Problem # 4 (Chapter 11, pg 503) Refer to Example 2. Determine whether a plan to use subcontracting at a maximum rate of 50 units per period as...

Problem # 4 (Chapter 11, pg 503)

Refer to Example 2. Determine whether a plan to use subcontracting at a maximum rate of 50 units per period as needed with no overtime would achieve a lower total cost than the plan shown in Example 2. Again, plan for a zero inventory balance at the end of period 6.

(EXAMPLE 2

After reviewing the plan developed in the preceding example, planners have decided to develop an alternative plan. They have learned that one person is about to retire from the company. Rather than replace that person, they would like to stay with the smaller workforce and use overtime to make up for the lost output. The reduced regular-time output is 280 units per period. The maximum amount of overtime output per period is 40 units. Develop a plan and compare it to the previous one.

SOLUTION

The amount of overtime that must be scheduled has to make up for lost output of 20 units per period for six periods, which is 120. This is scheduled toward the center of the planning horizon since that is where the bulk of demand occurs. Scheduling it earlier would increase inventory carrying costs; scheduling it later would increase the backlog cost.

Overall, the total cost for this plan is $4,640, which is $60 less than the previous plan. Regular-time production cost and inventory cost are down, but there is overtime cost. However, this plan achieves savings in backorder cost, making it somewhat less costly overall than the plan in Example 1.

(Stevenson, William. Operations Management, 11th Edition. McGraw-Hill Learning Solutions, 2011. pp. 487 - 488).

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