Download Mountain Wear - Introduction to Operations Management - Lab Manual and more Study notes Business Management and Analysis in PDF only on Docsity!
Aggregate Planning
Aggregate Planning - Mountain Wear
Agenda:
- Problem outline
- Building the model
- Solver
- Additional analysis
Problem Outline:
You are asked to create a model that can evaluate various hiring/firing plans and the effects that changing the production has on the level of inventory, while you are trying to minimize total costs. The company is Mountain Wear and it is the same case that has been reviewed earlier in class but we will be going through the process of building the model and the effects of various plans. The planning is for a year in advance and the year is broken down into quarters. For simplicity of the model hiring/firing is both done at the beginning of the quarter and those that are hired we assume will operate at the same production level as any other employee as soon as they are hired. You also want to ensure that you have a minimum of 10 employees at the end of each quarter and are told that employees can only work 10 hours of overtime each month.
Building the Model:
Inventory:
Beginning inventory in a quarter is equal to the ending inventory of the quarter before it. IBegt=IEndt-1 if I is the inventory level and t is the current time period. The ending inventory is the beginning inventory of the current time period plus the net units produced minus the demand for
that quarter.
Production and Inventory Costs:
Production costs are the number of units produced multiplied by the unit costs. For inventory, unless we take an inventory count every day our best guess for the inventory level for the time frame is the mid-point between beginning and ending inventory. To determine this we take the average between beginning and ending inventories multiplied by the inventory unit holding cost.
To calculate the cost of the workforce: Hiring costs are calculated by multiplying the number of people hired for the period by the unit costs. Layoff costs are the same only the number of people fired multiplied by the appropriate costs. Regular labour costs are calculated by taking the end of quarter number of people (because the number you have at the end of the quarter is the same as the number of people you had at the end of last year, plus the number hired, minus the number laid off at the beginning of the month) and multiplying by the unit cost for one person.
Overtime costs are the unit costs times the number of overtime hours.
We need to ensure employees are not working more than 10 hours a month. Since there are three months in a quarter, we need 10 multiplied by the number of employees by 3.
The labour hours available are the number of workers you have multiplied by the number of hours available per employee. Don't forget to add the overtime hours to the normal hours to determine the total number of available hours.
The number of hours required is the number of units produced multiplied by the hours of labor per unit required.
Total Costs
The sum of each category over all the quarters is the total costs for that category. The sum of all costs over all categories is the total cost for the given plan. This will be our objective cell as we are trying to minimize the total cost.
Solver Time!
What do we need to input? We want to Minimize Total Cost, by changing the Units Produced, Number Hired and Laid Off, and Hours of Overtime.
What are our constraints? The Labour Available must be greater than or equal to the Labour Required, the End of Quarter Workforce must be greater than of equal to 10, Hours of overtime must be less than or equal to the Max Overtime, and our End of Quarter Inventory must be greater
Now we're hiring 1 in Q1 and laying off 7 in Q2. Our total cost has gone from $1,352,021 to $1,354,800. Is this a significant difference? Do integer constraints always matter that much?
3.) Now they would like to look at breaking up the last quarter into 2 periods: October - November and December for a more accurate planning process. (The demand in December is equal to the combined demand in October-November) How does this change your model and the resulting plan?
We need to adjust several things in our model. First, insert a column between Q3 and Q4. This will ensure that all of our cost formulas contain the new information. Solver will also adjust the decision cells accordingly. We need to split up the 10,000 units of demand between the two new periods.
Now we can propogate all of the formulas into the new column. Are there any columns we need to adjust due to the split? The Regular Labour cost is based on employees working a full 3 month quarter. We need to divide the $10,000 Labour Cost by 3 to determine the monthly cost. The Labour Cost in Oct-Nov will now be 2 times this monthly cost for each employee working that period. For December the Labour Cost is the monthly cost multiplied by the employees in December.
We need to do the same thing for the Labour Available. We divide 480 by 3 to get the Monthly Hours Available. Then multiply this by 2 times the number of employees in Oct-Nov. For December, Labour Available is the Monthly Hours Available multiplied by the number of employees in that period. We also calculated the Max Overtime by multiplying the monthly maximum by 3 for the quarter. We'll need to adjust this by multiplying by 2 in Oct-Nov, and multiplying by 1 in December.
Our cost has now increased to $1,375,307.
4.) Now head office has told you of a possible change in their HR policy to try and combat the issue of a competitive labour market. They have decided to only have one cohort of new employees to try and create more loyalty amongst each other and for the company. How would this impact the costs and what would the optimal plan be for how many to hire in the first quarter?
Now we can only hire or fire employees in Q1. All we need to do is adjust our decision cells to reflect the new policy.
