AGGREGATE PLANNING

Internet Case Study for Chapter 13: Aggregate Planning

Cornwell Glass
Cornwell Glass produces replacement automobile glass for all makes of cars. Cornwell
has a sophisticated forecasting system that uses data from past years to find seasonal
factors and long-term trends. The system uses data from past weeks to find recent trends.
The following table presents the forecasted demands for the coming year on a weekly
basis.

Week Demand Week Demand

April 15 1,829 November 4 1,864
22 1,820 11 1,989
29 1,887 18 2,098
May 6 1,958 25 2,244
13 2,011 December 2 2,357
20 2,063 9 2,368
27 2,104 16 2,387
June 3 2,161 23 2,402
10 2,258 30 2,418
17 2,307 January 6 2,417
24 2,389 13 2,324
July 1 2,434 20 2,204
8 2,402 27 2,188
15 2,385 February 3 2,168
22 2,330 10 2,086
29 2,323 17 1,954
August 5 2,317 24 1,877
12 2,222 March 3 1,822
19 2,134 10 1,803
26 2,065 17 1,777
September 2 1,973 24 1,799
9 1,912 31 1,803
16 1,854 April 7 1,805
23 1,763
 30 1,699
October 7 1,620
14 1,689
21 1,754
28 1,800

Cornwell uses these forecasts for its production planning. It manufactures several types
of glass, and demand is aggregated across products and measured in pounds.

It is obvious from the demands that there is a great deal of seasonality/cyclicality in the
demand pattern. Cornwell will need to take this into account in developing a production
plan for the coming year.

Cornwell must consider the costs of hiring or firing workers; using overtime;
subcontracting; and holding inventory or running out of the product. The holding cost for
glass is $.12 per pound per week. The company estimates that the cost of a late order is
$20 per pound per week late.

Cornwell currently costs out each hire at $5.63 per pound (based on training costs and
production rates per worker). It costs out each fire at $15.73 per pound (based on
unemployment compensation and loss of good will). The company currently has the
capacity to manufacture 1,900 pounds of glass per week. This capacity cannot be
exceeded under any plan. At most, 2,000 pounds can be subcontracted in a given week,
and overtime is limited to 250 pounds per week. Glass that is manufactured during
overtime costs $8 per pound more than glass manufactured during regular time. Glass
that is subcontracted costs $2 more per pound than glass that is produced during
overtime.

The current inventory is 73 units, and currently production is working at full capacity,
1,900 units. Cornwell has not been able to determine whether demands not met in the
current month can be met later or whether these orders are lost.

DISCUSSION QUESTIONS

1. Find the production schedule Cornwell should follow under the various
assumptions and policies, and detail the differences among these schedules.
2. Consider the following aggregate planning problem for one quarter:

Regular Time Overtime Subcontracting

Production capacity/month 1,000 200 150

Production cost/unit $5 $7 $8

Assume that there is no initial inventory and a forecasted

demand of 1,250 units in each of the 3 months. Carrying
cost is $1 per unit per month. Solve this aggregate planning
problem using the linear programming transportation
method.

3. A Birmingham, Alabama, foundry produces cast-iron ingots according to a 3-month

capacity plan. The cost of labor averages $100 per regular shift hour and $140 per
overtime (O.T.) hour. Inventory carrying cost is thought to be $4 per labor-hour of
inventory carried. There are 50 direct labor-hours of inventory left over from March. For
the next 3 months, demand and capacity (in labor-hours) are as follows:

Capacity

Month Regular Labor (hours) O.T. Labor (hours) Demand

Apr. 2,880 355 3,000

May 2,780 315 2,750

June 2,760 305 2,950

Develop an aggregate plan for the 3-month period using the

transportation method.

4. The James Lawson Chemical Supply Company manufactures and packages expensive
vials of mercury. Given the following demand, supply, cost, and inventory data, allocate
production capacity to meet demand at minimum cost using the transportation method. A
constant workforce is expected. Back orders are permitted.

Supply Capacity (in units)

Period Regular Time Overtime Subcontract Demand (in units)

1 25 5 6 32

2 28 4 6 32

3 30 8 6 40

4 29 6 7 40
 Other Data

Initial inventory 4 units

Ending inventory desired 3 units

Regular-time cost per unit $2,000

Overtime cost per unit $2,475

Subcontract cost per unit $3,200

Carrying cost per unit per period $ 200

Backorder cost per unit per period $ 600

5. Refrigeration Corp. needs an aggregate plan for January through June for its
refrigerator production. The company has developed the following data:

Costs

Holding cost $8/ refrigerator /month

Subcontracting $80/ refrigerator

Regular-time labor $12/hour

Overtime labor $18/hour for hours above

8 hours/worker/day

Hiring cost $40/ refrigerator

Layoff cost $80/ refrigerator

Stockout cost none

Other Data

Current workforce 8 people

(December)

Labor hours/ refrigerator 4 hours

Workdays/month 20 days

Beginning inventory 250

 refrigerators

Ending inventory 0 refrigerators

Demand Forecast

Jan. 400

Feb. 500

March 550

April 700

May 800

June 700

What will each of the two following strategies cost?

(a) Plan A: Vary the work force so that production meets the
forecasted demand. Bell had eight

employees on staff in December.

(b) Plan B: Vary overtime only and use a constant workforce of

ten.

(c) Which plan is best and why?