Demand Workers Production Inventory Hired workers
Feb 500 24 600 100 0
March 600 ? ? ? ?
April 800 ? ? ? ?
It costs $100 in materials to produce a unit.
Each worker can produce up to 25 units in a month.
Workers are paid $1500/month salary.
Hiring a new worker costs $500. We cannot fire the workers.
Storing a unit in inventory for a month costs $25.
Setup Prod Net prod Share of
Product Cost/unit Rev/Unit time/batch Avg batch size time/unit time/unit sales
A 15 54 8 50 5.60 5.76 10%
B 7 30 6 150 3.00 3.04 25%
C 9 39 8 100 3.80 3.88 20%
D 12 49 10 50 4.80 5.00 10%
E 9 36 6 100 3.60 3.66 20%
F 13 48 5 75 4.30 4.37 15%
Aggregate 10 40 6.85 98.75 3.915 4.00
Total demand forecast:
Jan 1600.00
Feb 3000.00
Mar 3200.00
Apr 3800.00
May 2200.00
Jun 2200.00
Decision Variables
Time Hired Laid Off Workforce Overtime Inventory Stockout
Now 80 1000 0
Jan 0.00 15.42 64.58 0.00 1983.33 0.00
Feb 0.00 0.00 64.58 0.00 1566.67 0.00
Mar 0.00 0.00 64.58 0.00 950.00 0.00
Apr 0.00 0.00 64.58 0.00 0.00 266.67
May 0.00 0.00 64.58 0.00 116.67 0.00
Jun 0.00 0.00 64.58 0.00 500.00 0.00
Unit Cost 300.00 500.00 640.00 6.00 2.00 5.00
Period Cost
Jan 0.00 7708.33 41333.33 0.00 3966.67 0.00
Feb 0.00 0.00 41333.33 0.00 3133.33 0.00
Mar 0.00 0.00 41333.33 0.00 1900.00 0.00
Apr 0.00 0.00 41333.33 0.00 0.00 1333.33
May 0.00 0.00 41333.33 0.00 233.33 0.00
Jun 0.00 0.00 41333.33 0.00 1000.00 0.00
Total Cost
Hours per Overtime
day 8.00 limit 10.00
Days per
month 20.00 Reg Pay 4.00
Hours to
produce 4.00 OT Pay 6.00
=0 =0 >=0 >=0 >=0
ConstraintWorkforce Inventory Overtime Production Ending
Jan 0.00 0.00 645.83 0.00 =D4-D3-B4+C4
Feb 0.00 0.00 645.83 0.00
Mar 0.00 0.00 645.83 0.00
Apr 0.00 0.00 645.83 0.00
May 0.00 0.00 645.83 0.00
Jun 0.00 0.00 645.83 0.00 0.00
Contract Production Demand
0.00 2583.33 1600.00
0.00 2583.33 3000.00
0.00 2583.33 3200.00
0.00 2583.33 3800.00
0.00 2583.33 2200.00
0.00 2583.33 2200.00
30.00 10.00
0.00 25833.33
0.00 25833.33
0.00 25833.33
0.00 25833.33
0.00 25833.33 MINIMIZE
0.00 25833.33 Grand Total Cost
422275.00
=F4-G4-F3+G3-H4-I4+J4 =D4*$E$20-E4
Decision Variables
Time Hired WorkforceReg Time Overtime Inventory Production Demand
Now 110 0
Apr 0.00 110.00 15000.00 0.00 0.00 6000.00 6000.00
May 15.00 125.00 20000.00 0.00 0.00 8000.00 8000.00
Jun 31.25 156.25 25000.00 0.00 0.00 10000.00 10000.00
Jul 0.00 156.25 25000.00 5000.00 0.00 12000.00 12000.00
Aug 0.00 156.25 25000.00 2500.00 0.00 11000.00 11000.00
Sep 0.00 156.25 22500.00 0.00 0.00 9000.00 9000.00
Unit Cost 5000.00 0.00 40.00 55.00 40.00 0.00
Period Cost
Apr 0.00 0.00 ### 0.00 0.00 0.00
May 75000.00 0.00 ### 0.00 0.00 0.00
Jun ### 0.00 ### 0.00 0.00 0.00
Jul 0.00 0.00 ### ### 0.00 0.00
Aug 0.00 0.00 ### ### 0.00 0.00 MINIMIZE
Sep 0.00 0.00 ### 0.00 0.00 0.00 Grand Total Cost
Total Cost 5943750.00
Hours per
month 160.00
Hours to
produce 2.50
=0 =0 >=0 >=0
ConstraintWorkflow Inventory Reg Time Production
Apr 0.00 0.00 2600.00 0.00 =C4-B4-C3 =F4-F3-G4+H4
May 0.00 0.00 0.00 0.00
Jun 0.00 0.00 0.00 0.00
Jul 0.00 0.00 0.00 0.00
Aug 0.00 0.00 0.00 0.00
Sep 0.00 0.00 2500.00 0.00
=C4*$B$20-D4 =(D4+E4)/$B$21-G4
SM FOAM MANUFACTURING
Density (kg Material cost Revenue per Batch Size
Product Name Product ID per m^3) per m^3 m^3 (m^3)
Super Soft 1000 PS-SS 20.80 $ 4.34 $ 15.00 5000
High Density Economy PS-HD 28.80 $ 7.34 $ 20.60 1500
High Density Performance PF-R 27.00 $ 9.00 $ 21.70 1000
Firm Luxury PF-HQ 48.80 $ 10.00 $ 28.00 800
Forecasted demand
(1000 m^3) using
Month Winter's Model Action Unit cost
1 2400 Hiring $ 1,500.00 per employee
2 3200 Layoff $ 1,000.00 per employee
3 4000 Overtime $ 25.00 per hour
4 4400 Inventory $ 0.20 per m^3 per month
5 3200 Subcontract $ 6.50 per m^3
6 2800 Backorder not available
Questions
1. What kind of aggregate planning strategy is optimal for SM foam manufacturing?
2. The subcontractor is willing to work with you on price. What price do you need to negotiate per m^3 before it is worthwhile
(We will answer question #2 using sensitivity analysis).
Setup time Production time Current
(hours per (hours per 1000 inventory
batch) m^3) Share of sales (m^3)
3.75 13.00 63% 255,000
3.00 18.00 10% 30,000
2.75 11.00 17% 67,000
2.00 17.50 10% 48,000
Labor Data
per employee Current Employees 243
per employee Salary $ 2,450.00 per month
based on 160 work hours per month.
per m^3 per month
m^3 before it is worthwhile to subcontract?
