Question

What is aggregate planning? In the sample aggregate planning problem, change "for fudge for the next four months is 120, 150, 100, and 70 pounds," to "130, 150, 110, and 60 pounds." Carry out the rest of the solution, with changed numbers, making sure, you follow the procedure used for "Level Strategy."

The forecasted demand for fudge for the next four months is 120, 150, 100, and 70 pounds.

a.     What is the recommended production rate if a level strategy is adopted with no back orders or stock outs? What is the ending inventory for month 4 under this plan?

To ensure no backorders or stock outs, a level production strategy would require producing at peak demand or 150 pounds/month. This would result in an inventory at the end of month 4 of 600 - (120 + 150 + 100 + 70) = 160 pounds. You might also want to ask students the implications of this strategy.   Using Equation 13.1 we find

                        Production      Demand          Ending Inventory

Month 1          150 units         120                              30

Month 2          150 units         150                              30

Month 3          150 units         100                              80

Month 4          150 units         70                                160

Average monthly inventory = 75 units (300/4)

b. What is the level production rate with no ending inventory in month 4?

To ensure no ending inventory, the production rate must be

(120 + 150 + 100 + 70)/4 = 110 pounds/month; however, this would result in backorders or stock outs as shown below:

                        Production      Demand          Ending Inventory

Month 1          110 units         120                              -10

Month 2          110 units         150                              -50

Month 3          110 units         100                              -40

Month 4          110 units         70                                0

Answer 1

Answers to major part of questions have been provided in the questions.

Final Part: Implications of this Level Strategy

• A level plan maintains the same production rate and same strength of workforce across the period.
• Due to this, inventory increases when demand is below average production rate and decreases when demand is above average production rate.
• On the other hand, a chase plan is flexible and vary the production rate to meet the customer’s demand rate for each time period.