Production and Operations Analysis (6th Edition)

Chapter 3, Problem 32P 15 Bookmarks

Problem

The Paris Paint Company is in the process of planning labor force requirements and production levels for the ne
quarters. The marketing department has provided production with the following forecasts of demand for Paris Pa
the next year:

Demand Forecast
Quarter (in thousands of
gallons)

1 380

m
er as
2 630

co
eH w
3 220

o.
4
rs e
160
ou urc
Assume that there are currently 280 employees with the company. Employees are hired for at least one full quar
costs amount to $1,200 per employee and firing costs are $2,500 per employee. Inventory costs are $1 per gallo
o

quarter. It is estimated that one worker produces 1,000 gallons of paint each quarter.
aC s
vi y re

Assume that Paris currently has 80,000 gallons of paint in inventory and would like to end the year with an inven
least 20,000 gallons.
a. Determine the minimum constant workforce plan for Paris Paint and the cost of the plan. Assume that stock-o
ed d

allowed.
ar stu

b. Determine the zero inventory plan that hires and fires workers each quarter to match demand as closely as po
the cost of that plan.
is
Th

c. If Paris were able to back-order excess demand at a cost of $2 per gallon per quarter, determine a minimum c
workforce plan that holds less inventory than the plan you found in part (a), but incurs stock-outs in quarter 2. De
the cost of the new plan.
sh

Step-by-step solution

Step 1 of 8

a)
Determine the minimum constant workforce plan for company P as well as the cost of the plan by inserting formu
Excel spreadsheet.
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 Current workforce with the company = 280 employees
Hiring cost = $1,200 per employee

Firing cost = $2,500 per employee

Inventory cost = $1 per gallon per quarter

Production of paints each quarter per employee = 1,000 gallons

Gallons of paint in inventory = 80,000

Closing inventory of paint = 20,000 gallons

Step 2 of 8

The table shown below represents the calculation of Minimum number of workforce:

m
er as
co
eH w
Hence, on the basis of the table, the minimum constant workforce is 465 workers.

o.
rs e
Note that net demand for the 1st quarter is adjusted by subtracting 80,000 gallons of paint in inventory from the d
ou urc
forecast of 380 thousand gallons of paints. The resultant is 300 thousand gallons of paint.

Similarly, Net demand for the last quarter is adjusted by subtracting Closing inventory of paint that is 20,000 gallo
o
aC s
vi y re

Step 3 of 8

Draw a spreadsheet implying the cost of the resulting plan. The table represents the calculation of ending invent
ed d

Ending inventory for each quarter is calculated as follows:

ar stu

Column I = (Column H – Column E)

is
Th
sh

Hence, the total ending inventory is 940.

Step 4 of 8

Now, calculate the total cost of minimum constant workforce plan for company P.

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 Hence, the total cost of minimum constant workforce plan for company P is
$1,182,000.

Note that Company P would hire 185 workers (465 – 280) by eliminating the workers on payroll from the
constant workforce.

Step 5 of 8

b)

Calculation as per Zero inventory plan for company P.

Draw a table in the Excel spreadsheet as shown below:

m
er as
co
eH w
o.
rs e
ou urc
o

Hence, the total workers hired are 350 and workers fired are 450.
aC s
vi y re

Now, calculate the cost of the zero-inventory plan for company P.

ed d
ar stu

Hence, the cost of the zero-inventory plan for company P that matches the demand as closely as possible is $1,
is
Th

Step 6 of 8
sh

c)

Determine a minimum constant workforce plan that holds less inventory than the plan found in part a) but incurs
in quarter 2.

Firm P assumes that if it uses a minimum number of workers required through period 3, the minimum constant w
plan may hold less inventory than the plan discussed in part a) .

Divide the cumulative net demand for the period 3, that is, 1,150 by year 3 to obtain the cumulative production fo
quarters. It comes out to be 384.

The calculation of ending inventory is shown in the form of Excel spreadsheet.

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 Step 7 of 8

Hence, on the basis of this table, firm P would hire 104 workers (384-280) by eliminating workers on payroll from
constant workforce.

Step 8 of 8

Now, calculate the total cost of the new plan for company P as shown below:

m
er as
co
eH w
o.
rs e
ou urc
Hence, the total cost of the new plan for company P is $760,800.

By comparing the plans calculated in part a) and b), part c) has the least cost of minimum constant workforce pl
why the plan can be adopted by the company P to hold less inventory and incur less stock outs in quarte
o
aC s
vi y re
ed d

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 m
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aC s
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ar stu
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 m
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aC s
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ar stu
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 m
er as
co
eH w
o.
rs e
ou urc
o
aC s
vi y re
ed d
ar stu
is
Th
sh

This study source was downloaded by 100000755509617 from CourseHero.com on 03-28-2021 07:38:43 GMT -05:00

https://www.coursehero.com/file/65338610/Exam0576pdf/
 m
er as
co
eH w
o.
rs e
ou urc
o
aC s
vi y re
ed d
ar stu
is
Th
sh

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https://www.coursehero.com/file/65338610/Exam0576pdf/
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