0% found this document useful (0 votes)
18 views6 pages

Case 2 Group 8

The document outlines a linear programming model to evaluate costs, revenues, and profits for different workforce and production scenarios over six months. It compares three promotional strategies, revealing that Susan's plan yields the highest profit of $37,980,156, while also discussing the implications of outsourcing production. Additionally, it highlights the advantages and disadvantages of outsourcing, including cost efficiency and quality control issues.
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd
0% found this document useful (0 votes)
18 views6 pages

Case 2 Group 8

The document outlines a linear programming model to evaluate costs, revenues, and profits for different workforce and production scenarios over six months. It compares three promotional strategies, revealing that Susan's plan yields the highest profit of $37,980,156, while also discussing the implications of outsourcing production. Additionally, it highlights the advantages and disadvantages of outsourcing, including cost efficiency and quality control issues.
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd
You are on page 1/ 6

In this case, we need to build a linear programming model to calculate the expected costs,

revenues, and profits of each scenario.


In this model, the variables are the number of workers hired, the number of workers fired, the
workforce, overtime hours, inventory, stockout, subcontract, production per month. These
variables are multiplied by the unit cost of each item to get the expenditure for each link, and
all the expenditures are added together to get the total expenditure for 6 months. The
contents are distributed in columns c through j of the table.
The demand forecast and price of each month under different scenarios are listed in columns
k to l. We can calculate the total revenue through sumproduct function. The objective function
of this model is to subtract the total revenue from the total expenditure to get the total profit.
In constraints, we need to ensure that:

1. This month's workforce is equal to last month's workforce plus the number of hires in this
month minus the number of layoffs in this month.
2. The production capacity of this month can meet the production target, that is, the total
working hours divided by the production efficiency minus the production target is greater
than or equal to zero.
3. The inventory at the end of the month is exactly equal to the forecast demand when
subcontracted and out of stock are added.
4. Total overtime did not exceed the 40 hours per employee per month limit. These are listed
in columns n through q of the spreadsheet.

For question 1
We used solver to add the above conditions in excel to obtain the profit-maximizing
production mode. The result showed that in Susan's plan, due to the huge increase in demand
in November, a higher profit was created than the other two modes, and the total profit
reached $37,980,156, shows in the chart below:

Peter’s promotion:

Susan’s promotion:
No promotion:

At the same time, shows in the chart below, Peter's programme, with forecasts and capacity
not quite matching, perhaps needs to should be adjusted for promotional programmes, or
to reduce the associated costs.

Peter
350,000

300,000

250,000

200,000

150,000

100,000

50,000

-
1 2 3 4 5 6

Production Demand Forecast

From the graph it can be analysed that although SUSAN's strategy is more profitable and
basically follows the Chase strategy, there is not enough stock to meet the demand when the
promotions start.So maybe increasing the inventory a little bit upfront as a reserve would
make it more profitable.
Susan
500,000
450,000
400,000
350,000
300,000
250,000
200,000
150,000
100,000
50,000
-
1 2 3 4 5 6

Production Demand Forecast

As can be seen from the table, without promotions, the Chase strategy is basically followed
and the cost structure is relatively good.

No promotion
350,000

300,000

250,000

200,000

150,000

100,000

50,000

-
1 2 3 4 5 6

Production Demand Forecast

For question 2
We still used solver to solve the problem in the modified model, and the result showed that
NO Promotion could achieve a higher profit after the discount was increased to $10, and the
total profit reached $36,321,891.

Peter’s promotion:
Susan’s promotion:

No promotion:

For question 3
The increase in outsourcing costs has resulted in a small decrease in profit levels. However,
both Peter's and Susan's scenarios are still higher than the profit without any promotional
programme.
At the same time, data analysis shows that any short-term promotions can clear previously
squeezed inventory, thus reducing inventory costs.
In addition, from the statistical analysis of the data, it is important to be wary of short-term
promotional activities that bring about an increase in overtime hours, which may affect the
passion and mood of the employees at work.
From the analysis of the data, the increased cost of outsourcing, Peter and Susan's proposal,
none of the business is at risk of redundancy, safeguarding the stability of the business and
the employer's positive ratings.

Peter’s promotion:
Susan’s promotion:

No promotion:

The advantages and disadvantages of outsourcing production lines.

Advantages
Lower costs: Outsourcing service providers usually operate in low-cost labour markets, have
specialised facilities and equipment, and have access to discounted prices for raw materials,
thus reducing production costs. Enterprises do not need to invest a large amount of money
in production line construction and maintenance, reducing fixed asset investment and
operating costs, and allowing greater flexibility in capital investment for promotional activities.

Increased efficiency: Outsourced suppliers have the expertise and experience, with highly
optimised workflows and production lines, to complete manufacturing tasks quickly and
efficiently. This helps companies to respond quickly to market demand during promotional
periods, increasing product supply and improving the effectiveness of promotions.
Risk sharing: Enterprises can transfer part of the risks such as quality control, supply chain
management and delivery time to the outsourced suppliers. In the event of production delays
or quality problems during the promotion, the company can reduce its own risk and ensure
the smooth running of the promotion programme.

Focus: Companies can concentrate on their core business such as product development,
marketing and customer service. During the promotional period, companies can focus more
on the development and implementation of promotional strategies to enhance the
effectiveness of promotional activities and market competitiveness.

Flexibility to respond to market demand: Outsourcing enables companies to quickly adjust


production capacity according to market demand. During promotional campaigns,
companies can adjust their production plans based on market feedback to meet consumer
demand and improve customer satisfaction.

Disadvantages:

Quality control issues: As the production process is outsourced to the supplier's factory, the
enterprise may not be able to fully control and supervise the production process, resulting in
unstable product quality. In promotional activities, if there are problems with product quality,
it may affect the enterprise's brand image and promotional effect.
Information security risk: Sharing confidential corporate information and intellectual property
with an outsourced supplier may involve information security risks. If the outsourcing provider
fails to properly protect such information, the enterprise may face competitive risks and
reputational damage, which in turn may affect the smooth running of promotional activities.
Increased communication costs: There may be cultural or linguistic differences between the
outsourced service provider and the organization internally, leading to miscommunication.
During the implementation of the promotional programme, miscommunication may affect
the production schedule and product quality, reducing the effectiveness of the promotion.
Increased dependence: Over-reliance on outsourcing may lead to a reduction in the firm's
autonomy in key technical and managerial aspects. If there are problems with the outsourcing
service, it may seriously affect the production schedule and product quality of the company,
and affect the implementation of the promotion programme.
Possible rise in long-term costs: Short-term cost savings may be achieved by outsourcing,
but in the long run, if the enterprise does not establish its own mechanism for technology
accumulation and talent training, it may face higher costs for technology upgrading and
maintenance in the future. This may affect enterprises' capital investment in promotional
activities and market competitiveness.

You might also like