26) What is the difference between a chase strategy and a level strategy in sales and operations planning?
27) What is a mixed-strategy approach to sales and operations planning?
10.4 Spreadsheets for Sales and Operations Planning
1) The spreadsheet approach to sales and operations planning for a services provider includes inventory
costs as one factor to be considered.
Table 10.1
Bart Incorporated manufactures rotary air fans and uses a production-planning horizon of one-half year.
It allows for regular time, part time, overtime, and subcontracting production to meet the demand but no
more than 12 units may be made by each of these methods. Both anticipation inventory and backorders
are allowed. The beginning (or current) inventory is 20 units. Their first attempt at a sales and operations
plan has resulted in the following.
1
2
3
4
5
6
Total
Inputs
Forecasted demand
100
125
120
80
75
70
570
Workforce Level
80
80
80
80
80
80
480
Part Time
12
12
12
12
12
12
72
Overtime
0
0
0
0
0
0
0
Subcontract
0
0
0
0
0
0
0
Derived
Beginning
inventory
20
12
0
0
0
0
Ending inventory
12
0
0
0
0
2
Backlog
0
21
49
37
20
0
127
Calculated
Workforce level $5
400
400
400
400
400
400
$2,400
Part Time $6
72
72
72
72
72
72
$432
Overtime $7.5
0
0
0
0
0
0
$0
Subcontract $8
0
0
0
0
0
0
$0
Inventory holding
$5
80
30
0
0
0
5
$115
Back orders $20
0
420
980
740
400
0
$2,540
Total
$552
$922
$1,452
$1,212
$872
$477
$5,487
2) Use the information in Table 10.1. According to the production plan, what will be the total ending
inventory in the second month after the second month’s demand is satisfied?
A) -21 units
B) 0 units
C) 21 units
D) This cannot be determined from the information provided.
3) Use the information in Table 10.1. If the firm is committed to the regular production and overtime
production as shown, what level of anticipation inventory would be needed at the start of the first month
to result in an ending inventory of zero after month 6?
A) 9 or fewer units
B) 10 units to 17 units
C) 18 units to 25 units
D) 25 units to 32 units
4) Use the information in Table 10.1. According to the production plan, what is the unused overtime
capacity in the fourth period?
A) 0
B) 4
C) 9
D) 12
5) Use the information in Table 10.1. Which of these changes would result in the greatest improvement (in
terms of total cost) for the production plan?
A) Increase anticipation inventory to 30 units at the start of the first month.
B) Reduce anticipation inventory to 18 units at the start of the first month.
C) Increase anticipation inventory to 40 units at the start of the first month.
D) Reduce anticipation inventory to 10 units at the start of the first month.
6) Use the information in Table 10.1. Which of these changes would result in the greatest improvement (in
terms of total cost) for the production plan?
A) Produce an additional 12 units using overtime in the first month.
B) Produce an additional 12 units using subcontracting in the second month.
C) Produce an additional 12 units using overtime in the third month.
D) Produce an additional 12 units using subcontracting in the fourth month.
7) Use the information in Table 10.1. Which of these changes would result in the greatest improvement (in
terms of total cost) for the production plan?
A) Increase anticipation inventory to 30 units at the start of the first month.
B) Produce an additional 12 units using subcontracting in the second month.
C) Produce an additional 12 units using overtime in the second and third months.
D) Reduce anticipation inventory to zero units at the start of the first month.
8) Use the information in Table 10.1. If anticipation inventory is increased to 30 units at the start of the
first month, what is the inventory holding cost over the entire planning period?
A) $115
B) $145
C) $185
D) $215
9) Use the information in Table 10.1. Which one of these trade-offs works to your greatest advantage in
terms of reducing costs over the entire planning period?
A) Produce units using part-time workers instead of regular-time workers.
B) Begin with a larger anticipation inventory to avoid backorders completely.
C) Use no overtime, subcontracting, or part time in favor of a level regular–capacity plan.
D) Begin the planning period with 570 units of anticipation inventory and produce nothing in the
planning period.
10) Use the information in Table 10.1. If anticipation inventory were 30 units at the start of the first
month, what would the backorder cost be in the fourth month?
A) $840
B) $740
C) $640
D) $540
11) Use the information in Table 10.1. What would be the total plan cost if no more than five units each
could be made each month by part-time, overtime, and subcontracted workers?
A) $4,920
B) $4,822
C) $4,775
D) $4,550
Table 10.2
Archie Toys is a retailer operating out of Wichita, Kansas. It experiences a seasonal demand pattern for its
services. Labor requirements over a typical six-month period follow. The workforce requirements
(expressed as number of employees) are given in the following table for the next six periods.
Costs associated with operations are as follows:
Wages = $800 per worker per month
Hiring cost = $300 per worker
Layoff cost = $200 per worker
The current workforce level is nine workers, and the undertime is paid for. Use the spreadsheet approach
and the preceding data to answer the following questions.
12) Use the information in Table 10.2. The total cost of the staffing plan, including the cost of regular
wages, hiring, and layoffs using a chase strategy with hiring and layoffs but no overtime, is:
A) less than or equal to $42,000.
B) greater than $42,000 but less than or equal to $43,000.
C) greater than $43,000 but less than or equal to $44,000.
D) greater than $44,000.
13) Use the information in Table 10.2. The total cost of the staffing plan, including the cost of regular
wages, hiring, and layoffs, using a level strategy in which no overtime is allowed and the undertime paid
for, is:
A) less than or equal to $60,000.
B) greater than $60,000 but less than or equal to $65,000.
C) greater than $65,000 but less than or equal to $70,000.
D) greater than $70,000.
14) Use the information in Table 10.2. Suppose that overtime is allowed up to 25% of the regular-time
capacity, and that overtime wages are 150% of the regular-time rate. The total cost of the level strategy
with overtime and undertime, which also minimizes undertime, is:
A) less than or equal to $60,000.
B) greater than $60,000 but less than or equal to $65,000.
C) greater than $65,000 but less than or equal to $70,000.
D) greater than $70,000.
Table 10.3
A large distribution center uses some part-time employees in its workforce. Each part-time employee
works a maximum of 80 hours per month. The workforce requirements (expressed as the number of part–
time employees working the maximum regular time of 80 hours per month) are given in the following
table for the next six periods.
The relevant costs are:
Wages = $350/month/worker
Hiring cost = $100/worker
Layoff cost = $50/worker
Overtime cost = 150% of regular-time rate
The current workforce level is 60, and overtime cannot exceed 25% of regular–time capacity.
Use the spreadsheet approach to answer the following questions.
15) Use the information in Table 10.3. The total cost of the staffing plan, including the cost of regular
wages, hiring, and layoffs, using a chase strategy with hiring and layoffs but no overtime, is:
A) less than or equal to $125,000.
B) greater than $125,000 but less than or equal to $125,500.
C) greater than $125,500 but less than or equal to $126,000.
D) greater than $126,000.
16) Use the information in Table 10.3. Use a level strategy with overtime and undertime. Minimize
undertime by maximizing overtime during the peak period. If the firm does not pay undertime, what is
the total cost of the staffing plan including the cost of regular wages, hiring, and layoffs?
A) less than or equal to $158,000
B) greater than $158,000 but less than or equal to $160,000
C) greater than $160,000 but less than or equal to $162,000
D) greater than $162,000
17) Use the information in Table 10.3. Use a chase strategy with hiring and layoffs but no overtime. How
many workers will be hired in month 3?
A) fewer than or equal to zero
B) greater than zero but fewer than or equal to 10
C) greater than 10 but fewer than or equal to 20
D) greater than 20
18) A manufacturing firm uses a level utilization production-planning horizon of three months. They
have developed a forecast for the coming three months that appears in the table. They can add no more
than 10% of their production capacity as overtime and can order no more than 10% of a month‘s regular
capacity via subcontractors. The company has a zero backorder policy but has space for a maximum of
150 items in their finished-goods inventory. If all extra costs are shown in the table, what is the minimum
cost sales and operations plan?
February
March
Forecasted Demand
950
1,350
Regular Capacity
1,000
1,000
Workforce level
Overtime ($40/unit)
Subcontracting ($100/unit)
Inventory holding ($10/unit)
Total Cost
February
March
Forecasted Demand
950
1,350
Regular Capacity
1,000
1,000
Workforce level
1,000
1,000
Overtime ($40/unit)
95
135
Subcontracting ($100/unit)
0
70
Inventory holding ($10/unit)
145
0
Total Cost
5,250
12,400
Difficulty: Moderate
Keywords: sales and operations plan, level strategy
Learning Outcome: Describe major approaches to sales and operations planning
AACSB: Analytical Thinking
Learning Obj.: Use spreadsheets for sales and operations planning.
32
19) A retailer experiences a seasonal demand pattern for its services. Labor requirements over a typical
six-month period follow.
Period
1
2
3
4
5
6
Requirement
7
8
9
11
12
7
Costs associated with operations are as follows:
Wages = $2,000 per worker per month
Hiring cost = $1,000 per worker
Layoff cost = $1,500 per worker
The current workforce level is 10 workers. Use the spreadsheet approach and the preceding data to
answer the following questions:
a. What is the total cost of a staffing plan, including the cost of regular wages, hiring, and layoffs using a
chase strategy with hiring and layoffs, but no overtime?
b. What is the total cost of the staffing plan, using a level strategy in which no overtime is allowed and the
undertime paid for?
c. Suppose that overtime is allowed up to 25% of the regular-time capacity, and that overtime wages are
150% of the regular-time rate. What is the total cost of the level strategy with overtime and undertime
that also minimizes undertime?
33
Answer:
a.
34
b.
35
c. To minimize undertime, take maximum requirements divided by the quantity one plus the percent of
overtime allowed. In this case, 12/1.25 = 9.6, so use a plan with 10 workers.
36
20) A retailer experiences a seasonal demand pattern for its services. Labor requirements over a typical
six-month period follow.
Period
1
2
3
4
5
6
Requirement
12
10
12
8
9
8
Costs associated with operations are as follows:
Wages = $1,500 per worker per month
Hiring cost = $1,500 per worker
Layoff cost = $1,500 per worker
The current workforce level is 11 workers. Use the spreadsheet approach and the preceding data to
answer the following questions.
a. What is the total cost of the staffing plan, including the cost of regular wages, hiring, and layoffs using
a chase strategy with hiring and layoffs, but no overtime?
b. What is the total cost of the staffing plan, using a level strategy in which no overtime is allowed, and
the undertime paid for?
c. Suppose that overtime is allowed up to 25% of the regular-time capacity, and that overtime wages are
150% of the regular-time rate. What is the total cost of the level strategy with overtime and undertime
that also minimizes undertime?
37
Answer:
a.
38
b.
39
c. To minimize undertime, take maximum requirements divided by the quantity one plus the percent of
overtime allowed. In this case, 12/1.25 = 9.6, so use a plan with 10 workers.
21) The demand forecast for the next four periods is 90, 100, 120, and 140 units respectively. The plant has
a regular capacity of 100 units per period, an overtime capacity of 10 units per period, and a
subcontractor capacity of 5 units per period. There is a $5 per unit charge for regular production, an $8
per unit charge for overtime production, and a $9 per unit charge for subcontracting. The holding cost is
$3 per unit per period, no shortages are allowed and the company has 5 units in inventory at the start of
the planning period.
a. How many units should be produced using overtime?
b. How many units should be produced using subcontracting?
c. What is the total inventory holding cost?
d. What is the lowest total plan cost?
e. Fill out this table showing the number of units made by period using each type of production and the
resulting inventory at the end of each period.
Period 1
Period 2
Period 3
Period 4
Total Cost
Forecast
90
100
120
140
Regular
Overtime
Subcontracting
Ending Inventory
Period 1
Period 2
Period 3
Period 4
Total Cost
Forecast
90
100
120
140
Regular ($5)
100
100
100
100
$2,000
Overtime ($8)
0
10
10
10
$240
Subcontracting ($9)
0
5
5
5
$135
Ending Inventory ($3)
15
30
25
0
$210
$2,585
Difficulty: Moderate
Keywords: sales and operations planning, overtime, subcontracting, inventory holding cost, total cost
Learning Outcome: Describe major approaches to sales and operations planning
AACSB: Analytical Thinking
Learning Obj.: Use spreadsheets for sales and operations planning.