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Chapter 5A - Planning Supply and Demand
Chapter 5A - Planning Supply and Demand
Chapter 5A - Planning Supply and Demand
Chapter 5A
variability is change in demand that can be forecasted May cause increased costs and decreased responsiveness in the supply chain
Managing Supply
Managing
capacity
Time flexibility from workforce Use of seasonal workforce Use of subcontracting Use of dual facilities dedicated and flexible
How
would you decide which products to make with each type of capacity?
Anheuser-Busch
Managing Capacity
Determine the quantity and timing of production for the immediate future
Production rates
Labor levels Inventory levels
Overtime work
Subcontracting Other controllable variables
Managing Capacity
Long-range plans (over one year)
Research & Development New product plans Capital investment Facility location/expansion Top executives
Operations managers
Managing Capacity
Quarter 1 Feb 120,000
Jan 150,000
Apr 100,000
Jul 180,000
Sep 140,000
Managing Capacity
Use inventories to absorb changes in demand Accommodate changes by varying workforce size Use part-timers, overtime, or idle time to absorb changes Use subcontractors and maintain a stable workforce Change prices or other factors to influence demand
Managing Capacity
Increase inventory in low demand periods to meet high demand in the future
Increases costs associated with storage, insurance, handling, obsolescence, and capital investment
Need to weigh
costs of each
Shortages can mean lost sales due to long lead times and poor customer service
Capacity Options
Capacity Options
Capacity Options
Subcontracting
Capacity Options
Changes in Inventory human holding cost resources are may increase. gradual or Shortages may none; no abrupt result in lost production sales. changes Avoids the costs Hiring, layoff, of other and training alternatives costs may be significant
Loss of quality Applies mainly in control; production reduced profits; settings loss of future business
Influencing demand
Tries to use Uncertainty in excess demand. Hard capacity. to match Discounts draw demand to new customers. supply exactly.
Chase strategy
Match output rates to demand forecast for each period Vary workforce levels or vary production rate
Level strategy
Some combination of capacity options, a mixed strategy, might be the best solution
3. Find labor costs, hiring and layoff costs, and inventory holding costs
4. Consider company policy on workers and stock levels 5. Develop alternative plans and examine their total costs
Total expected demand Average requirement = Number of production days 6,200 = = 50 units per day 124
70 60 50 40 30
Jan 22
Feb 18
Mar 21
Apr 21
May 22
June 20
= Month
= Number of working days
$ 5 per hour ($40 per day) $ 7 per hour (above 8 hours per day) 1.6 hours per unit
$300 per unit $600 per unit
Monthly Demand $ 5 per unit per month Inventory Ending Forecast $10 per unit Change Inventory 900 700 +200 200 $ 5 per hour ($40 per day) +200 400 $ 7 per hour (above 8 hours per day) +250 650 1.6 hours per unit -150 -400 500 100 0 1,850
$300 per unit
Feb
900
Mar
Apr
1,050
1,050
800
1,200
Cost of increasing daily production rate May and training) 1,100 1,500 (hiring June 1,000 1,100 Cost of decreasing daily production rate (layoffs)
Table 13.3
Total units of inventory carried over from one month to the next = 1,850 units Workforce required to produce 50 units per day = 10 workers
0 $58,850
Total units of inventory carried over from one month to the next = 1,850 units Table 13.3 Workforce required to produce 50 units per day = 10 workers
6,000
Cumulative demand units 5,000 4,000 3,000 2,000
Reduction of inventory Cumulative level production using average monthly forecast requirements
Cumulative forecast requirements Excess inventory Jan Feb Mar Apr May June
1,000
Expected Demand
900 700 800
Production Days 22 18 21
Apr
May June
1,200
1,500 1,100 6,200
21
22 20 124
57
68 55
70 60 50 40 30
Level production using lowest monthly forecast demand
Jan 22
Feb 18
Mar 21
Apr 21
May 22
June 20
= Month
= Number of working days
$ 5 per hour ($40 per day) $ 7 per hour (above 8 hours per day) 1.6 hours per unit
$300 per unit $600 per unit
In-house production
Subcontract units
Calculations (= 7.6 workers x $40 per day x 124 days) (= 1,488 units x $10 per unit)
Month Jan
Feb
Mar Apr May
700
800 1,200 1,500
18
21 21 22
39
38 57 68
June
1,100
6,200
20
124
55
70 60 50 40 30
Jan 22
Feb 18
Mar 21
Apr 21
May 22
June 20
= Month
= Number of working days
$ 5 per hour ($40 per day) $ 7 per hour (above 8 hours per day) 1.6 hours per unit
$300 per unit $600 per unit
Cost Information
Extra Cost of per unit per month Extra Cost of $5 Increasing Decreasing $10 per unit Production Production (hiring cost) (layoff cost) Total Cost
$ 7,200 5,600
$ 7,200
$ 7 per hour $1,200 6,800 (above 2 xhours per day) (= 8 $600) 1.6 hours$600 unit per 7,000
(= 1 x $600) 15,300 15,300 16,600 $68,200
Cost of increasing daily production rate $300 per unit $5,700 Apr 1,200 57 9,600 (hiring and training) (= 19 x $300) Cost of decreasing daily production rate $600 per unit $3,300 May 1,500 68 12,000 (= 11 x $300) (layoffs)
June 1,100 55 8,800 $49,600 $9,000 $7,800 (= 13 x $600) $9,600
Plan 2 $ 0
Plan 3 $ 0
37,696 0
0 0 14,880 $52,576
49,600 0
9,000 9,600 0 $68,200
Demand Options
Influencing demand
Use advertising or promotion to increase demand in low periods Attempt to shift demand to slow periods
Demand Options
Requires customers to wait for an order without loss of goodwill or the order Most effective when there are few if any substitutes for the product or service
Often results in lost sales
Demand Options
Managing Demand
Demand
Demand Management
Pricing
and aggregate planning must be done jointly Factors affecting discount timing
Product margin: Impact of higher margin Consumption: Changing fraction of increase coming from forward buy Forward buy
Factor High forward buying High stealing share High growth of market High margin Low margin High holding cost Low flexibility
Favored timing Low demand period High demand period High demand period High demand period Low demand period Low demand period Low demand period
planning across enterprises in the supply chain Take predictable variability into account when making strategic decisions Preempt, do not just react to, predictable variability