CHAPTER 3
1. ELM COMPANY
Completed Table
2. TRAPPER LAWN EQUIPMENT COMPANY
Revised plan:
Trapper Lawn Equipment Company Sales and Op's Planning Spreadsheet - Riding Mowers Product Group (Make-to-Stock)
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 = 556
March 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.
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 Plan
Aggregating the forecast
Quarter / 1 / 2 / 3 / 4 / TotalJet Skis / 10,000 / 15,000 / 16,000 / 3,000 / 44,000
Snowmobiles / 9,000 / 7,000 / 19,000 / 10,000 / 45,000
Total / 19,000 / 22,000 / 35,000 / 13,000 / 89,000
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:
Quarter / 1 / 2 / 3 / 4 / TotalDemand / 19,000 / 22,000 / 35,000 / 13,000 / 89,000
Production / 22,000 / 22,000 / 22,000 / 22,000 / 88,000
Beginning Inventory / 1,000 / 4,000 / 4,000 / 0
Ending Inventory / 4,000 / 4,000 / 0 / 0
Average Inventory* / 2,500 / 4,000 / 2,000 / 0 / 8500
Backorders / 0 / 0 / 9,000 / 0 / 9000
*(beginning inventory + ending inventory) / 2
Costs / TotalRegular 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 inventory
Substantial back order in quarter 3
b. 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 JORGENSON
a. Overtime
Quarter / 1 / 2 / 3 / 4 / TotalJet Skis / 10,000 / 15,000 / 16,000 / 3,000 / 44,000
Snowmobiles / 11,000 / 7,000 / 19,000 / 10,000 / 47,000
Total / 21,000 / 22,000 / 35,000 / 13,000 / 91,000
Production rate = (91,000 - 1,000) / 4 = 22,500 units per quarter
Quarter / 1 / 2 / 3 / 4Demand / 21,000 / 22,000 / 35,000 / 13,000 / 91,000
Overtime / 500 / 500 / 500 / 500 / 2,000
Regular / 22,000 / 22,000 / 22,000 / 22,000 / 88,000
Output / 22,500 / 22,500 / 22,500 / 22,500 / 90,000
Beginning Inventory / 1,000 / 2,500 / 3,000 / 0
Ending Inventory / 2,500 / 3,000 / 0 / 0
Average Inventory* / 1,750 / 2,750 / 1,500 / 0 / 6000
Backorders / 0 / 0 / 9,500 / 0 / 9500
*(beginning inventory + ending inventory) / 2
Costs / TotalRegular 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 Cost / 22.5 / 2000 / = $ 45,000
Net Increase/Decrease / $ (14,700)
New Total Cost / $ 1,596,300
10. JOAN'S JOYOUS NATURE FOOD
a. 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: / 1 / 2 / 3 / 4Beginning Inventory / 10 / 0 / 0 / 0
Production / 90 / 90 / 90 / 90
Demand / 120 / 160 / 20 / 70
Ending inventory / 0 / 0 / 0 / 0
Average inventory / 5 / 0 / 0 / 0
Carrying cost / $25 / $0 / $0 / $0
Backorders (cumulative) / 20 / 90 / 20 / 0
Backorder cost / $160 / $720 / $160 / $0
Total Inventory Cost = $5 5 = $25
Total 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 Plan
Ending / OvertimeQuarter / Sales / Production / Workforce / Inventory / Production
2 / 8,000 / 7,000 / 70 / 1,000 / 0
3 / 6,400 / 6,400 / 64 / 1,000 / 0
4 / 1,600 / 1,600 / 16 / 1,000 / 0
16,000 / 15,000 / 150 / 3,000 / 0
Cost Item / Cost
Inventory Carrying Cost (3000 x $2) / $ 6,000
Overtime Cost / 0
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 Plan
Ending / OvertimeQuarter / Sales / Production / Workforce / Inventory / Production
2 / 8,000 / 7,000 / 50 / 1,000 / 2,000
3 / 6,400 / 6,400 / 50 / 1,000 / 1,400
4 / 1,600 / 5, 000 / 50 / 3,400 / 0
16,000 / 18,400 / 150 / 5,400 / 3,400
Cost Item / Cost
Inventory Carrying Cost ($2 x 5,400) / $ 10,800
Overtime Cost ($14* x 3,400) / 47,600
Firing Cost / 0
Hiring Cost / 0
Regular Payroll Cost(150 x $1,200) / 180,000
Total Cost / $238,400
*$14 = $12 for regular + $2 overtime premium
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