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Resource Management
Critical thinking Exercises (Trâm + Ngân)
1. Service operations often face more difficulty in planning than their manufacturing
counterparts. However, service does have certain advantages that manufacturing often does not.
Explain service planning difficulty, and the advantages and disadvantages.
Service operations often face more difficulty in planning than their manufacturing
counterparts because:
- Service operation can be difficult in planning for supply to fulfill demand. Perhaps the
previously planned schedule needs to change to accommodate customer demand.
- The usage of "on call" staff or temporary workers who arrive for a set period of time to
fulfill a specific task may be considered in planning concepts.
- In addition, the weather is also a reason because a sudden change in the weather might
cause any plan to be delayed. When compared to their manufacturing counterparts,
service operations almost always plan outdoors.

Advantages of service operations:

● Labor flexibility:
Different service skills of labor are made flexible since they are frequently needed to complete a
variety of jobs, especially in the unskilled sector.
● Yield management:
When service prices fluctuate based on demand, yield management can be carried out. In order
to increase demand for the services during lean hours, discounts can be provided. On the other
hand, when demand for the services is high, prices may go up.
● Scalability:
Service organization can be adapted for any size of organization.

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 ● Reduction in costs:
The value of service organization in lowering the overall cost of managing services has been
demonstrated.
● Improved quality easily:
Through sound management procedures, service organization contributes to raising the quality of
IT services.
● Seamless sourcing partnerships:
Today, outsourcing, frequently involving multiple service providers, is more widespread, and
service organization provides a common practice framework for better service chain
management.

Disadvantages of service operations:

• Difficulty in predicting demand for services:
It is challenging to predict service demand since the volume of demand can often be very
varying and delivery times are uncertain. Sometimes services like emergency room, police, or
fire aid are needed immediately. Because of this, it can be difficult for service providers to
forecast demand and manage capacity planning properly.

• Capacity availability is difficult to estimate:

It is difficult to estimate capacity availability because most services include interacting
with people, and human capacities to produce a consistent output can readily change from day to
day, unlike a machine, which will unavoidably deliver a rated output. Additionally, because
humans frequently need to multitask, it is hard to measure their output.

2. Name several behaviors related to aggregate planning or master scheduling that you believe
would be unethical, and the ethical principle that would be violated for each.
▲ Unethical practices, on the other hand, are violations of said moral values and
principles. Some of these unethical behaviors that are related to aggregate planning and
master scheduling include:
● Making promises that cannot be fulfilled

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Customers will be unsatisfied and put in a rut if you make promises for products that you
know cannot be fulfilled, and you will also generate timeline failures. The ethical rule
that deals with quantity and quality of goods and services is violated by this behavior.
● Making decisions without giving customers time to test products
Give your customers enough time to thoroughly test out your products and services so
they can make wise choices. It wouldn't be fair to your customers to rush or push them to
push the sale. This behavior violates the ethical rule relating to the quantity and quality of
products and services.
● Unreliable brand information
It also violates the code of ethics to make untrue claims and misleading information about
your own brand and about your competitors. This behavior violates the ethical rule
relating to information risk.

▲ Ethical practices are the values and beliefs that an organization implements to
discourage unethical behaviors. The code of ethics is concerned with the following:

- Conflict of interest
- Employee hiring practices
- Information risk
- Organization's assets, funds, and records
- Quality and quantity of product/service

Exercises
1. (Phương) a) Given the following forecast and steady regular output of 550 every month,
what total cost would result if overtime is limited to a maximum of 40 units a month, and
subcontracting is limited to a maximum of 10 units a month? Unit costs are:

● Regular output $20

● Overtime $30

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 ● Subcontract $25

● Average Inventory $10

● Backlog $18

Month 1 2 3 6
4 5
Foreca 540 540 570 590 650 680
st

Observe the months with a backlog. Those are the months in which we must consider overtime
and subcontracting. Our first option will be subcontracting ($25 per unit) because it costs less
than overtime does ($30 per unit). We can determine the total amount that we will need to cover
using subcontracting and overtime as follows:
Total Forecast –Beginning Inventory –Total Regular

Period 1 2 3 4 5 6 Total

Forecast 540 540 570 590 650 680 3,570

Output

Regular 550 550 550 550 550 550 3,300

Overtime 0 00 00 00 00 00 0

Subcontract 0 00 00 00 00 00 0

Output- 10 10 -20 -40 -100 -130 -270

Forecast

Inventory

Beginning 0 10 20 0 0 0

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 Ending 10 20 0 0 0 0

Average 5 15 10 0 0 0 30

Backlog 0 0 0 40 140 270 450

Cost

Regular @ 20 11,000 11,000 11,000 11,000 11,000 11,000 66,000

Overtime @ 30 0 0 0 0 0 0 0

Subcontract @ 25 0 0 0 0 0 0 0

Inventory @ 10 50 150 100 0 0 0 300

Back orders @ 18 0 0 0 720 2,520 4,860 8100

Total 11,050 11,150 11,100 11,720 13,520 15,860 74,400

b) Suppose now that backlogs are not allowed. Modify your plan from part a to
accommodate that new condition as economically as possible. The limits on overtime and
subcontracting remain the same.

Period 1 2 3 4 5 6 Total

Forecast 540 540 570 590 650 680 3,570

Output

Regular 550 550 550 550 550 550 3,300

Overtime 10 40 40 40 40 20 210

Subcontract 110 10 10 10 10 10 60

Output- 30 60 30 10 -50 -80 0

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Forecast

Inventory

Beginning 0 30 90 120 130 80

Ending 30 90 120 130 80 0

Average 15 60 105 125 105 40 450

Backlog 0 0 0 0 0 0 0

Cost

Regular @ 20 11,000 11,000 11,000 11,000 11,000 11,000 66,000

Overtime @ 30 300 1,200 1,200 1,200 1,200 1,200 6,300

Subcontract @ 25 250 250 25250 250 250 250 1,500

Inventory @ 10 150 600 1,050 1,250 1,050 400 4,500

Back orders @ 18 0 0 0 0 0 0 0

Total 11,700 13,050 13,500 13,700 13,500 12,850 78,300

2. Nowjuice, Inc., produces Shakewell® fruit juice. A planner has developed an

aggregate forecast for demand (in cases) for the next six months. (MUyen)
Month May Jun Jul Aug Sep Oct
Forecast 4,000 4,800 5,600 7,200 6,400 5,000

Use the following information to develop aggregate plans.

● Regular production cost $10 per case

● Regular production capacity 5,000 cases

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 ● Overtime production cost $16 per case

● Subcontracting cost $20 per case

● Holding cost $1 per case per month

● Beginning inventory 500 case

Develop an aggregate plan using each of the following guidelines and compute the total
cost for each plan. Which plan has the lowest total cost? Note: Backlogs are not allowed.
a) Use level production. Supplement using overtime as needed.

Period 1 2 3 4 5 6 Total

Forecast 4,000 4,800 5,600 7.200 6,400 5,000 33,000

Output

Regular 5,000 5,000 5,000 5,000 5,000 5,000 30,000

Overtime 1,600 1,400 3,000

Forecast 1,000 200 -600 -600 0 0 0

Inventory

Beginning 1,000 1,200 600 0 0

Ending 1,000 1,200 600 0 0 0

Average 500 1,100 900 300 0 0 2,800

Backlog 0 0 0 0 0 0 0

Costs

Regular 10 50,000 50,000 50,000 50,000 50,000 50,000 300,000

Overtime 16 0 0 0 25,600 22,400 0 48,000

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 Inventory 1 500 1,100 900 300 0 0 2,800

Back orders 10 0 0 0 0 0 0 0

Total 50,500 51,100 50,900 75,900 72,400 50,000 350,800

b) Use a combination of overtime (500 cases per period maximum), inventory, and
subcontracting (500 cases per period maximum) to handle variations in demand.

Period 1 2 3 4 5 6 Total

Forecast 4,000 4,800 5,600 7.200 6,400 5,000 33,000

Output

Regular 5,000 5,000 5,000 5,000 5,000 5,000 30,000

Overtime 500 500 500 500 500 500 2,500

Subcontract 500 500

Output-Forecast 1,500 700 -100 -1,700 -400 0 0

Inventory

Beginning 1,500 2,200 2,100 400 0

Ending 1,500 2,200 2,100 400 0 0

Average 750 1,850.00 2,150.00 1,250.00 200 0 6,200

Backlog 0 0 0 0 0 0 0

Costs

Regular 10 50,000 50,000 50,000 50,000 50,000 50,000 300,000

Overtime 16 8,000 8,000 8,000 8,000 8,000 0 40,000

Subcontract 20 0 0 0 0 10,000 0 10,000

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 Inventory 1 750 1,850 2,150 1,250 200 0 6,200

Back orders 10 0 0 0 0 0 0 0

Total 58,750 59,850 60,150 59,250 68,200 50,000 356,200

c) Use overtime up to 700 cases per period and inventory to handle variations in demand.

Period 1 2 3 4 5 6 Total

Forecast 4,000 4,800 5,600 7.200 6,400 5,000 33,000

Output

Regular 5,000 5,000 5,000 5,000 5,000 5,000 30,000

Overtime 700 700 700 700 2.800

Output-Forecast 1,000 900 100 -1.500 -700 0 0

Inventory

Beginning 1,000 1,900 2,000 500 0

Ending 1,000 1,900 2,000 500 0 0

Average 500 1,450 1,950 1,250 250 0 5,400

Backlog 0 0 0 0 0 0 0

Costs

Regular 10 50,000 50,000 50,000 50,000 50,000 50,000 300,000

Overtime 16 0 11,200 11,200 11,200 11,200 0 44,800

Hire/Lay off 0

Inventory 1 500 1,450 1,950 1,250 250 0 5,400

Back orders 10 0 0 0 0 0 0 0

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 Total 50,500 62,650 63,150 62,450 61,450 50,000 350,200

3. Demand and capacity (in units) are forecast as follows: (TUyên)

Capacity Source (units) Jan Feb Mar Apr May June July Aug

Regular time 235 255 290 300 300 290 300 290

Overtime 20 24 26 24 30 28 30 30

Subcontract 12 16 15 17 17 19 19 20

Demand 255 294 321 301 330 320 345 340

- The cost of producing each unit is 1000$ on regular time, 1300$ on overtime, and 1800$ on
a subcontract. Inventory carrying cost is 200$ per unit per month. There are 10 units beginning
inventory in stock, and no backorders are permitted from period to period
- Let the production (workforce) vary by using regular time first, then overtime, and then
subcontracting.
a) Set up a production plan by producing exactly what the demand is each month. What is this
plan’s cost?

Capacity Jan Feb Mar Apr May June July Aug

Source
(units)

Demand 255 294 321 301 330 320 345 340

Beginning 10 0 0 0 0 0 0 0
Inventory

Production 245 294 321 301 330 320 345 340

Demand

Regular 235 255 290 300 300 290 300 290

Time

Shortfall (a) = Production 10 39 31 1 30 30 45 50

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 Demand -
Regular Time

Overtime 20 24 26 24 30 28 30 30
Availability

Actual = Minimum value 10 24 26 1 30 28 30 30

Overtime between Shortfall
(a)and Overtime
ability; must be >
0

Shortfall (b) = Shortfall (a) - 0 15 5 0 0 2 15 20

Actual Overtime

Subcontract 12 16 15 17 17 19 19 20
Availability

Actual = Minimum value 0 15 5 0 0 2 15 20

Subcontract between Shortfall
(b)and
Subcontracting;
must be > 0

Shortfall (c) = Shortfall (b) - 0 0 0 0 0 0 0 0

Actual Overtime

Therefore, the production plan will be developed:

Jan Feb Mar Apr May June July Aug

Inventory 10 0 0 0 0 0 0 0

Regular Time 235 255 290 300 300 290 300 290

Overtime 10 24 26 1 30 28 30 30

Subcontract 0 15 5 0 0 2 15 20

Demand 255 294 321 301 330 320 345 340

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 Production 245 294 321 301 330 320 345 340

Product shortage/ 0 0 0 0 0 0 0 0
Ending inventory

The cost of producing each unit is 1000$ on regular time, 1300$ on overtime, and 1800$ on a
subcontract. Inventory carrying cost is 200$ per unit per month. Thus, the cost of the production
plan will be:

Jan Feb Mar Apr May June July Aug Cost

Inventory 2000 0 0 0 0 0 0 0 2000

Regular 235000 255000 290000 300000 300000 290000 300000 290000 2260000
Time

Overtime 13000 31200 33800 1300 39000 36400 39000 39000 232700

Subcontract 0 27000 9000 0 0 3600 27000 36000 102600

Total cost 250000 313200 332800 301300 339000 330000 366000 365000 2597300

b) Regular time can be set exactly the same amount, 275 units per month. If demand cannot
be met there is no cost assigned to shortages and they will not be filled. Does this alter the
solution? Why?

Capacity Jan Feb Mar Apr May June July Aug

Source (units)

Demand 255 294 321 301 330 320 345 340

Beginning 10 0 0 0 0 0 0 0
Inventory

Production 245 294 321 301 330 320 345 340

Demand

Regular Time 275 275 275 275 275 275 275 275

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 Shortfall (a) = Production 0 19 46 26 55 45 70 65
Demand - Regular
Time

Overtime 20 24 26 24 30 28 30 30
Availability

Actual = Minimum value 0 19 26 24 30 28 30 30

Overtime between Shortfall
(a) and Overtime
ability; must be > 0

Shortfall (b) = Shortfall (a) - 0 0 20 2 25 17 40 35

Actual Overtime

Subcontract 12 16 15 17 17 19 19 20
Availability

Actual = Minimum value 0 0 15 2 17 17 19 20

Subcontract between Shortfall
(b) and
Subcontracting;
must be > 0

Shortfall (c) = Shortfall (b) - 0 0 5 0 8 0 21 15

Actual Overtime

In January, the regular time units produced (275) is greater than the production demand (245).
Therefore, there will be no overtime and subcontracting used. On the other hand, in other
months, the regular time units produced is smaller than the production demand, therefore the
usage of overtime and subcontracting is considered,
The following production plan will be developed:

Jan Feb Mar Apr May June July Aug

Inventory 10 0 0 0 0 0 0 0

Regular 275 275 275 275 275 275 275 275

Time

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 Overtime 0 19 26 24 30 28 30 30

Subcontract 0 0 15 2 17 17 19 20

The cost of producing each unit is 1000$ on regular time, 1300$ on overtime, and 1800$ on a
subcontract. Inventory carrying cost is 200$ per unit per month. Thus, the cost of the production
plan will be:

Jan Feb Mar Apr May June July Aug Cost

Inventory 2000 0 0 0 0 0 0 0 2000

Regular 275000 275000 275000 275000 275000 275000 275000 275000 2200000
Time

Overtime 0 24700 33800 31200 39000 36400 39000 39000 243100

Subcontract 0 0 27000 3600 30600 30600 34200 36000 162000

Total cost 277000 299700 335800 309800 344600 342000 348200 350000 2607100

If regular time is set exactly the same amount (275 units per month), the solution will be
altered, as now the shortfall for March, May, July and August increases to 5,8,21 and 15
respectively. Moreover, the total cost of the production plan increases to 2607100 (whereas it
used to be 2597300 in the previous case)

c) If overtime costs per unit rise from 1300$ to 1400$, will your answer to (a) change? Why?
What if overtime costs then fall to 1200$?
● Overtime costs per unit rise from 1300$ to 1400$ (other factors remain unchanged)

Jan Feb Mar Apr May June July Aug Cost

Inventory 2000 0 0 0 0 0 0 0 2000

Regular 235000 255000 290000 300000 300000 290000 300000 290000 2260000

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 Time

Overtime 14000 33600 36400 1400 42000 39200 42000 42000 250600

Subcontract 0 27000 9000 0 0 3600 27000 36000 102600

Total cost 251000 315600 335400 301400 342000 332800 369000 368000 2615200

The answer to (a) will change. The overtime costs throughout the month increase, and the total
cost of the production plan rises from 2597300 to 2615200 (because overtime cost is a
component in the total cost formula, therefore an increase in the overtime cost will lead to a rise
in the total cost).
● Overtime costs per unit fall from 1300$ to 1200$ (other factors remain unchanged)

Jan Feb Mar Apr May June July Aug Cost

Inventory 2000 0 0 0 0 0 0 0 2000

Regular 235000 255000 290000 300000 300000 290000 300000 290000 2260000
Time

Overtime 12000 28800 31200 1200 36000 33600 36000 36000 214800

Subcontract 0 27000 9000 0 0 3600 27000 36000 102600

Total cost 249000 310800 330200 301200 336000 327200 363000 362000 2579400

Similarly, the answer to (a) will change. The overtime costs throughout the month decrease, and
the total cost of the production plan falls from 2597300 to 2579400 (because overtime cost is a
component in the total cost formula, therefore a decrease in the overtime cost will lead to a fall in
the total cost).
4. Filling in these blanks. (Maximum overtime is 20% production, backlogs are not
allowed) (Nhi)
Month 1 2 3 4 5 6 7 8 9 Total
Demand 550 500 480 600 800 650 620 700 820 5720
Beginning

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 INV 0 50 150. 270 270 70 52 128 124 1114
Production 600 600 600 600 600 600 580 580 580 5340
Overtime 0 0 0 0 0 32 116 116 116 380
Ending INV
50 150 270 270 70 52 128 124 0 1114
Increased/
Decreased
Production 600 550 450 330 330 530 528 452 456 4226
Beginning Inventory = Ending Inventory of the previous period
Ending Inventory = Beginning Inventory + Production - Demand
Increased/Decreased Production = Actual Production - Beginning Inventory

Case (Ân + KLinh)

Eight Glasses a Day (EGAD)
The EGAD Bottling Company has decided to introduce a new line of premium bottled water
that will include several “designer” flavors. Marketing manager Georgianna Mercer is predicting
an upturn in demand based on the new offerings and the increased public awareness of the health
benefits of drinking more water. She has prepared aggregate forecasts for the next six months, as
shown in the following table (quantities are in tankloads):
Month May Jun Jul Aug Sept Oct Total
Forecast 50 60 70 90 80 70 420
Production manager Mark Mercer (no relation to Georgianna) has developed the following
information. (Costs are in thousands of dollars.)

● Regular production cost $1 per tankload

● Regular production capacity 60 tankloads

● Overtime production cost $1.6 per tankload

● Subcontracting cost $1.8 per tankload

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 ● Holding cost $2 per tankload per month

● Backordering cost Backlogs are not allowed

● Beginning inventory 0 tankloads

Among the strategies being considered are the following:

1. Level production supplemented by up to 10 tankloads a month from overtime.
2. A combination of overtime, inventory, and subcontracting. Regular production should be
the same each month.
3. Using overtime for up to 15 tank loads a month, along with inventory to handle
variations. Regular production should be the same each month.
Questions
1. The objective is to choose the plan that has the lowest cost. Which plan would you
recommend?
Three strategies:
1. Level production supplemented by up to 10 tankloads a month from overtime.
Under level production, the plant will produce at its capacity and then use overtime to meet
the additional demand.

Month May June July August September October Total

Demand 50 60 70 90 80 70 420

Production 70 70 70 70 70 70 420

Beginning inventory 0 20 30 30 10 0 90

Ending inventory 20 30 30 10 0 0 90

Inventory carrying cost 40,000 60,000 60,000 20,000 0 0 180,000

Production through 60 60 60 60 60 60 360

normal labor

Shortfall to be completed 10 10 10 10 10 10 60

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 from overtime

Cost of regular production 60,000 60,000 60,000 60,000 60,000 60,000 360,000

Cost overtime production 16,000 16,000 16,000 16,000 16,000 16,000 96,000

Stock-out cost 0 0 0 0 0 0 0

Total cost 116,000 136,000 136,000 96,000 76,000 76,000 636,000

2. A combination of overtime, inventory, and subcontracting.

Month May June July August September October Total

Demand 50 60 70 90 80 70 420

Production 60 60 60 90 80 70 420

Beginning Inventory 0 10 10 0 0 0 20

Ending inventory 10 10 0 0 0 0 20

Inventory carrying cost 20,000 20,000 0 0 0 0 40,000

Production through normal 60 60 60 60 60 60 360

labor

Production through normal 0 0 0 15 15 10 40

overtime

Production through normal 0 0 0 15 5 0 20

subcontracting

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 Cost of regular production 60,000 60,000 60,000 60,000 60,000 60,000 360,000

Cost of overtime production 0 0 0 24,000 24,000 16,000 64,000

Cost of subcontracting 0 0 0 27,000 9,000 0 36,000

Stock-out cost 0 0 0 0 0 0 0

Total Cost 80,000 80,000 60,000 111,000 93,000 76,000 500,000

3. Using overtime for up to 15 tank loads a month, along with inventory to handle
variations.
Overtime cost is $1.6, $0.6 higher than normal production cost, which is good for 3 months
storage. Hence, it is advised to produce through normal production if inventory would be kept
for 3 months or less. Assumed that overtime is limited to 15 units.

Month May June July August September October Total

Demand 50 60 70 90 80 70 420

Production 60 65 75 75 75 70 420

Beginning inventory 0 10 15 20 5 0 50

Ending inventory 10 15 20 5 0 0 50

Inventory carrying cost 20,000 30,000 40,000 10,000 0 0 100,000

Production through normal labor 60 60 60 60 60 60 360

Production through normal 0 5 15 15 15 10 60

overtime

Cost of regular production 60,000 60,000 60,000 60,000 60,000 60,000 360,000

Cost of overtime production 0 8,000 24,000 24,000 24,000 16,000 96,000

Stock-out cost 0 0 0 0 0 0 0

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Total Cost 80,000 98,000 124,000 94,000 84,000 76,000 556,000

➞ The second strategy should be adopted because of its minimum overall cost = $500,000.
Moreover, as an upturn in demand is forecasted in the near future it would be better to increase
the production. In this plan, the regular production would be the same. In addition, there would
be overtime production and some part is given to sub-contracting. The overtime production cost:
$1.6 per tankload and subcontracting cost: $1.8 per tankload sound reasonable for extra
production.

2. Presumably, information about the new line has been shared with supply chain partners.
Explain what information should be shared with various partners, and why sharing that
information is important.
The information about the new line should be shared with the suppliers. They need to know
the specifications of the new products, the quantity required, and the timeline for delivery. This
information is important because it helps the suppliers to plan their production and delivery
schedules accordingly. They can also ensure that they have the necessary raw materials and
resources to meet the demand. Secondly, the information should be shared with the logistics
partners. They need to know the delivery schedule, the mode of transportation, and the
destination of the products. This information is important because it helps the logistics partners
to plan their routes and schedules, and to ensure that the products are delivered on time and in
good condition. Thirdly, the information should be shared with the marketing and sales teams.
They need to know the features and benefits of the new products, the target market, and the
pricing strategy. This information is important because it helps the marketing and sales teams to
develop effective marketing campaigns, to identify potential customers, and to set competitive
prices.
The supply chain is described as a network that connects the suppliers with the companies so
that the products can be distributed to the end customers. Furthermore, the supply chain also
includes the various supply chain operations through which goods and services are supplied to
the consumers. The information that is to be shared with the various partners includes the order

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tracking, technology know-how, cost of production, future plan of the companies, development
of market, forecasting & sales, development of the product, the status of inventory, purchases &
sales. Sharing information is vital in the current scenario because of outsourcing and
globalization. It is important to highlight that sharing information improves the partners that do
the business and also global companies. Furthermore, sharing of information results in reducing
the cycle times, efficient and effective management of inventory, fulfill more orders, improved
customer service, and enhanced accuracy as well as forecasts.

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