1) Message: As the manager of washing machine developing company, you are needed to find out the level of output per month from your plant for next quarter. At the ending of September (last quarter) you had 100 completed washing machines in stock. Your company works with twenty small suppliers on the fee for service of $1600 per month. On average, each supplier can give material for 10 washing machines per month. If you make a decision not to use all 20 suppliers, average cost of not buying from the supplier is $400 per supplier as supplier has to be remunerated for lost business. If you come to a decision to get new suppliers, cost of contracting and training a new supplier is $300 per supplier. Your main customer has projected a necessity of 200 washing machines in October. In November, customer projects the demand of= 300 washing machines and 200 again for December.
1) Compute total cost by using a one-month planning horizon.
2) Compute total cost by using a 3-month planning horizon.
3) Based on results of your computations, prepare a 1 page memo to your General Manager describing to him what will be the cost advantage of going with one option over the other. You could describe to him how decision is good for managing supplier pool and how the application of aggregate planning will benefit the organization.