Operations Management Case Essay Example | Topics and Well Written Essays - 1250 words

Operations Management Case - Essay Example Aggregate planning, a medium-range capacity planning system that typically covers a time horizon of anywhere from 3 to 18 months, has as its goal that of achieving a production plan that effectively utilizes the firm’s resources to satisfy expected demand. Decisions have to be made on output rates, employment and inventory levels and changes, back orders, and subcontracting, in effect determining not only the output levels planned but also the appropriate resource input mix to be used. Before we tackle the solution, we summarize the basic assumptions for our calculations. Basic Assumptions Table 1 contains the 12-month demand forecast and our assumptions. Aside from the total output, number of workers, cost assumptions, and labor force parameters given in the problem, we would like to highlight some key assumptions not indicated in the statement of the problem but which have an effect on the solution. The first is the capacity cushion, which determines how much excess inventory we would like to have at the end of the month to act as a buffer for potential variations in demand. A high cushion level would entail inventory costs, while a low level would entail stock-out costs that were neither given. The given initial inventory level of 200 units is equivalent to 22 percent of maximum demand (900 units in October) and 29 percent of year-end demand (600 units). Working on the principles of zero stock-outs and the maximization of resources, we calculated the standard deviation in monthly demand as plus or minus 20 percent and made the convenient assumption to keep the capacity cushion at this level of production capacity or roughly 100 units per month.