Part I is here.
Example
A TV manufacturer has developed monthly forecasts for the 6-month period from July to December. The forecasts are presented in the table below…
Various costs involved are given in the table below… (Click for larger image.)
Plan: The factory will maintain a constant workforce throughout the 6-month period, no overtime, and ending inventory = 0:
To achieve zero ending inventory, we will need to compute the average requirement.
Average requirement
= total expected demand/number of production days
= 6,200/124
= 50 units per day
We will then work out the production level, inventory, labor cost and inventory carrying cost, using the formulae given below…
Production = average requirement x number of production days
Monthly inventory = production – forecast
Cumulative inventory = inventory of this month + inventory from previous month
Labor cost
= total units x labor hours per unit x pay rate
= total units x 1.6 x 5
Inventory carrying cost
= cumulative inventory x inventory carrying cost
= cumulative inventory x 5
Jay Heizer & Barry Render, “Operations Management”, 8th edition
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