Case-2
Farquhar Industries, Inc.
Farquhar Industries, Inc., is a medium-size producer of custommetal products. The company recently got a contract to make thechassis for a well-known microcomputer. This part will be producedusing dedicated, highly automated equipment. But the companyfrequently gets contracts to make special orders of customproducts. These are usually produced on general- purpose equipmentand involve a high degree of skilled labor. For medium-rangeplanning purposes, the company divides its products according tothe type of process required-job shop or line flow. Further, demandrequirements for the job shop are stated in terms of hours becauseof the large number of different products produced, each requiringvarious amounts of processing time. On the other hand, theline-flow product demand is stated in teams of units because theproduction rate is relatively constant for these items. Theforecasted demand in each area for the coming year is shownbelow.
Month | Manual Operation Demand Forecast (Hours) | Working Days | Automatic Operation Demand Forecast (Units) |
January February March April May June July August September October November December | 1,800 1,500 1,900 1,600 2,000 2,200 2,000 1,800 1,700 1,800 2,000 1,500 | 21 19 22 22 20 22 22 21 21 22 20 22 | 6,000 4,000 5,000 6,000 5,000 6,000 7,000 6,000 5,000 6,000 8,000 6,000 |
Normally, both operations work eight hours perday, five days per week. The automatic operationproduces at an average rate of forty units perhour. Any time that the process is operating, fiveemployees who earn $12.50 per hour must bepresent. Work on products requiring manual operations is a littledifferent. Each employee there earns an average of$16.00 per hour, and there arecurrently ten employees. Extra employees can behired in that area, but the cost of advertising, interviewing, andso on is about $500 per employee hired. Anyemployees laid off receive one month's pay ascompensation. Overtime work is paid at a 50 percentpremium and is limited to two hours perday on weekdays and four hours on Saturday.
Bill Dixon is production manager for Farquhar. He is working ondeveloping an aggregate plan for the coming year and has two majorconcerns. First, the company's relations with its employees havebeen good, but there is some talk of unionizing. Too many layoffscould lead to more than talk. Second, the cost of carryinginventory has been increasing. Custom-made products are notinventoried, but high-volume products are inventoried at an averagecost of $1.50 per unit per month. Carrying cost isa major concern with 2,000 units now in stock.
Suppose you are Bill Dixon. Develop an aggregate plan that meetsFarquhar's company objectives, and determine the total costsassociated with that plan.
Tips:
(Manual production) Vary theworkforce by hiring/layoffs. No over time
(Manual production) Do not varythe workforce, i.e. no hiring or layoffs, only 10 labor to be used.Use overtime at the mentioned rates to fulfill remainingdemand.
(Automatic production) Use fullcapacity of machine to run throughout the months. Use inventory tofulfill the demand in the peak periods.
(Automatic production) Do not runmachine at full capacity. Run according to the monthly demand.Fulfill demand in the peak periods through over time.
