K&E Company

Chase Strategy - Vary Workforce, Exact Production

Parameters
Material cost $ 100 /unit
Labor requirement 5 hours/unit Inputs are given in blue
Regular time cost $ 4 /hour
Overtime cost $ 6 /hour
Subcontracting cost $ 120 /unit
Inv. holding cost $ 5 /unit/month
Inv. shortage cost $ 10 /unit/month
Hiring & training cost $ 200 /employee
Layoff cost $ 250 /employee
Regular hours / day 8 hours/day
Starting inventory 400 units
Starting # of workers 40

Work Start Production End Production Workers

Month Demand Days Invent. Requrmnts Invent. Hours Needed
400
January 1800 22 400 1400 0 7000 40
February 1500 19 0 1500 0 7500 50
March 1100 21 0 1100 0 5500 33
April 900 21 0 900 0 4500 27
May 1100 22 0 1100 0 5500 32
June 1600 20 0 1600 0 8000 50

Total 8000 125 7600 0 38000 232

Costs
Material $ 760,000 Production_Requrmnts = Demand - Start_Inventory
Regular Time Labor $ 152,000 End_Invent = Start_Invent + Production - Demand
Overtime Labor 0 Production_Hours = Production*5 Hours/unit
Subcontracting 0 Workers_needed = Production_hours/(Work_days*8 hours/day)
Holding $ - Workers_hired = max(Workers_needed - Start_Workers, zero)
Shortage 0 Workers_layed-off = max(Start_Workers - Workers_needed, zero)
Hiring $ 6,600
Layoff $ 5,750

Total $ 924,350
 Workers Workers
Hired Layed-off

0 0
10 0
0 17
0 6
5 0
18 0

33 23

ork_days*8 hours/day)
Start_Workers, zero)
- Workers_needed, zero)
K&E Company
Level Strategy - Constant workforce, vary inventory and stockout

Parameters
Material cost $ 100 /unit
Labor requirement 5 hours/unit Inputs are given in blue
Regular time cost $ 4 /hour
Overtime cost $ 6 /hour
Subcontracting cost $ 120 /unit
Inv. holding cost $ 1.0 /unit/month
Inv. shortage cost $ 5 /unit/month
Hiring & training cost $ 200 /employee
Layoff cost $ 250 /employee
Regular hours / day 8 hours/day
Starting inventory 400 units
Starting workers 40

Work Start Actual End Excess

Month Demand Days Invent. Production Invent. Stock Stockouts
400
January 1800 22 400 1338 -62 0 62
February 1500 19 -62 1156 -406 0 406
March 1100 21 -406 1277 -229 0 229
April 900 21 -229 1277 148 148 0
May 1100 22 148 1338 386 386 0
June 1600 20 386 1216 2 2 0

Total 8000 125 7602 536 697

Costs Total demand 8000

Material $ 760,200 Correction for Starting Inventory -400
Regular Time Labor $ 152,040 Total Production Requirements 7600
Overtime Labor 0 Average Number of Workers Needed 38
Subcontracting 0
Holding $ 536 Actual_Production = 38_workers*Work_days*8_hours_day / 5 hours/un
Shortage $ 3,485 Excess_Stock = End_Inventory if it is greater than zero
Hiring $ - Stockouts = -(End_Inventory if it is less than zero)
Layoff $ 500 Nr_workers = (Demand - Start_Inv)*5_hours/unit / (Work_days*8_hours

Total $ 916,761
ays*8_hours_day / 5 hours/unit
ater than zero

urs/unit / (Work_days*8_hours/day)
K&E Company
Level Strategy - Constant workforce, vary inventory
No stockouts allowed; use overtime instead

Parameters
Material cost $ 100 /unit
Labor requirement 5 hours/unit Inputs are given in blue
Regular time cost $ 4 /hour
Overtime cost $ 6 /hour
Subcontracting cost $ 120 /unit
Inv. holding cost $ 1.0 /unit/month
Inv. shortage cost $ 5 /unit/month
Hiring & training cost $ 200 /employee
Layoff cost $ 250 /employee
Regular hours / day 8 hours/day
Starting inventory 400 units
Starting workers 40

Work Needed Start Regular Addit. Units End

Month Demand Days Production Invent. Production (Overtime) Invent.
January 1800 22 1400 400 1338 62 0
February 1500 19 1500 0 1156 344 0
March 1100 21 1100 0 1277 0 177
April 900 21 723 177 1277 0 554
May 1100 22 546 554 1338 0 792
June 1600 20 808 792 1216 0 408

Total 8000 125 7602 406 1931

Costs Total demand 8000

Material $ 760,200 Correction for Starting Inventory -400
Regular Time Labor $ 152,040 Total Production Requirements 7600
Overtime Labor $ 12,180 Average Number of Workers Needed 38
Subcontracting $ -
Holding $ 1,931
Shortage $ -
Hiring $ -
Layoff $ 500

Total $ 926,851
`
Example 3

Monthly Demand
month demand
1 4000
2 7000
3 8000
4 5000
5 6000

permanent employees 100

monthly salary - permanent $4,000
monthly salary - temporary $3,000
productivity - permanent 50 per month
productivity - temporary 40 per month
unit cost - subcontract $100
Initial Inventory 0
Unit inventory holding cost $3 per month
Unit backlog cost $5 per month

1. a chase strategy with subcontracting option

month demand
1 4000
2 7000
3 8000
4 5000
5 6000

2. level strategy with temporary workers hired and kept for all the 5 months

month demand
1 4000
2 7000
3 8000
4 5000
 5 6000
total 30000
Example 3

Monthly Demand
month demand
1 4000
2 7000
3 8000
4 5000
5 6000

permanent employees 100

monthly salary - permanent $4,000
monthly salary - temporary $3,000
productivity - permanent 50 per month
productivity - temporary 40 per month
unit cost - subcontract $100
Initial Inventory 0
Unit inventory holding cost $3 per month
Unit backlog cost $5 per month

Chase with Subcontracting

Amount
produced by Subcontracting
permanent amount
month demand employees
1 4000 4000 0
2 7000 5000 2000
3 8000 5000 3000
4 5000 5000 0
5 6000 5000 1000
total
subcontracting
cost $600,000

total salary $2,000,000

 Total Cost $2,600,000

Level using Temporary Workers

Amount by
Amount by temp.
perm.
workers
month demand employees
1 4000 5000 1000
2 7000 5000 1000
3 8000 5000 1000
4 5000 5000 1000
5 6000 5000 1000
total 30000 25000
temporary emploees
needed 25

Total Salary $2,375,000

Total Inventory Cost $9,000
Total Backorder Cost $5,000
Total Cost $2,389,000
do not have to use all 50 employees to avoid inventory cost
inventory backorder

2000 0
1000 0
0 1000
0 0
0 0
3000 1000
 K&E Company
Optimal Solution - Obtained by Linear Pro

Inputs in blue
Parameters Decision variabl
Labor requireme 5 hours/unit
Inv. holding cost ### /unit/month
Regular hours / 8 hours/day
Starting invento 400 units
Starting workers 45 workers

Dt wt Mt Xt It
Work Max
t Month DemanDays
Reg.Prodctn
Production
Inventory
0
1 January 1800 22 1584 1532 132
2 February 1500 19 1368 1368 0
3 March 1100 21 1512 1100 0
4 April 900 21 1512 900 0
5 May 1100 22 1584 1260 160
6 June 1600 20 1440 1440 0

Total 292

Obj. funct $292 Relation between inventory and production

t I(t-1) + Xt = Dt + It
1 1932 1932
2 1500 1500
3 1100 1100
4 900 900
5 1260 1260
6 1600 1600

Production capacity constraints

t Xt <= Mt
1 1532 1584
2 1368 1368
3 1100 1512
4 900 1512
5 1260 1584
6 1440 1440