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OM4 Chapter 13: Resource Management
Discussion Questions
1. Identify a goods-producing or service-providing organization and discuss how it might
make aggregate planning decisions using the variables described in Exhibit 13.3.
Students will “apply” Exhibit 13.3 aggregate planning concepts to an organization of
interest to them. For example, a manufacturer like Briggs and Stratton produces small
2. Provide an argument for or against adopting a chase strategy for a major airline call
center.
The airline call center would have varying demand such as for summer travel and major
Advantages of adopting a chase strategy in this situation include minimizing costs as
management changes the workforce levels (capacity) and skill mix and use of full- and
part-time employees, while trying to maintain service levels. Disadvantages include
3. Discuss some examples of real-life organizations that use demand management as a
resource planning strategy.
Demand management reduces and in some cases eliminates the need to forecast item
demand. Retail point-of-sale information is immediately available for planning
production and/or staff levels. Demand management and a “pull” system coordinate the
4. How do the concepts of master production scheduling and material requirements
Most service organizations use only two levels to disaggregate their resource plan(s) as
Master scheduling as defined in manufacturing focuses on the end-item level. Similar
concepts of end-items for services include standard meals in a restaurant, surgical kits
The concept of dependent demand and MRP often exists in services but seldom is
recognized or used (see Problem # 5 on banking slips). Bills of Labor (BOL) become
more prevalent in services than just Bills of Material (BOM) but both are used in goods
and service businesses. An explosion of a BOL, for example, for a hotel might result in
5. How should managers choose an appropriate lot-sizing rule? Should they be chosen
strictly on an economic basis, or should intangible factors be considered. Why?
As Exhibits 13.13 to 13.16 document using different lot sizing rules has a significant
effect on average item inventory levels. Although not done in this introductory chapter,
you can briefly explain how the total cost of inventory and ordering activity for each rule
Other criteria for selecting lot-sizing rules in an MPS/MRP environment include the
relative size of inventory holding to order costs (i.e., FOQ is often best when inventory
costs are low and order costs high), system nervousness where things change too much,
Problems and Activities
Note: an asterisk denotes problems for which an Excel spreadsheet template on the CourseMate
Web site may be used.
1. Interview a production manager at a nearby goods-producing company to determine how the
company plans its production for fluctuating demand. What approaches does the company
use?
This exercise is designed to help students relate real-world OM activities to the text material.
As the student describes what they see ask questions such as: Are the chasing demand? Are
2. Research and write a short paper (2 pages maximum) describing how organizations use
aggregate planning options in Exhibit 13.3.
Exhibit 13.3 provides a broad framework for students to research and report. Topics include:
demand management, resource utilization, carbon emissions, workforce (hire, layoff,
Demand Management -- More than software
In virtually every industry, companies are challenged by ever-higher customer expectations,
stricter regulations, changing market dynamics and the ongoing impact of the Web – all of
which are compelling them to reexamine and refine how they forecast and manage demand.
As many are learning, it is a process that involves far more than installing forecasting
Still, many organizations cling to “install now, think later” strategies that fail to take into
account the various, often subtle factors that can affect the success or failure of their value
chain. When one considers the increasingly virtual and volatile nature of commerce, this can
The ability to generate a nearly instant forecast that can be applied the same day is
Source:
3. The forecasted demand for fudge for the next four months is 120, 150, 100, and 70 pounds.
a. What is the recommended production rate if a level strategy is adopted with no back
orders or stockouts? What is the ending inventory for month 4 under this plan?
To ensure no backorders or stock outs, a level production strategy would require
Production Demand Ending Inventory
Average monthly inventory = 75 units (300/4)
b. What is the level production rate with no ending inventory in month 4?
To ensure no ending inventory, the production rate must be
Production Demand Ending Inventory
4.* Using the Excel template Aggregate Planning to try to find the best production strategy for
the Golden Beverages example to minimize the total cost. Note that the chase demand
strategy has a total cost of $1,835,050, so you should seek a solution that has a lower cost.
Students can experiment using the Aggregate Planning template (not the Agg Plan - Level or
Agg Plan - Chase templates) by changing the production decisions in column D. Students
should be encouraged to document their search process and explain their iterative reasoning
5.* Chapman Pharmaceuticals, a large manufacturer of drugs, has this aggregate demand
forecast for a liquid cold medicine.
The firm has a normal production rate of 90,000 liters per month and the initial inventory is
100,000 liters. Inventory-holding costs are $30 per 1,000 liters per month, regular-time
The results using the Agg Plan – Level and Agg Plan – Chase spreadsheet templates are
6.* The Westerbeck Company manufactures several models of automatic washers and dryers.
The projected requirements over the next year for their washers follow.
Current inventory is 100 units. Current capacity is 960 units per month. The average salary
of production workers is $1,300 per month. Material costs $120/unit. Each production
The key to solving this problem is to convert the costs to a per-unit basis. For example, the
7.* The Silver Star Bicycle Company will be manufacturing men’s and women’s models of its
Easy-Pedal 10-speed bicycle during the next two months, and the company would like a
production schedule indicating how many bicycles of each model should be produced in
each month. Current demand forecasts call for 150 men’s and 125 women’s models to be
shipped during the first month and 200 men’s and 150 women’s models to be shipped during
Exhibit 13.18 Silver Star Bicycle Data
Labor Required for Labor Required for
Model Production Costs Manufacturing (hours) Assembly (hours) Current Inventory
Men’s $40 10 3 20
Women’s $30 8 2 30
a. Establish a production schedule that minimizes production and inventory costs and
satisfies the labor-smoothing, demand, and inventory requirements. What inventories will
be maintained, and what are the monthly labor requirements?
Material balance equations:
20 + x11 – s11 = 50
Ending inventory requirements:
Labor force smoothing
4000 – 10x11 –3x11 – 8x21 – 2x21 500
and
All variables nonnegative.
b. If the company changed the constraints so that monthly labor increases and decreases
could not exceed 250 hours, what would happen to the production schedule? How much
would the cost increase? What would you recommend?
Changing the right hand sides of the labor force smoothing constraints yields a new
