Answer to Question #189186 in Management for Andrew-John Bock

Question

Question 3 ( Aggregate Planning)

Sumarise the service demand management strategies that can be utilized for aggregate planning. (10)

Question 5 (Economic Order Quantity)

Ndapandula Investment CC sells about 12 000 bags of poulty grain per year. The Holding costs are N$ 50.00 per bag per year, and the Ordering costs are about N$ 100.00 per order. The Investment company operates 280 days per year.

Determine:

I.  The optimal economic order quantity. (4)

II.  The total annual inventory costs  (4) 

III. If the demand increases to 13 000 bags per year, what will the total annual inventory costs amount to? (4)

Answer 1

Aggregate planning strategies;

1. Chase strategy- level strategy looks to maintain a steady production rate and workforce level. Organization requires a robust forecast demand to increase or decrease production in anticipation of lower or higher customer demand. in this strategy, work is the steady workforce. Demerits are high inventory and increase backlogs
2. Level Strategy- chase strategy looks to dynamically match demand with production, Its merit is lower inventory levels and backlogs, demerits are low quality, productivity, and depressed workforce.
3. Hybrid strategy- Hybrid strategy looks to balance between level strategy and chase strategy

i)       Optimal economic order quantity (EOQ) = square root of: [2(setup costs) (demand rate)] / holding costs.

               √ {2(12000) (100)}/50 = 219.09 units

ii)      Total annual inventory costs= annual holding cost + annual setup (ordering)

(50*12000)+ (280*100)

              = N$ 628,000

iii)    (50*13000)+(280*100)

=N$ 678,000