error in the demand forecast. How do you recommend she handle these errors

Question 1 Factors Influencing Actions & decisions

Optimal Plant capacity to be made use of.
Optimal labour usages should be ensured
The number of sheets undergoing the thermopressing would depend on the number of sheets being formed in the extrusion process

The subcontracting prices have to taken into consideration for determining the number of sheets produced. Had the subcontracting cha
ANS very low, just in time production could be utilized which would also help in clamping down warehousing costs
Hiring and firing costs and training costs are to be ensured at minimum and change the number of units produced accordingly . Minim
to be targetted to maintain the morale of the workers
Restarting extruders costs too has been considered.
Maximum effective capacity of extrusion has been a restraining factor , also the overtime capacity
Question 2 Relation between subcontracting price and amount of warehousing
The price of subcontracting is used in deciding the quantity can be outsourced thereby helping in determining the total quantity produc
ANS
particular quarter which inturn helps is making decisions on warehousing solution.

Question 3 Handling demand forecasting errors

Buffer stock or safety stock has to be produced in order to cater to the variations caused in the demand
Along with buffer stock, the quantity of sheets produced in the extrusion can be increased which can further be processed via thermopr
matching up to the demand
ANS
Outsourcing can be an option in order to cater to the demand not predicted in the forecasting
Since private ware house is being used in conjunction with public warehouse, if the company decides to ramp up production if the actu
is much higher, the private warehouse can be used for storage as it has unutilized space for most of the quaters
do you think influence the actions and
rivate warehousing space to be leased? ···
nd she handle these errors

med in the extrusion process

ced. Had the subcontracting charges been

costs
s produced accordingly . Minimum layoffs

mining the total quantity produced in the

rther be processed via thermopressing by

ramp up production if the actual demand

quaters