International Business Operations Management
A company produces to a seasonal demand, with the forecast for the next 12 months as given below.
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| Month | Demand |
| January | 600 |
| February | 700 |
| March | 800 |
| April | 700 |
| May | 600 |
| June | 500 |
| July | 600 |
| August | 700 |
| September | 800 |
| October | 900 |
| November | 700 |
| December | 600 |
The present labor force can produce 500 units per month. Each employee added can produce an additional 20 units per month and is paid $1000 per month. The cost of materials is $30 per unit. Overtime can be used at the usual premium of time and a half for labor up to a maximum of 10 percent per month. Inventory-carrying cost is $50 per unit per year. Changes in production level cost $100 per unit due to hiring, line changeover costs, and so forth. Assume 200 units of initial inventory. Extra capacity may be obtained by subcontracting at an additional cost of $15 per unit over and above the company’s producing them itself on regular time.
- Provide a detailed cost breakdown for using a level vs. a chase strategy to meet the increased demand.
- Which strategy do you recommend?
- How much savings would result from the plan you recommend?
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