Macpherson Refrigeration Limited
Read the case, and answer the following questions:
1.Search in the library (books on Operations Management or Production Management), to find the main components of the “Aggregate Production Planning” problem and briefly describe which are “pure strategies” and “mixed strategies” to solve this problem.
The aggregate demand is the total demand for all products/services produced by a production facility without considering size, models, etc., usually there are significant seasonal variations. The objective of the Aggregate Production Plan is to manage production in order to meet the aggregate demand, matching capacity with demand fluctuations.
The main components of APP are: external (Market Demand, Economic Conditions, Raw Material Availability and Competitors Behaviors) and internal (Production, Workforce Level, Inventory Level, Subcontracting, Backlog Policy, Physical Plant Capacity, Union Agreement, Capital Limit, among others).
The mentioned components can be modified to create production strategies which can be applied to this problem:
Pure strategies: Considering one variable at a time to demand fluctuation: 1.Varying Workforce Level (Hiring or Firing).
2.Varying Production Rate (Overtime/Length of Work Hour)
3.Varying Inventory Level (High or Low).
Mixed strategies: Considering two or more variables at a time to demand fluctuation:
1.Varying both Workforce Level and Inventory Level.
2. Varying both Production Rate and Inventory Level.
2.Find the following parameters of the problem (specify the units involved):
Expected for next year: 480 app/worker-year
Regular Labour Cost$10.50/hr-worker
Overtime Labour Cost1.5 times the regular hourly rate; $15.75/hr-worker Hiring Costs75/hr-worker Hiring Costs$1,800/worker
Inventory Holding Costs$8/app-month
Initial capacity13,000 app/month
Beginning Inventory240 app
3) What are the main advantages and disadvantages of each of the actions (page 2, item 6) available to the company to meet demand? How can these actions be combined?
1.Building inventory to meet peaks
Protection against unforeseen demand changes.
Inventory accumulation will be drawn down during peak demand periods. XIn periods of low demand, inventory would be accumulated and it would generate high holding costs.
No inventory carrying costs.
Workforce held just to meet average monthly requirements. XExcessive overtime might lead to lower efficiency.
XRestricted production might promote poor work habits and low morale.
3.Hiring and laying off workers
The cheapest alternative.
XUnion relations and employee morale could be adversely affected by frequent layoffs. X Hiring and training employees would be a problem (limited labour market).
4) Replicate in an Excel spreadsheet, page 4 (Exhibit 1). It’s not just to copy the spreadsheet, but to write down the formulas to incorporate the production flow balance. A similar flow balance can be obtained for workers. There are also formulas to include all the costs involved. Although you may discuss these questions with your team, you must submit your work individually.