Assignment: Supply Chain Strategy
Lavare, located in the Chicago suburbs, is a major manufacturer of stainless steel sinks. Lavare is in the middle of the demand and supply planning exercise for the coming year. Anticipated monthly demand from distributors over the 12 months is shown in Table below(ODD and EVEN Groups should use ONE designated different demand forecasts.)
|
Month
|
Month #
|
ODDGRPs Forecast Demand
|
EVEN GRPs Forecast Demand
|
|
January
|
1
|
10,000
|
12,000
|
|
February
|
2
|
12,000
|
14,000
|
|
March
|
3
|
15,000
|
14,000
|
|
April
|
4
|
16,000
|
18,000
|
|
May
|
5
|
25,000
|
19,000
|
|
June
|
6
|
30,000
|
20,000
|
|
July
|
7
|
28,000
|
22,000
|
|
August
|
8
|
24,000
|
27,000
|
|
September
|
9
|
20,000
|
30,000
|
|
October
|
10
|
17,000
|
28,000
|
|
November
|
11
|
13,000
|
14,000
|
|
December
|
12
|
11,000
|
11,000
|
Capacity at Lavare is governed by the number of machine operators it hires. The firm works 20 days a month, with a regular operating shift of eight hours per day. Any time beyond that is considered overtime. Regular-time pay is $15 per hour and overtime is $22 per hour. Overtime is limited to 20 hours per month per employee. The plant currently has 250 employees. Each sink requires two hours of labor input. It costs $3 to carry a sink in inventory for a month. Materials cost per sink is $40. Sinks are sold to distributors at a price for $125 each. We assume that no stockouts are allowed and the starting inventory entering January is 5,000 units and the desired ending inventory in December is also 5,000 units.
1. (Use a separate Worksheet SAME File!!,) Market research has indicated that a promotion dropping prices by: 5 percent (Odd groups) and 10 percent (Even Groups) in a given month will increase sales in that month by 15 percent and bring forward 20, 15, and10 percent demand from each of the following three months.
a. What is the optimal production plan for the year if we assume no promotions? What is the annual profit from this plan? What is the cost of this plan?
b. Is it better to promote in: ODD Groups: April or June/ EVEN Groups - July or September?How much increase in profit can be achieved as a result?
c. If sinks are sold for $250 instead of $125, does the decision about the timing of the promotion change? Why?
2. (Use another separate Worksheet, SAME File!!) Consider the data for Lavare above. We now assume that Lavare can change the size of the workforce by laying off or hiring employees. Hiring a new employee incurs a cost of $1,000; laying off an employee incurs a layoff cost of $2,000. Also, now assume that a third party has offered to produce sinks at $74 per unit. How does this change affect the optimal production plan without a promotion? How does this change affect the optimal timing of a promotion? Explain the changes.
a. What is the optimal production plan for the year if we assume no promotions? What is the annual profit with this plan? What is the cost of this plan?
b. Is it better to promote in ODD Groups: April or June/ EVEN Groups - July or September? How much increase in profit can be achieved as a result?