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    ENMG 611 - Unit C-2 - Aggregate Planning

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    Rand Kaassamani
    Skycell is planning production for the coming year based on forecasts of monthly phone demand. The plant has 1,250 workers who can each assemble one phone every 10 minutes, working 8 hours a day for 20 days a month. Component costs are 20 euros per phone and inventory carrying costs are 3 euros per phone per month. Given the starting inventory of 50,000 phones and goal of ending with the same, the optimal production schedule assuming no overtime has an annual cost of [X]. Allowing overtime of up to 40 hours per month per employee instead of the current 20 hours could reduce costs by [Y] euros. With fewer employees, the value of additional overtime increases. Limiting monthly production to a level schedule reduces costs but for

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    ENMG 611 - Unit C-2 - Aggregate Planning

    Uploaded by

    Rand Kaassamani
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    Skycell is planning production for the coming year based on forecasts of monthly phone demand. The plant has 1,250 workers who can each assemble one phone every 10 minutes, working 8 hours a day for 20 days a month. Component costs are 20 euros per phone and inventory carrying costs are 3 euros per phone per month. Given the starting inventory of 50,000 phones and goal of ending with the same, the optimal production schedule assuming no overtime has an annual cost of [X]. Allowing overtime of up to 40 hours per month per employee instead of the current 20 hours could reduce costs by [Y] euros. With fewer employees, the value of additional overtime increases. Limiting monthly production to a level schedule reduces costs but for

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    ENMG 611_Unit C-2_Aggregate Planning

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    Skycell is planning production for the coming year based on forecasts of monthly phone demand. The plant has 1,250 workers who can each assemble one phone every 10 minutes, working 8 hours a day for 20 days a month. Component costs are 20 euros per phone and inventory carrying costs are 3 euros per phone per month. Given the starting inventory of 50,000 phones and goal of ending with the same, the optimal production schedule assuming no overtime has an annual cost of [X]. Allowing overtime of up to 40 hours per month per employee instead of the current 20 hours could reduce costs by [Y] euros. With fewer employees, the value of additional overtime increases. Limiting monthly production to a level schedule reduces costs but for

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    4 views1 page

    ENMG 611 - Unit C-2 - Aggregate Planning

    Uploaded by

    Rand Kaassamani
    Skycell is planning production for the coming year based on forecasts of monthly phone demand. The plant has 1,250 workers who can each assemble one phone every 10 minutes, working 8 hours a day for 20 days a month. Component costs are 20 euros per phone and inventory carrying costs are 3 euros per phone per month. Given the starting inventory of 50,000 phones and goal of ending with the same, the optimal production schedule assuming no overtime has an annual cost of [X]. Allowing overtime of up to 40 hours per month per employee instead of the current 20 hours could reduce costs by [Y] euros. With fewer employees, the value of additional overtime increases. Limiting monthly production to a level schedule reduces costs but for

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    © All Rights Reserved
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    of 1

    Aggregate Planning

    Skycell, a major European cell phone manufacturer, is making production plans for the coming
    year. Skycell has worked with its customers (the service providers) to come up with forecasts of
    monthly requirements (in thousands of phones) as shown in the below table.
    Manufacturing is primarily an assembly operation, and capacity is governed by the number of
    people on the production line. The plant operates for 20 days a month, eight hours each day. One
    person can assemble a phone every 10 minutes. Workers are paid 20 euros per hour and a 50
    percent premium for overtime. The plant currently employs 1,250 workers. Component costs for
    each cell phone total 20 euros. Given the rapid decline in component and finished-product prices,
    carrying inventory from one month to the next incurs a cost of 3 euros per phone per month.
    Skycell currently has a no-layoff policy in place. Overtime is limited to a maximum of 20 hours
    per month per employee. Assume that Skycell has a starting inventory of 50,000 units and wants
    to end the year with the same level of inventory.
    Month Demand in 1000 units
    January 1,000
    February 1,100
    March 1,000
    April 1,200
    May 1,500
    June 1,600
    July 1,600
    August 900
    September 1,100
    October 800
    November 1,400
    December 1,700

    a. Assuming no backlogs, no subcontracting, and no new hires, what is the optimum production
    schedule? What is the annual cost of this schedule?
    b. Is there any value for management to negotiate an increase of allowed overtime per employee
    per month from 20 hours to 40?
    c. Reconsider parts (a) and (b) if Skycell starts with only 1,200 employees. Reconsider parts (a)
    and (b) if Skycell starts with 1,300 employees. What happens to the value of additional
    overtime as the workforce size decreases?
    d. Consider part (a) for the case in which Skycell aims for a level production schedule such that
    the quantity produced each month does not exceed the average demand over the next 12
    months (1,241,667) by 50,000 units. Thus, monthly production including overtime should be
    no more than 1,291,667. What would be the cost of this level production schedule? What is
    the value of overtime flexibility?

    N. Nehme ENMG 611 Page 1 of 1

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