The options Outlook has for handling the seasonality of magazine are adding workers during the peak season, subcontracting out some of the work, building up inventory during the slow months, or building up a backlog of orders that will be delivered late to customers. To determine how to best use these options through an aggregate plan, Outlook`s vice president of Marketing starts with the first task-building a demand forecast. Although Outlook could attempt to forecast this demand itself, a much more accurate forecast comes from a collaborative process used by both Outlook and its retailers to produce the forecast shown in Table (a). Outlook sells each book through retailers for Rs.40. The company has a starting inventory in January of 1000 books. At the beginning of January the company has a workforce of 80 employees. The company has a total of 20 working days in each month, and each employee earns Rs 4 per hour regular time. Each employee works eight hours per day on straight time and the rest on overtime. The capacity of the publication operation is determined primarily by the total labor hours worked. Therefore, machine capacity does not limit the capacity of the production operation. Because of labor rules, no employee works more than 10 hours of overtime per month. The various costs are shown in Table (b) Currently, Outlook has no limits on subcontracting, inventories, and stockouts/backlog. All stockouts are backlogged and supplied from the following months’ production. Inventory costs are incurred on the ending inventory in the month. The Marketing manager’s goal is to obtain the optimal aggregate plan that allows Outlook to end June with at least 500 unit (i.e., no stockout at the end of June and a least 500 units in inventory). Table a: Period Demand 0 1 1600 2 3000 3 3200 4 3800 5 2200 6 2200 Table b: Item Cost Material cost Rs.10/unit Inventory holding cost Rs.2/unit/month Marginal cost of stockout/backlog Rs.5/unit/month Hiring and training costs Rs.300/worker Layoff cost Rs.500/worker Labor hours required 4/unit Regular time cost Rs.4/hour Overtime cost Rs.6/hour Cost of subcontracting Rs.30/unit Operational Analytics Perform analysis with the data provided. Estimate the strategy which can be undertaken with the minimum cost. Formulate strategy based on the data analysis.
The options Outlook has for handling the seasonality of magazine are adding workers during the peak season, subcontracting out some of the work, building up inventory during the slow months, or building up a backlog of orders that will be delivered late to customers. To determine how to best use these options through an aggregate plan, Outlook`s vice president of Marketing starts with the first task-building a demand
Outlook sells each book through retailers for Rs.40. The company has a starting inventory in January of 1000 books. At the beginning of January the company has a workforce of 80 employees. The company has a total of 20 working days in each month, and each employee earns Rs 4 per hour regular time. Each employee works eight hours per day on straight time and the rest on overtime. The capacity of the publication operation is determined primarily by the total labor hours worked. Therefore, machine capacity does not limit the capacity of the production operation. Because of labor rules, no employee works more than 10 hours of overtime per month. The various costs are shown in Table (b)
Currently, Outlook has no limits on subcontracting, inventories, and stockouts/backlog. All stockouts are backlogged and supplied from the following months’ production. Inventory costs are incurred on the ending inventory in the month. The Marketing manager’s goal is to obtain the optimal aggregate plan that allows Outlook to end June with at least 500 unit (i.e., no stockout at the end of June and a least 500 units in inventory).
Table a:
|
Period |
Demand |
|
0 |
|
|
1 |
1600 |
|
2 |
3000 |
|
3 |
3200 |
|
4 |
3800 |
|
5 |
2200 |
|
6 |
2200 |
Table b:
|
Item |
Cost |
|
Material cost |
Rs.10/unit |
|
Inventory holding cost |
Rs.2/unit/month |
|
Marginal cost of stockout/backlog |
Rs.5/unit/month |
|
Hiring and training costs |
Rs.300/worker |
|
Layoff cost |
Rs.500/worker |
|
Labor hours required |
4/unit |
|
Regular time cost |
Rs.4/hour |
|
Overtime cost |
Rs.6/hour |
|
Cost of subcontracting |
Rs.30/unit |
Operational Analytics
-
Perform analysis with the data provided.
-
Estimate the strategy which can be undertaken with the minimum cost.
-
Formulate strategy based on the data analysis.
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