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GROUP ASSIGNMENT 2

 Chapter 8_Aggregate Planning in the Supply Chain_Pages 222-223; Exercises 1-2 (1; Parts a and
b, and 2; Parts a and b)
 Total marks: 20; 5% of the final grade.

1-a) 5 marks
1-b) 5 marks
2-a) 5 marks
2-b) 5 marks
 Assignment questions should be answered in a Microsoft Word document and any Microsoft
Excel spreadsheets used in the assignment should also be submitted along with the Word
document. Your answer to the questions should include the optimization model used in the
analysis of each question (and/or part) as well as the optimal solution.

1. Skycell, a major European cell phone manufacturer, is making production plans for the coming
year. Skycell has worked with its customers (the service providers) to come up with forecasts of
monthly requirements (in thousands of phones) as shown in Table 8-10. Manufacturing is
primarily an assembly operation, and capacity is governed by the number of people on the
production line. The plant operates for 20 days a month, eight hours each day. One person can
assemble a phone every 10 minutes. Workers are paid 20 euros per hour and a 50 percent
premium for overtime. The plant currently employs 1,250 workers. Component costs for each
cell phone total 20 euros. Given the rapid decline in component and finished product prices,
carrying inventory from one month to the next incurs a cost of 3 euros per phone per month.
Skycell currently has a no-layoff policy in place. Overtime is limited to a maximum of 20 hours
per month per employee. Assume that Skycell has a starting inventory of 50,000 units and wants
to end the year with the same level of inventory.
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GROUP ASSIGNMENT 2

Group Assignment #2: Chapter 8

Chavaughn Blake, Bolaji Fawole, Madison Freeman, Jonalyn Saballa

March 4, 2021

Dr. Mehdi Jourabchi

MGT 3070- A

University of Lethbridge
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GROUP ASSIGNMENT 2

Chapter 8: Aggregate Planning in the Supply Chain- Exercise 1-2

a. Assuming no backlogs, no subcontracting, and no new hires, what is the optimum

production schedule? What is the annual cost of this schedule?

Optimum production is 14,900 phones.

Aggregate Planning Decision Variables: Demand, Inventory, Production Constraints
Ht Lt Wt Ot It St Ct Pt
Number
Number of of Size of Subcontrac Productio
Period Overtime Inventory Stockout Production Demand Workforce Inventory Overtime
workers hired workers workforce t n
laid off
0 0 0 1,250 0 50 0 0
1 0 0 1,250 0 50 0 0 1000 1,000 0- 0 - 25,000 - 2,00,000
2 0 0 1,250 0 150 0 0 1200 1,100 0 - - 25,000 -
3 0 0 1,250 25000 500 0 0 1350 1,000 0 - - -
4 0 0 1,250 25000 650 0 0 1350 1,200 0 - - -
5 0 0 1,250 25000 500 0 0 1350 1,500 0 - - 0 0
6 0 0 1,250 25000 250 0 0 1350 1,600 0 - - -
7 0 0 1,250 25000 0 0 0 1350 1,600 0 - - -
8 0 0 1,250 0 0 0 0 900 900 0 - - 25,000 - 3,00,000
9 0 0 1,250 0 50 0 0 1150 1,100 0 - - 25,000 - 50,000
10 0 0 1,250 0 450 0 0 1200 800 0 - - 25,000 -
11 0 0 1,250 25000 400 0 0 1350 1,400 0 - - -
12 0 0 1,250 25000 50 0 0 1350 1,700 0 - - -
Total 14900
Aggregate Plan Costs
Subcontrac
Period Hiring Layoffs Regular Time Overtime Inventory Stockout Materials
t

1 - - 40,00,000 - 1,50,000 - - 2,00,00,000

2 - - 40,00,000 - 4,50,000 - - 2,40,00,000
3 - - 40,00,000 7,50,000 15,00,000 - - 2,70,00,000
4 - - 40,00,000 7,50,000 19,50,000 - - 2,70,00,000
5 - - 40,00,000 7,50,000 15,00,000 - - 2,70,00,000
6 - - 40,00,000 7,50,000 7,50,000 - - 2,70,00,000
7 - - 40,00,000 7,50,000 - - - 2,70,00,000
8 - - 40,00,000 - - - - 1,80,00,000
9 - - 40,00,000 - 1,50,000 - - 2,30,00,000
10 - - 40,00,000 - 13,50,000 - - 2,40,00,000
11 - - 40,00,000 7,50,000 12,00,000 - - 2,70,00,000
12 - - 40,00,000 7,50,000 1,50,000 - - 2,70,00,000

Total Cost
= 36,04,00,000

Assuming that there are no backlogs, no subcontracting, and no new hires, the optimum
production schedule is shown below. The annual cost of this schedule is therefore, € 360,400,000

b. Is there any value for management to negotiate an increase of allowed overtime per
employee per month from 20 hours to 40?

No, because the overtime utilized to optimize the production is far less than available.
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GROUP ASSIGNMENT 2
Aggregate Planning Decision Variables: Demand, Inventory, Production Constraints
Ht Lt Wt Ot It St Ct Pt
Number
Number of of Size of Subcontrac Productio
Period Overtime Inventory Stockout Production Demand Workforce Inventory Overtime
workers hired workers workforce t n
laid off
0 0 0 1,250 0 50 0 0
1 0 0 1,250 0 0 0 0 950 1,000 0 - - 50,000 - 2,50,000
2 0 0 1,250 0 0 0 0 1100 1,100 0 - - 50,000 - 1,00,000
3 0 0 1,250 0 200 0 0 1200 1,000 0 0 - 50,000 -
4 0 0 1,250 0 200 0 0 1200 1,200 0 0 - 50,000 -
5 0 0 1,250 50000 200 0 0 1500 1,500 0 - - -
6 0 0 1,250 50000 100 0 0 1500 1,600 0 0 - -
7 0 0 1,250 50000 0 0 0 1500 1,600 0 - - -
8 0 0 1,250 0 0 0 0 900 900 0 - - 50,000 - 3,00,000
9 0 0 1,250 0 0 0 0 1100 1,100 0 - - 50,000 - 1,00,000
10 0 0 1,250 0 400 0 0 1200 800 0 - - 50,000 -
11 0 0 1,250 8333.333333 250 0 0 1250 1,400 0 - - 41,667 0
12 0 0 1,250 50000 50 0 0 1500 1,700 0 - - -
Total 14900
Aggregate Plan Costs
Subcontrac
Period Hiring Layoffs Regular Time Overtime Inventory Stockout Materials
t

1 - - 40,00,000 - - - - 1,90,00,000
2 - - 40,00,000 - - - - 2,20,00,000
3 - - 40,00,000 - 6,00,000 - - 2,40,00,000
4 - - 40,00,000 - 6,00,000 - - 2,40,00,000
5 - - 40,00,000 15,00,000 6,00,000 - - 3,00,00,000
6 - - 40,00,000 15,00,000 3,00,000 - - 3,00,00,000
7 - - 40,00,000 15,00,000 - - - 3,00,00,000
8 - - 40,00,000 - - - - 1,80,00,000
9 - - 40,00,000 - - - - 2,20,00,000
10 - - 40,00,000 - 12,00,000 - - 2,40,00,000
11 - - 40,00,000 2,50,000 7,50,000 - - 2,50,00,000
12 - - 40,00,000 15,00,000 1,50,000 - - 3,00,00,000

Total Cost
= 35,64,50,000

2. Reconsider the Skycell data in Exercise 1. Assume that the plant has 1,250 employees and a
no-layoff policy. Overtime is limited to 20 hours per employee per month. A third party has
offered to produce cell phones as needed at a cost of $26 per unit (this includes component
costs of $20 per unit).

a. What is the average per unit of in-house production (including inventory holding and
overtime cost) if the third party is not used?
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GROUP ASSIGNMENT 2
Aggregate Planning Decision Variables: Demand, Inventory, Production Constraints
Ht Lt Wt Ot It St Ct Pt
Number of
Number of Size of Subcontrac Productio
Period workers Overtime Inventory Stockout Production Demand Workforce Inventory Overtime
workers hired workforce t n
laid off

0 0 0 1,250 0 50 0 0
1 0 0 1,250 0 50 0 0 1000 1,000 0 - 0 - 25,000 - 2,00,000
2 0 0 1,250 0 150 0 0 1200 1,100 0 - - 25,000 -
3 0 0 1,250 25000 500 0 0 1350 1,000 0 - - -
4 0 0 1,250 25000 650 0 0 1350 1,200 0 - - -
5 0 0 1,250 25000 500 0 0 1350 1,500 0 - - 0 0
6 0 0 1,250 25000 250 0 0 1350 1,600 0 - - -
7 0 0 1,250 25000 0 0 0 1350 1,600 0 - - -
8 0 0 1,250 0 0 0 0 900 900 0 - - 25,000 - 3,00,000
9 0 0 1,250 0 50 0 0 1150 1,100 0 - - 25,000 - 50,000
10 0 0 1,250 0 450 0 0 1200 800 0 - - 25,000 -
11 0 0 1,250 25000 400 0 0 1350 1,400 0 - - -
12 0 0 1,250 25000 50 0 0 1350 1,700 0 - - -
Total 14900
Aggregate Plan Costs
Subcontrac
Period Hiring Layoffs Regular Time Overtime Inventory Stockout Materials
t

1 - - 40,00,000 - 1,50,000 - - 2,00,00,000

2 - - 40,00,000 - 4,50,000 - - 2,40,00,000
3 - - 40,00,000 7,50,000 15,00,000 - - 2,70,00,000
4 - - 40,00,000 7,50,000 19,50,000 - - 2,70,00,000
5 - - 40,00,000 7,50,000 15,00,000 - - 2,70,00,000
6 - - 40,00,000 7,50,000 7,50,000 - - 2,70,00,000
7 - - 40,00,000 7,50,000 - - - 2,70,00,000
8 - - 40,00,000 - - - - 1,80,00,000
9 - - 40,00,000 - 1,50,000 - - 2,30,00,000
10 - - 40,00,000 - 13,50,000 - - 2,40,00,000
11 - - 40,00,000 7,50,000 12,00,000 - - 2,70,00,000
12 - - 40,00,000 7,50,000 1,50,000 - - 2,70,00,000

Total Cost
= 36,04,00,000

Per Unit in-house cost 6,24,00,000

€ 41.88

Average cost/unit=41.88

b. How should Skycell use the third party? How does your answer change if the third party
offers a price of $25 per unit?

Skycell should contract the third party since he can produce more cheaply. Skycel should still
consider since that price is lower than what Skycell produces them internallyThe third party is
more efficient in production than Skycell.