Rate (Units/Month)
700
600
500
400
300
200
100
0
1
Period (Months)
10/13/2012
3000
2500
2000
Back Orders
1500
1000
Actual
Demand
Average
Forecast
Inventory
500
0
1
Period (Months)
10/13/2012
10/13/2012
Demand
Forecast
C2
Cum.
Demand
C3
Avg. /G
Shift
output
C4
Prod
Cost
C5
Cum.
Prod.
units
C6
Buffer
Inventory
(Initial of
270) C7
=C6-C3
Adjusted
inventory
C8 =
C7+270
Inventory
Storage
Cost Rs.
C9=C8x5
Product
Storage
Cost Rs.
C10=
C7 X 5
Total Cost
Rs.
C10
220
220
300
30,000
300
80
350
1750
400
32,150
170
390
300
30000
600
210
480
2400
1050
33,450
400
790
300
30000
900
110
380
1900
550
32,450
600
1390
300
30000
1200
-190
80
400
BO-190
30,400
380
1770
300
30000
1500
-270
BO-270
30,000
200
1970
300
30000
1800
-170
100
500
BO-170
30,500
130
2100
300
30000
2100
270
1350
31,350
300
2400
300
30000
2400
270
1350
31,350
To
tal
2400
9650
2000
2,51650
10/13/2012
2,40000
This plan incurs a maximum storage of 270 units during the month 5
The total cost of the plan = Production Cost + Storage cost of excess
inventories (+ Storage cost of excess Products )
Assumption Made; Customer accepts back order without any extra charges
0ther wise Back Order Cost = 4770 Rs.
10/13/2012
Demand
Forecast
C2
Avg.
Production
C3
Production
Cost C4 =
C3 x100
Subcontract
Units
C4 =C2-C3
Subcontract
Costs
C5 = C4 X125
Total Costs
C6 = C3 + C4
220
130
13,000
90
11,250
24,250
170
130
13,000
40
5,000
18,000
400
130
13,000
270
33,750
46,750
600
130
13,000
470
58,750
71,750
380
130
13,000
250
31,250
44,250
200
130
13,000
70
8,750
21,750
130
130
13,000
13,000
300
130
13,000
170
21,250
34,250
Total
2400
1040
1,04,000
1360
1,70,000
2,74,000
10/13/2012
The Total cost of the plan is equal to Average Production Cost plus
subcontracting cost of the rest of the units.
10/13/2012
Demand
Forecast
C2
Avg /
G Shift
output
C3
G Shift
Production
units C4
(Lower of C2C3)
G Shift
Prod.
Cost C5
Over time
Production
units
C6 = C2-C3
(+ Values)
Over time
Production
Cost C7 =
C6 X 115
Total
Production
Cost C8 =
C5 + C7
220
300
220
22,000
22.000
170
300
170
17,000
17,000
400
300
300
30,000
100
11,500
41,500
600
300
300
30,000
300
34,500
64,500
380
300
300
30,000
80
9,200
39,200
200
300
200
20,000
20,000
130
300
130
13,000
13,000
300
300
300
30,000
30,000
1,92,000
480
55,200
2,47,200
Total
10/13/2012
The total cost of the plan is equal to cost of production at regular time
plus cost of overtime production.
10/13/2012
Mixed Strategy
Mon
th
C1
Dema
nd
Forec
ast
C2
Avg
-G
Shift
outp
ut
C3
Prod.
Cost
C4
Add.
Units
needed
C5
Add units
needed
after OT
Prod. of
100 Units
C6
Subcontract
ing Costs
C7 =
C6 X 125
(+ Value of
C6)
Inventory
Carrying
Cost C8 =
(-C5) x 5
Over Time
Costs C9 =
Cost of
increase
of work
force
C10 =
Total Cost
C11=
C4+C7+C8
+C9+C10
220
200
20,000
20
-80
400
20 x115
=2,300
20x10=
200
22,900
170
200
17,000
-30
-70
350
17,350
400
200
20,000
200
100
100x125
=12,500
100 x 115
=12,650
100x10
=1,000
46,150
600
200
20,000
400
300
300x125
=37,500
100 x 115
=12,650
100x10
=1,000
71,150
380
200
20,000
180
80
80x125
=10,000
100 x 115
=12,650
100x10
=1,000
43,650
200
200
20,000
20,000
130
200
13,000
-70
-70
350
13,350
300
200
20,000
100
100 x 115
=12,650
100x10
=1,000
33,650
Tot
al
2400
60,000
1,100
52, 900
4,200
2,67,200
10/13/2012
1,50000
10
Rest of the units after Regular and Overtime production are given to
subcontracting.
The total cost of the plan is equal to regular production cost of plus
over time production cost plus subcontracting cost
10/13/2012
11