CHAPTER 4

CHAPTER 4Solution

1. ELM COMPANY

Completed Table

Elm Co. Sales and Operations Planning SpreadsheetHistorySalesOctoberNovemberDecemberForecast(in Million $)0.800.850.90(in units)800850900Actual(in units)826851949Diff: Month26149Cumulative2776OperationsPlan(in units)800800800(in # employees)688Number Working Days/Mo.231919Actual(in units)798802800Diff: Month-2+20Cumulative00 InventoryPlan(in units)1501000(in 000 $)105700Actual(in units)12273-76Days of Supply3.41.6-1.5-2

2. TRAPPER LAWN EQUIPMENT COMPANY

Revised plan: Trapper Lawn Equipment Company Sales and Op's Planning Spreadsheet - Riding Mowers Product Group (Make-to-Stock)

HistoryPlanSalesOctNovDecJanFebMarForecast(M$)12.5010.0016.255.005.007.50(units)500040006500200020003000Actual(units)438436266065Diff: Month-616-374-435Cumulative-990-1425OperationsPlan(units)50004000650005563250(# employ)72701140947# Work Days/Mo.231919202123Actual(units)564940917279Diff: Month64991779Cumulative7401519Target DOS Inv: 5500500750InventoryPlan(units)1270127012701944500750(000$)22232223222334028751313Actual (units)226527303944Days of Supply1015131955

a) Target inventory levels for the three months based on 5 days of supply:

January = 5 x 2000 / 20 = 500; February = 5 x 2000 / 20 = 500; March = 5 x 3000 / 20 = 750

Planned build for each month required to achieve the target accounting for the forecast demand and the inventory in the previous period:

Build plan = forecast demand + target inventory previous month inventory

January planned build is zero since 3944 units remain in inventory at the end of December.February planed build = 2000 + 500 1944 = 556March planned build = 3000 +750 500 = 3250

b) Qualitative factors:

The plan indicates no production in January and very light production in February.

This could be implemented as a plant shutdown that may be very disruptive to work force moral and cause an employee retention problem.

It can also have quality and productivity issues as more problems are likely at shutdown and start-up. Key skills are not practiced.

A better alternative might be to maintain some production below customer demand and gradually reduce inventory levels.

Consider going to a 4 day or other form of shorten workweek. Restrict the use of overtime. Consider the use of a planned shutdown during the summer vacation season or force the use of accrued vacation time to reduce the number of workers available.

3. TRAPPER LAWN EQUIPMENT COMPANY REVISITED

a) The average forecast error is calculated as the difference between the total forecast and actual demand divided by the total forecast. In this case, since the 3 month cumulative error is given in the table:

Forecast error % = -1425 / (5000 + 4000 + 6500) x 100 = -9.2%

Reducing each of the forecast values by 9.2% for January to June yields the projected values units sales and resulting inventory levels and days of supply shown in the table below.

Trapper Lawn Equipment Company Sales and Operations Planning Spreadsheet Riding Mowers Product Group (Make-to-Stock)HistoryPlanSalesOctNovDecJanFebMarAprMayJunForecast(M$)12.5010.0016.255.005.007.5010.0012.5017.50(units)500040006500200020003000400050007000Actual / Projected(units)438436266065181618162724363245406356Diff: Month-616-374-435Cumulative-990-1425Avg % Error-9.2%OperationsPlan(units)500040006500200020003000400050007000(# employ)72701143332436776106# Work Days/Mo.231919202123202222Actual(units)564940917279Diff: Month64991779Cumulative7401519 InventoryTarget DOS Inv: 5500500750100012501750Plan / Projected(units)127012701270412843124588495654166060(000$)2223222322237224754680288672947610602Actual (units)226527303944Days of Supply / Projected 101513465039272621

b) Options for consideration

Change the forecast. This would require the marketing and production mangers coming to agreement on what the new forecast should be.

Adjust the production plan to compensate for the fact that the forecast seems to have a relatively consistent negative bias. This option has little risk in the near term since inventory levels are relatively high.

4. SKI & SEA, INC.a. Level PlanAggregating the forecastQuarter1234Total

Jet Skis10,00015,00016,0003,00044,000

Snowmobiles9,0007,00019,00010,00045,000

Total19,00022,00035,00013,00089,000

Determining the production rate:(Total forecast - beginning inventory) / 4 quarters(89,000 - 1,000) / 4 = 22,000 units per quarter

The Plan and its costs:

Quarter1234Total

Demand19,00022,00035,00013,00089,000

Production22,00022,00022,00022,00088,000

Beginning Inventory1,0004,0004,0000

Ending Inventory4,0004,00000

Average Inventory*2,5004,0002,00008500

Backorders009,00009000

*(beginning inventory + ending inventory) / 2

CostsTotal

Regular time$15.00 88,000= $ 1,320,000

Inventory$ 3.00 8,500= $ 25,500

Backorders$24.00 9,000= $ 216,000

Total $ 1,561,500

Consequences:Low levels of inventorySubstantial back order in quarter 3b. Cumulative Chart

c. Inventory Space = 20 cubic feetx 4000 = 80,000 cubic feet

d. Investment = $ 600.00 x 4,000 = $ 2,400,000

5. IVAR JORGENSONa. Overtime

Quarter1234Total

Jet Skis10,00015,00016,0003,00044,000

Snowmobiles11,0007,00019,00010,00047,000

Total21,00022,00035,00013,00091,000

Production rate = (91,000 - 1,000) / 4 = 22,500 units per quarter

Quarter1234

Demand21,00022,00035,00013,00091,000

Overtime5005005005002,000

Regular22,00022,00022,00022,00088,000

Output22,50022,50022,50022,50090,000

Beginning Inventory1,0002,5003,0000

Ending Inventory2,5003,00000

Average Inventory*1,7502,7501,50006000

Backorders009,50009500

*(beginning inventory + ending inventory) / 2

CostsTotal

Regular time$15.00 88,000= $ 1,320,000

Overtime$22.50 2,000= $ 45,000

Inventory$ 3.00 6,000= $ 18,000

Backorders$24.00 9,500= $ 228,000

Total $ 1,611,000

b.Subcontracting

Subcontracting Cost $ 30.00 2,000= $ 60,000

Overtime Cost $ 22.50 2,000= $ 45,000

Net Increase/(Decrease)$ 15,000

New Total Cost $ 1,626,000

c.Hiring a New Worker

Hiring$ 300.00 1= $ 300

Regular$ 15.00 2,000= $ 30,000

Overtime Cost22.5 2000= $ 45,000

Net Increase/Decrease $ (14,700)

New Total Cost $ 1,596,300

10. JOAN'S JOYOUS NATURE FOODa. Joan should produce 135 units each month. [(120 + 160 - 10)/2 = 135]

b. The ending inventory for month 4 is 180 units. [(10 + (4 135) - 370) = 180]

c. Joan should produce 90 units each month. [(120 + 160 + 20 + 70 - 10) / 4 = 90]

d.

Month:1234

Beginning Inventory10000

Production90909090

Demand1201602070

Ending inventory0000

Average inventory5000

Carrying cost$25$0$0$0

Backorders (cumulative)2090200

Backorder cost$160$720$160$0

Total Inventory Cost = $5 5 = $25Total Backorder Cost = $8 130 = $1040

11. ORO DEL MAR CO.

a.

b. A production rate of 100 units per month is required in order to avoid backorders and result in no ending inventory in March. [(100 + 300 - 100) / 3]

18. GENERAL AVIONICS AGAIN

Chase Sales PlanEndingOvertime

QuarterSalesProductionWorkforceInventoryProduction

28,0007,000701,0000

36,4006,400641,0000

41,6001,600161,0000

16,00015,0001503,0000

Cost ItemCost

Inventory Carrying Cost (3000 x $2)$ 6,000

Overtime Cost0

Firing Cost (54 x $400)21,600

Hiring Cost (20 x $200)4,000

Regular Payroll Cost (150 x $1,200)180,000

Total Cost$211,600

Level Production PlanEndingOvertime

QuarterSalesProductionWorkforceInventoryProduction

28,0007,000501,0002,000

36,4006,400501,0001,400

41,6005, 000503,4000

16,00018,4001505,4003,400

Cost ItemCost

Inventory Carrying Cost ($2 x 5,400)$ 10,800

Overtime Cost ($14* x 3,400)47,600

Firing Cost0

Hiring Cost0

Regular Payroll Cost(150 x $1,200)180,000

Total Cost$238,400

*$14 = $12 for regular + $2 overtime premium

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