# Operation Management-AW779

## Operation Management-AW779 Online Services

Managing Operations – Individual Assignment

Operations Planning Case Problem

A company has the following demand forecast next year, expressed in six bimonthly (2-month) periods

Forecast Demand

Period 1 = 4500 units
Period 2 = 3000 units
Period 3 = 4800 units
Period 4 = 6500 units
Period 5 = 5100 units
Period 6 = 5500 units
The company begins the planning year with 500 units of inventory as safety stock and finish the year with the same amount of inventory.

The following costing data have been obtained

Each employee works 160 regular working hours per month
Each unit requires 2 standard hours to produce
The labour costs are \$20 per normal hour and \$27 per overtime hour
It costs \$4 per month to hold an item in the warehouse

Question 1

a) How many employees will be needed during the peak demand of 6500 units in period 4 if no overtime production is to be scheduled?
b) What will be the average labour cost for each unit if the company maintains for the entire year sufficient staff to meet the peak demand without overtime?

c) What percentage above the standard-hour cost is the company’s average labour cost per unit in this year due to the company’s decision to maintain stable employment sufficient to serve the peak demand period without overtime?
d) What is the total cost of this option (including labour and inventory cost)?
Notes: In case of getting decimal numbers for the employees, round up the number, e.g. round 32.6 to 33

Question 2

The company is considering using overtime subject to a maximum of 20 percent of regular-time hours.

a) What is the average cost per unit if the work force is maintained at a level so that overtime can be used to the maximum of 20% of regular hours during the peak period in period 4?
b) What is the total cost of this option (including labour and inventory cost)?
Notes: In case of getting decimal numbers for the employees, round up the number, e.g. round 32.6 to 33

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Question 3

The company wants to determine the cost of meeting the demand by using a mixed strategy which involves changes in the number of employees and the use of overtime work. To keep from adding too many temporary employees during the peak demand period, the company will use overtime equal to up to 20% of the regular-time hours available.
The company has 25 employees at the end of the current year (i.e. at the beginning of period 1 of the following year which is being planned), and wants to end period 6 of the planning year with the same number of employees, i.e. 25 employees. It costs \$400 to hire and \$500 to lay off an employee.

In the beginning of each period, if available regular time with current employees is not enough to produce the demand of that period, overtime is used. In addition, new employees will be hired if current employees are not enough to produce the required products of that period even if they work 20% overtime. In this situation, new employees will be hired to work both during regular time and overtime (with maximum of 20%).

In the beginning of each period, if the required time to produce the demand of that period is less than available total time (with current number of employees working both regular and overtime), some of the employees will be fired until the total available time (including both available regular and overtime) is enough to produce the demand of that period.

a) Find the employment level for each bimonthly period.
b) Find the total payroll-related costs for the year.

c) What cost per unit results from these payroll-related costs?
d) What is the total cost of this option (including labour and inventory cost)?
Notes: In case of getting decimal numbers for the employees, round up the number, e.g. round 32.6 to 33

Question 4

The company plans to maintain a constant production rate, begin and end the year with the same inventory level, and absorb all demand fluctuation by accumulating and depleting inventory. The number of employees will be set at a level so that no overtime will be required.

a) What is the average cost per unit due to the cost of labour and the additional inventory held during the year?
b) What is the total cost of this option (including labour and inventory cost)?
Notes: In case of getting decimal numbers, round them up, e.g. round 32.6 to 33

Question 5

Assume the company decides to produce 3000 units per period in-house and outsource the rest. The number of employees will be set at a level so that no overtime will be required. The sub-contractor produces rest of the demand and charges the company \$45 per unit.

a) What is the average cost per unit due to the cost of outsourcing, labour and the additional inventory held during the year?
b) What is the total cost of this option (including outsourcing, labour and inventory cost)?
c) Compare this option with previously discussed production plans and discuss benefits and challenges of this decision. In order to answer this question, browse the available literature on outsourcing and support your discussion with related references (max 500 words).

Product code: Operation Management-AW779