As a manager of a
washing machine manufacturing company you are required to determine the level
of output per month from your plant for the next quarter. At the end of
September (last quarter) you had 100 finished washing machines in stock. Your
company works with 20 small suppliers on a fee for service of $1600 per month.
On an average each supplier can provide material for 10 washing machines per
month.If you decide not to use
all 20 suppliers average cost of not buying from a supplier is $400 per
supplier as the supplier has to be compensated for lost business. If you decide
to get new suppliers the cost of contracting and training a new supplier is
$300 per supplier.Your major customer has
projected a requirement of 200 washing machines in October. In November the
customer projects a demand of 300 washing machines and 200 again for December.1.Calculate the total cost using a one-month
planning horizon.2.Calculate the total cost using a three-month
planning horizon.3.Based on the results of your calculations write
a one page memo to your General Manager explaining to him what will be the cost
advantage of going with one option over the other. You could explain to him how
the decision is good for managing the supplier pool and how the application of
aggregate planning will benefit the organization.