Aggregate Planning Assignment – Bryan Neumann
Toy World
February 24th, 2015
Dan Hoffman the production manager of Toy World Inc. has determined that the
company’s current production plan is not very efficient. Dan has come up with a new production
plan that he believes will save the company money and increase efficiency. Dan approached the
company’s president to make his case to change the production plan. The way the company has
operated in the past was to produce based off of seasonal demand. This was causing a production
disaster when it came to the company training new employees during such a busy time and high
demands during the busy seasons. This also resulted in the company constantly using overtime to
meet their production demands. Dan used spreadsheets to forecast methods to see the most cost
efficient plans.
1
2
3
4
5
6
7
8
9
1.
2.
3.
4.
5.
6.
7.
Unit costs
Regular time product cost
Overtime product cost
Subcontracting product cost
Holding cost
Shortage cost
Increase cost (hire)
Decrease cost (layoff)
Initial inventory
Units last period
(13.15 x 8 / 30) + 3 = $6.51
(3.51 x 1.665) + 3 = $8.84
4.25 + 6.51 = $10.76
6.51 x 0.0742 = $0.48
6.51 x 0.40 = $2.60
200 / 360 = $0.56
796 / 600 = $1.33
Value per unit
$
6.51
$
8.84
$
10.76
$
0.48
$
2.60
$
0.56
$
1.33
83714
10000
(1)Using the base forecast production plan data and using the Soothing Production (avg. gross
demand) as the method, the total expected cost was $8,361,850
(2)Using the Smooth Production as the method to calculate the cost of a level/average production
plan, the total cost is $7,592,874.
(3)Using Chase current demand as the method to calculate the cost of a level/average production
plan and entering 10,000 units to the last period, the total cost is $6,791,750 + $40437.38 =
$6,832,187.38
(4)After inputting the data, the cost of constant regular time is $937440.1. The cost of overtime is
$353600 and the cost of Subcontracting is $8780160. The total cost is $10071200 + $40437.38
=$10,111,637.38
5.
(A)
$10,039,570
(B)
$9,233,433
(C)
$8,927,135 + $40,437.38 = $8,967,572.38
(D)
$13,280,000 + $40,437.38 = $13,320,437.38
6) I would recommend the Chase strategy plan for the first demand schedule as it is the lowest cost. For
the fad demand schedule I would also recommend the Chase strategy as it is also the lowest cost plan.
7) I would suggest keeping the safety stock at 1% of the plan because it can save the company from
situations where they cannot meet customer demand. It would be cheaper for the company to have the
safety stock rather than having customers demand not met and losing business.
Toy World’s best option to improve efficiency and production would be for them to adapt to a
Chase strategy method for their aggregate planning. This is the most cost effective plan and would be so
for either their normal demand schedule or the fad demand schedule. Dan Hoffman should bring up this
strategy to the Toy World president.