NATIONAL ECONOMICS UNIVERSITY

GROUP ASSIGNMENT
OPERATION MANAGEMENT
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BRADFORD MANUFACTURING: Planning plant production

GROUP 6
Bùi Uyển Chi
Đào Hoàng Anh
Đỗ Cao Kỳ Duyên
Nguyễn Bích Ngọc
Vũ Thị Khánh Ngân
Bùi Vũ Phương Linh

Hanoi, 11/2022

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 Table of Contents
I. CASE SUMMARY ............................................................................... 3
II. TECHNICAL AND ECONOMIC INFORMATIONS .................. 3
1. Production lines .................................................................................. 3
2. Demand Forecast................................................................................ 4
3. Goods in warehouse ........................................................................... 4
4. Inventory Cost ..................................................................................... 4
5. Backorder when stockout ................................................................... 4
6. Salary................................................................................................... 5
III. AGGREGATE PLAN ......................................................................... 5
Question 1: ................................................................................................ 5
Question 2: .............................................................................................. 10
IV. CONCLUSION .................................................................................. 11

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I. CASE SUMMARY
Situation: Operations manager for a manufacturing plant
Mission: Produces pudding food products.
Responsibilities: Prepare an aggregate plan for the plant providing information on
production rates, manufacturing labor requirements, and projected finished goods
inventory levels for the next year.
A packaging line includes Pudding mix; placed in small packets which are
collected and placed in cases that hold 48 boxes of pudding and 160 cases are
collected and put on a pallet.
The plant has 15 of these lines, but currently, only 10 are being used. 6
employees are required to run each line.
The demand for this product fluctuates from month to month and seasons. At
the end of the first quarter of each year the marketing group runs a promotion in
which special deals are made for large purchases.
The amounts shipped are based on maintaining target inven- tory levels at the
warehouses. These targets are calculated based on anticipated weeks of supply at
each warehouse. Current targets are set at two weeks of supply.
In the past, the company has had a policy of producing very close to what it
expects sales to be because of limited capacity for storing finished goods.
Production capacity has been adequate to support this policy.

II. TECHNICAL AND ECONOMIC INFORMATIONS

1. Production lines
The plant is now operating 10 lines without any overtime.
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 Six persons are required to run each line. For planning purposes, the lines are
run for 7.5 hours each normal shift. Employees are paid for eight hours' work. Up
to two hours of overtime every day may be performed, but it must be booked for a
full week in advance and must involve all lines at the same time. A regular shift
pays $20.00 per hour, and overtime pays $30.00 per hour. Each line produces 450
cases per hour on average.

2. Demand Forecast
Demand is predicted by marketing to be as follows: 2,000 in Q1; 2,200 in Q2;
2,500 in Q3; 2,650 in Q4, and 2,200 in Q1 of the following year. These figures
are expressed as 1,000-case sums. Each year number represents a 13-week
forecast.

3. Goods in warehouse
Management has instructed manufacturing to maintain a two-week supply of
pudding inventory in the warehouses.
Future anticipated sales should serve as the basis for the two-week supply. The
following are the quarterly ending inventory target levels: Q1-338; Q2- 385; Q3-
408; Q4-338.

4. Inventory Cost
Activating calculates the inventory carrying cost to be $1.00 per case per year.
In other words, if a case of pudding is kept in inventory for a full year, it will cost
$1 to simply keep it there. The price is $1.00/52, or $.01923, if a case is only kept
for one week. The price varies according to how long an item is kept in stock. At
the start of Q1, there were 200,000 cases in stock (200 cases in the 1,000-case
increments that the projection is issued in).

5. Backorder when stockout

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 In the event of a stockout, the product is backordered and supplied at a later
time. Due to the loss to goodwill and the high expense of emergency shipping, a
backorder costs $2.40 per case.

6. Salary
A new production employee's hiring and training are estimated to cost $5,000
by the human resources department. It costs $3,000 to\slay off a production
worker.

III. AGGREGATE PLAN

Question 1: Prepare an aggregate plan for the coming year, assuming that
the sales forecast is perfect. Use the spreadsheet “Bradford Manufacturing”
from this book’s DVD. In the spreadsheet an area has been designated for your
aggregate plan solution. Supply the number of packaging lines to run and the
number of overtime hours for each quarter. You will need to set up the cost
calculations in the spreadsheet.

You may want to try using the Excel Solver to find a solution. You will need
to “unprotect” the spreadsheet to run the Solver (Tools > Protection >
Unprotect). You will also need to set the “not-negativity” box in the “options”
area. Remember that your final solution needs an integer number of lines and
integer number of overtime hours for each quarter. (Solutions that require
8.9134 lines and 1.256 hours of overtime are not feasible.)

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We have 1,000 case units and the demand table below:

1,000 case units. Quarter (Week Numbers)

1st 2nd 3rd 4th 1st

(1-13) (14-26) (27-39) (40-52) (Next Year)

Forecast Demand 2,000 2,200 2,500 2,650 2,200

Ending Inventory 338 385 408 338

Target

Planning Data (Each number is a 13 week forecast)

Initial number of employees 60 employees
Number of lines 10 lines
Employees 6 employees per line
Standard production rate (each line) 450 Cases per hour
Employee pay rate $20 per hour
Overtime pay rate $30 per hour
Standard hours per shift 7.5 hours
Maximum overtime per day 2 hours
Inventory carry cost $1.00 per case (per year)
Stockout cost $2.40 per case
Employee hiring and training cost $5,000per employee
Employee layoff cost $3,000per employee

To prepare an aggregate plan, we will choose the number of lines run and
the number of overtime hours so that the total cost is the lowest and the most
optimal.

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 We test the number of lines and overtime hours in different scenarios to see
which has the lowest total cost. First, let all 4 quarters run 10 lines and 0h
overtime, then the fourth quarter ending inventory is negative, which means that
there is a shortage of goods compared to demand, which is not possible.

Overtime hours must be gradually added until there is no shortage of goods. If

there are too many overtime hours, the total cost is high, so only the number of
overtime hours is enough.

Then try reducing the lines if the cost can be reduced, but every time we reduce
the line, we have to increase overtime. Try a few times, we will come to a point
where the more you reduce the line, the higher the price, it's time to stop reducing
the line.

We assume that the number of lines run is 10 lines for 4 quarters, and the
number of overtime hours per day as follows: Q1-0, Q2-0, Q3-1, Q4-2

The beginning inventory of Q2 will be the ending inventory of Q1

Production for each quarter equals the sum of the regular time production and
the overtime production divided by 1000 case units eg. Production of Q1 = (Lines
run *standard hours per shift*13 weeks*5 days*450 cases + Overtime hours*lines
run*13 weeks*5 days*450 cases) / 1000 case units = (10*7.5*13*5*450 +
0*10*13*5*450)/1000 = 2193.8 case units

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 The ending inventory = the beginning inventory + Production - forecast
demand eg. ending inventory of Q1 = 200 + 2193.8 - 2000 = 393.8 cases

The number of employees for each quarter = number of lines * employees/ line

We have a difference between the ending inventory and the ending inventory
forecast, called the deviation, if it is negative, it means the inventory is short of
the plan (stockout), must be imported and the stockout cost is $2.4/case. We
calculate deviation from inventory target that equals the ending inventory minus
the ending inventory target eg. deviation of Q1 = 393.8 - 338 = 55.3

And we get the following results:

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Cost of plan

Labor regular time = employees* 13 weeks * 5 days * 8 hours * $20 per hour

Labor overtime = employees *5 days * overtime hours * $30 per hour

Inventory carry cost = 1/52 * 13 weeks * ending inventory * 1000 cases

Total cost = Labor regular time + Labor overtime + Inventory carry cost

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 Question 2: Review your solution carefully and be prepared to defend it.
Bring a printout of your solution to class. If you have a note-book computer,
bring it to class with a copy of your completed spreadsheet. Your instructor may
run a simulation in class using your solution

We create an aggregate plan based on choosing rationally the number of lines

run and the number of overtimes hours to be optimal the total cost. We calculated
the total ending inventory is 577.7 case units and when the number of workers is
421.875 workers, the total cost of the plan is lowest without hiring and layoff cost.

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IV. CONCLUSION

Making an aggregate plan helps the company to regulate production activities

smoothly, limit excess production, save costs and maintain goodwill.

However, this plan still has some notable drawbacks. The first point of concern
is its accuracy. The plan is heavily based on the forecasted demand, which can be
affected by many unpredictable things such as sudden rise in price of petroleum,
the war between 2 countries,...Moreover, the managers/ forecasters rely on their
previous experience or the current trend to make the plan. Therefore, It is difficult
to foresee exactly what will happen in the future. Another disadvantage is that it
makes the job of the labor becoming unsustainable. Because the company changes
the production due to the demand changes - if demand is high, the workers will be
asked to work overtime and exhausted; if demand low, they might lose the job. As
a result, the labor will have no motivation to work and reduce productivity.
Although it is not a perfect plan, companies should adjust accordingly and use
it as a backup plan to adapt to unpredictable changes in the market.

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