strategies. Discussion of S&OP is useful as a current topic in industry.
3. The school also has the option of spreading the students among the schools through busing
or operating the schools at lower levels. In some states it may be possible to sell the
building to a private school to operate, turn the building over to the community to use as a
community center or bus students into the district from other sites. The school board
should consider both the costs and benefits of these alternatives.
4. A facility decision affects all aspects of an organization, therefore top management needs
to make the decisions because they have an overall view of the organization. Each of the
departments should represent their own particular needs in the analysis and in the decision
making process. Since facility decisions are strategic, top management often makes them.
5. Corporate strategy may set constraints under which alternatives are considered. It also can
be the guide when conflicting objectives occur. Corporate strategy determines the level of
centralization and the quality of the location; low rent vs. downtown. The effect of
corporate strategy is to provide a framework for location decisions.
6. S&OP or aggregate planning deals with acquiring resources while scheduling is concerned
with allocating available resources. While aggregate planning is a medium-term decision,
scheduling is done in the short term. Aggregate planning deals with product families and
summated demand. Scheduling deals with specific orders and products.
7. Yes. The company has many options to increase profits or decrease costs with a seasonal
product. They can keep their company policy of a level workforce if they want and still
make changes such as using overtime and under-time, subcontracting, or developing
complementary products. They should, however, determine what the level workforce
policy is costing them, by specifically considering the costs of hiring and layoffs, along
with the costs of carrying inventory, overtime, and subcontracting.
8. An aggregate plan is necessary to make personnel decisions and plans because it
determines the number of personnel needed and what policy is followed; level workforce,
overtime, under-time, part-time help, hiring and firing as needed. An aggregate plan is
also needed before budgeting can be done to determine what costs are going to be incurred
in personnel, inventory, and supplies and what the output level will be. Marketing must
know the aggregate plan because it determines the future supply of output and thus the
9. Treating the different objectives simultaneously reduces the chance of suboptimization
because the tradeoffs are recognized and evaluated. Treating objectives as costs requires
finding a way to assign quantitative values. Not all costs can be determined objectively
from accounting records. As a result, some costs must be estimated and can result in errors.
Nevertheless treating objectives as costs allows them to be added in a single cost function
that can be minimized.
10. If a job is highly automated and requires a low skill level, the workforce is easily
replaceable, and low hiring and firing costs apply. Conversely, if the job requires a high
skill level, hiring and firing workers may be very inconvenient, costly, and disruptive, and
it may not be possible to replace workers with specialized skills once they are laid off. It
isn’t just a matter of finding the lowest cost. The level and chase strategies may have
different non-quantifiable effects on the workforce – morale, loyalty, expertise, etc. Also,
11. Important variables in choosing the length of the planning horizon include the length of
seasonal cycle, the length of the budgeting period and the level of demand uncertainty. A
short planning horizon may be used when demand uncertainty is very high and a longer
planning horizon can be used when demand uncertainty is low. The important point is the
length of the planning horizon should cover one complete planning cycle. If the seasonal
cycle, budgeting period and forecasting uncertainty are all one year, then one year is the
appropriate time for aggregate planning.
12. Labor costs, both regular and overtime, and part-time labor costs. The costs of hiring and
layoffs including training, unemployment insurance and other benefits costs. Inventory,
capital, storage, obsolescence and deterioration costs. Subcontracting costs if products are
outsourced. Stockout costs such as loss of customer goodwill and lost sales.
13. There are numerous options that can be utilized individually and together. They include
reducing prices during non-peak periods, advertising these discounts, using a reservation
system, or scheduling more barbers during peak hours only. Analyze each option in terms
of total cost and increased profit. Consider customer reaction to these changes. Data on
costs, customer reactions and possible effect on revenue should be collected and
considered.
1. a. Build 0 Units of Capacity: C = (7 x 0) + 20[(0 x .05) + (1 x .10) + (2 x .15) + (3 x .20)
+ (4 x .20) + (5 x .15) + (6 x .10) + (7 x .05)] = 70.0
Build 1 Unit of Capacity: C = (7 x 1) + 20[(0 x.15) + (1 x .15) + (2 x .2) + (3 x .2)
+ (4 x .15) + (5 x .10) + (6 x .05)] = 58.0
2. a. Capacity Cushion = 100% – utilization = 100 – 78.3 = 21.7%
Alternatively: Capacity Cushion = 18 – average utilization in millions of tons
= 18 – (.1*10 + .25*12+.30*14+.20*16+.15*18)
= 3.9 million tons.
b. Probability (idle capacity) = .85 = Probability (demand <=16) = .10+.25+.30 + .20
3. a) 20 * .1 + 25 * .3 + 30 * .4 + 35 * .1 + 40 * .1 = 29 haircuts
b) Average Utilization = (.1 * 20/35) + (.3 * 25/35) + (.4 * 30/35) + (.1 * 35/35) + (.1
* 40/35) = 82.86%
c) Capacity cushion = capacity – average demand = 35 – 29 = 6 haircuts
4. a) Weekly capacity in hours = 12 hours * 7 days = 84 hours/week
Annual capacity in hours = 84 hours * 52 weeks = 4368 hours per year
b) Weekly capacity in customers = 84 hours * 40 customers = 3350 customers per
week
6. a. The costs of a level production strategy are $925,933
NAME:
*****************
CHAPTER 12, PROBLEM 6
SECT:
*************
DATE:
26-Oct-12
INPUT SECTION:
PRESENT LABOR FORCE (160 hrs/month)…………
70
POUNDS PRODUCED (PER WORKER/MONTH)….…
100
REGULAR WAGE RATE …………………………….
$12.00
STORAGE COSTS (PER YEAR BASIS) …………….
$0.80
HIRING COSTS ……………………………………..
$200
LAYOFF COSTS …………………………………….
$500
BEGINNING INVENTORY …………………………
9000
DEMAND/SALES
MONTH 1:
8,000
MONTH 4:
8,000
MONTH 2:
10,000
MONTH 5:
6,000
MONTH 3:
12,000
MONTH 6:
5,000
TOTAL...
49,000
STRATEGY:
*****************
MONTH
1
2
3
4
5
6
TOTAL
–
–
–
–
–
–
–
–
RESOURCES:
3. The school also has the option of spreading the students among the schools through busing
or operating the schools at lower levels. In some states it may be possible to sell the
building to a private school to operate, turn the building over to the community to use as a
community center or bus students into the district from other sites. The school board
should consider both the costs and benefits of these alternatives.
4. A facility decision affects all aspects of an organization, therefore top management needs
to make the decisions because they have an overall view of the organization. Each of the
departments should represent their own particular needs in the analysis and in the decision
making process. Since facility decisions are strategic, top management often makes them.
5. Corporate strategy may set constraints under which alternatives are considered. It also can
be the guide when conflicting objectives occur. Corporate strategy determines the level of
centralization and the quality of the location; low rent vs. downtown. The effect of
corporate strategy is to provide a framework for location decisions.
6. S&OP or aggregate planning deals with acquiring resources while scheduling is concerned
with allocating available resources. While aggregate planning is a medium-term decision,
scheduling is done in the short term. Aggregate planning deals with product families and
summated demand. Scheduling deals with specific orders and products.
7. Yes. The company has many options to increase profits or decrease costs with a seasonal
product. They can keep their company policy of a level workforce if they want and still
make changes such as using overtime and under-time, subcontracting, or developing
complementary products. They should, however, determine what the level workforce
policy is costing them, by specifically considering the costs of hiring and layoffs, along
with the costs of carrying inventory, overtime, and subcontracting.
8. An aggregate plan is necessary to make personnel decisions and plans because it
determines the number of personnel needed and what policy is followed; level workforce,
overtime, under-time, part-time help, hiring and firing as needed. An aggregate plan is
also needed before budgeting can be done to determine what costs are going to be incurred
in personnel, inventory, and supplies and what the output level will be. Marketing must
know the aggregate plan because it determines the future supply of output and thus the
9. Treating the different objectives simultaneously reduces the chance of suboptimization
because the tradeoffs are recognized and evaluated. Treating objectives as costs requires
finding a way to assign quantitative values. Not all costs can be determined objectively
from accounting records. As a result, some costs must be estimated and can result in errors.
Nevertheless treating objectives as costs allows them to be added in a single cost function
that can be minimized.
10. If a job is highly automated and requires a low skill level, the workforce is easily
replaceable, and low hiring and firing costs apply. Conversely, if the job requires a high
skill level, hiring and firing workers may be very inconvenient, costly, and disruptive, and
it may not be possible to replace workers with specialized skills once they are laid off. It
isn’t just a matter of finding the lowest cost. The level and chase strategies may have
different non-quantifiable effects on the workforce – morale, loyalty, expertise, etc. Also,
11. Important variables in choosing the length of the planning horizon include the length of
seasonal cycle, the length of the budgeting period and the level of demand uncertainty. A
short planning horizon may be used when demand uncertainty is very high and a longer
planning horizon can be used when demand uncertainty is low. The important point is the
length of the planning horizon should cover one complete planning cycle. If the seasonal
cycle, budgeting period and forecasting uncertainty are all one year, then one year is the
appropriate time for aggregate planning.
12. Labor costs, both regular and overtime, and part-time labor costs. The costs of hiring and
layoffs including training, unemployment insurance and other benefits costs. Inventory,
capital, storage, obsolescence and deterioration costs. Subcontracting costs if products are
outsourced. Stockout costs such as loss of customer goodwill and lost sales.
13. There are numerous options that can be utilized individually and together. They include
reducing prices during non-peak periods, advertising these discounts, using a reservation
system, or scheduling more barbers during peak hours only. Analyze each option in terms
of total cost and increased profit. Consider customer reaction to these changes. Data on
costs, customer reactions and possible effect on revenue should be collected and
considered.
1. a. Build 0 Units of Capacity: C = (7 x 0) + 20[(0 x .05) + (1 x .10) + (2 x .15) + (3 x .20)
+ (4 x .20) + (5 x .15) + (6 x .10) + (7 x .05)] = 70.0
Build 1 Unit of Capacity: C = (7 x 1) + 20[(0 x.15) + (1 x .15) + (2 x .2) + (3 x .2)
+ (4 x .15) + (5 x .10) + (6 x .05)] = 58.0
2. a. Capacity Cushion = 100% – utilization = 100 – 78.3 = 21.7%
Alternatively: Capacity Cushion = 18 – average utilization in millions of tons
= 18 – (.1*10 + .25*12+.30*14+.20*16+.15*18)
= 3.9 million tons.
b. Probability (idle capacity) = .85 = Probability (demand <=16) = .10+.25+.30 + .20
3. a) 20 * .1 + 25 * .3 + 30 * .4 + 35 * .1 + 40 * .1 = 29 haircuts
b) Average Utilization = (.1 * 20/35) + (.3 * 25/35) + (.4 * 30/35) + (.1 * 35/35) + (.1
* 40/35) = 82.86%
c) Capacity cushion = capacity – average demand = 35 – 29 = 6 haircuts
4. a) Weekly capacity in hours = 12 hours * 7 days = 84 hours/week
Annual capacity in hours = 84 hours * 52 weeks = 4368 hours per year
b) Weekly capacity in customers = 84 hours * 40 customers = 3350 customers per
week
6. a. The costs of a level production strategy are $925,933
NAME:
*****************
CHAPTER 12, PROBLEM 6
SECT:
*************
DATE:
26-Oct-12
INPUT SECTION:
PRESENT LABOR FORCE (160 hrs/month)…………
70
POUNDS PRODUCED (PER WORKER/MONTH)….…
100
REGULAR WAGE RATE …………………………….
$12.00
STORAGE COSTS (PER YEAR BASIS) …………….
$0.80
HIRING COSTS ……………………………………..
$200
LAYOFF COSTS …………………………………….
$500
BEGINNING INVENTORY …………………………
9000
DEMAND/SALES
MONTH 1:
8,000
MONTH 4:
8,000
MONTH 2:
10,000
MONTH 5:
6,000
MONTH 3:
12,000
MONTH 6:
5,000
TOTAL...
49,000
STRATEGY:
*****************
MONTH
1
2
3
4
5
6
TOTAL
–
–
–
–
–
–
–
–
RESOURCES: