MPC Session 3

S&OP Problems
Problem 1

Deman Capacit Needed Hire (- Contract

Quarter Needed Cost
d y Capacity Fire) Costs

1 3000 3000 0 0 0 0 0

2 4000 3000 1000 10 10 30000 30000

3 4500 3000 1500 15 5 1500 45000

4 3500 3000 500 5 -10 50000 15000

$81,50
Total Cost $90,000
0
Current strategy of hiring/firing costs less with this forecast.
Problem 2
 Assumptions: set of employees = 5 employees. $15/quarter per unit over
demand inventory costs

Additio Contr
Invent
nal act Invent
Quart Dema Capabi Need ory Inventor
Labor Units ory Contract
er nd lity ed Worker y
Costs Need Costs
s
to hire ed

1 3000 3000 0 5 500 15000 7500 0

2 4000 3000 1000 5 0 0 0
3 4500 3000 1500 5 -1000 1000 0 30000
4 3500 3000 500 5 0 0 0
$15,00 $7,50
Costs $30,000
0 0
Problem 2 contd…
 $52,500 additional costs (Inventory at $7500 for the
first quarter, $15,000 to hire the inventory set off
workers. $30,000 in contract labor costs.) One cost
not taken into account is the additional labor cost the
Inventory workers will cost after hiring costs, but we
should be able to assume they will cost less than the
Contract labor.

 We will save $60,000 in additional costs from problem

#1 contract costs (90,000-30,000). Inventory costs will
take that number to $52,500 in savings using the
Inventory workers. Taking hiring costs (52,500 -
15,000) out we then have $37,500 in savings.
 Problem 3 A
Icanride Bicycle
Regular Regular
Overtime Overtime
Month Demand time time Inventory (end PD)
Capacity production
Capacity production
0
1 2500 3000 600 3000 300 800
2 3600 3000 600 3000 300 500
3 2900 3000 600 3000 300 900
4 3300 3000 600 3000 300 900
5 4000 3000 600 3000 300 200
6 3500 3000 600 3000 300 0
Total
19800 18000 3600 18000 1800 3,300
(units)
@$0 /unit @$14 /unit @$10 /unit
Subtotal Costs $0.00 $25,200.00 $33,000.00
Total Cost $58,200.00
 Problem 3 B
Icanride Bicycle
Overtim Regular
Regular Overtime Inventor
e time Shortage
Month Demand time productio y (end
Capacit productio costs
Capacity n PD)
y n
1 2500 3000 600 3000 0 500 0
2 3600 3000 600 3000 100 0 0
3 2900 3000 600 3000 0 100 0
4 3300 3000 600 3000 200 0 0
5 4000 3000 600 3000 600 0 400
6 3500 3000 600 3000 600 100 0
Total
19800 18000 3600 18000 1500 700 400
(units)
@$14 @$10
@$0 /unit @$15 /unit
/unit /unit
$21,000. $7,000.
Subtotal Costs $0.00 $6,000.00
00 00
Total Cost $34,000
Problem 3

 From a pure cost standpoint - option B is

better but how much customer goodwill is
lost on each missed sale?
 Problem 4 A
Regular Regular
Overtime Overtime Inventory
Demand time time
Capacity production (end PD)
Capacity production
Period 1 740 800 160 800 0 60
Period 2 720 800 160 800 0 140
Period 3 860 800 160 800 0 80
Period 4 900 800 160 800 20 0
Period 5 810 800 160 800 10 0
Period 6 700 800 160 800 0 100
Total(unit
4730 4800 960 4800 30 380
s)
@$10
@$0 /unit @$40 /unit
/unit
Subtotal Costs $0.00 $1,200.00 $3,800.00
Total
$5,000.00
Cost
Cost will be $5000 in overtime and inventory costs but you will not need any
subcontract work.
 Problem 4 B
Regular Regular
Subcontra
time time Inventor Average
Demand ct Sub Hired Fired
Capacit producti y Inventory
Capacity
y on
Month
1 740 760 100 740 20 10 0 0 1
2 720 720 100 720 20 20 0 0 1
3 860 840 100 840 0 0 0 3 0
4 900 880 100 880 0 0 20 1 0
5 810 800 100 800 0 0 10 0 2
6 700 720 100 700 20 10 0 0 2
Total(unit
4730 4720 600 4680 40 50 4 6
s)
@$0 @10/mont $50/un $2000/uni
$3000/unit
/unit h it t
Subtotal Costs $0.00 $400 $2,500 $8,000 $18,000
Total
$28,900
Cost
Problem 5
Number of
30
Employees
Production Rate 50 per month
Overtime Rate per month
Overtime Cost per unit
Subcontracting per unit
Hire Cost $4,000 per employee
Fire Cost $5,000 per employee
Inventory Cost per month based on eom inventory
per
Shortage Cost $300
table
Possib
Regular
Number of le
Month Demand Productio Hires Fires Hire Cost Fire Cost
Employees Produc
n
tion
30
1 1000 20 1000 1000 0 10 $0 $50,000
2 850 17 850 850 0 3 $0 $15,000
3 750 15 750 750 0 2 $0 $10,000
4 750 15 750 750 0 0 $0 $0
5 750 15 750 750 0 0 $0 $0
6 750 15 750 750 0 0 $0 $0
TOTAL $0 $75,000

Total Cost $75,000

Problem 6
Number of
10
employees
Production per
20
Rate month
Overtime additional
$30
Cost per unit
Overtime per month per
4
Rate employee
Subcontract per
$34
Cost employee
Problem 6
Numb Regula Overti Subcont
Subcon
Quarte Dema er of r me Overtim ract
Profit tract
rs nd Emplo Produc Produc e Cost Producti
Cost
yees tion tion on
10
1 200 $8,000 10 200 0 $0 0 $0
2 250 $10,000 10 200 40 $1,200 10 $340
3 400 $16,000 10 200 40 $1,200 160 $5,440
4 510 $20,400 10 200 40 $1,200 270 $9,180
5 500 $20,000 10 200 40 $1,200 260 $8,840
6 450 $18,000 10 200 40 $1,200 210 $7,140
$30,94
TOTAL $92,400 $6,000
0

Profit $55,460
 Problem 6
Number
Regular Overtime Subcontrac
of Overtime Subcontra
Quarters Demand Revenue Productio Productio t
Employe Cost ct Cost
n n Production
es
10
1 200 $11,000 10 200 0 $0 0 $0

2 250 $13,750 10 200 40 $1,200 10 $340

3 300 $16,500 10 200 40 $1,200 60 $2,040

4 300 $16,500 10 200 40 $1,200 60 $2,040

5 300 $16,500 10 200 40 $1,200 60 $2,040

6 300 $16,500 10 200 40 $1,200 60 $2,040

TOTAL $90,750 $6,000 $8,500

Profit $76,250
Problem 10
Part a: Modified Chase
strategy
Hire/fire, use minimal inventory
and overtime

Num
ber Regul Overti
Overt Invent
Quarte Dem of ar me Fire Fire
ime Inventory ory Hires Hire Cost
rs and Empl Produ Produ s Cost
Cost Cost
oyee ction ction
s
10 $0 -
1 2900 10 3000 $0 100 $300 0 0 $0 $0
2 5200 17 5100 $0 - $0 7 0 $14,000 $0
3 3500 12 3600 $0 100 $300 0 5 $0 $6,000
4 4400 15 4500 $0 200 $600 3 0 $6,000 $0
TOTA $1,20
$0 $20,000 $6,000
L 0

Total Cost $27,200

Problem 10
Part b: Level strategy
Use Overtime and
Inventory
Overt
Numb Regul
ime Overti
Quarte er of ar Invent Inventor Hire Fire Hire Fire
Demand Prod me
rs Emplo Produ ory y Cost s s Cost Cost
uctio Cost
yees ction
n
10
-
1 2900 14 4200 0 $0 1300 $3,900 4 0 $8,000 $0
2 5200 14 4200 0 $0 300 $900 0 0 $0 $0
3 3500 14 4200 0 $0 1000 $3,000 0 0 $0 $0
4 4400 14 4200 0 $0 800 $2,400 0 0 $0 $0
TOTA
16000 $0 $10,200 $8,000 $0
L
Total Cost $18,200