Aggregate Planning and S&OP Answer Key Part 2

21) Which of the following aggregate planning strategies is a demand option? A) changing price B) subcontracting C) varying production levels D) changing inventory levels E) using part-time workers Answer: A 22) In aggregate planning, which one of the following is not a basic option for altering demand? A) promotion B) subcontracting C) back ordering D) pricing E) personal selling Answer: B 23) Which choice below best describes the counterseasonal product demand option? A) producing such products as lawnmowers and sunglasses during the winter B) developing a mix of products that smoothes out their demands C) lowering prices when demand is slack D) using subcontractors only when demand is excessive E) the breaking of the aggregate plan into finer levels of detail Answer: B 24) Which of the following statements about aggregate planning is TRUE? A) An advantage of the counterseasonal product and service mixing option is that it matches seasonal fluctuations without hiring/training costs. B) In aggregate planning, back orders are a means of manipulating supply while part-time workers are a way of manipulating product or service demand. C) A pure chase strategy allows lower inventories when compared to a pure level scheduling. D) A disadvantage of subcontracting is that it may require skills or equipment outside the firm's areas of expertise. E) The option of varying workforce size by hiring or layoffs is used where the size of the labor pool is small. Answer: C 25) Which choice best describes level scheduling? A) Daily production is variable from period to period. B) Subcontracting, hiring, and layoffs manipulate supply. C) Price points are calculated to match demand to capacity. D) Inventory goes up or down to buffer the difference between demand and production. E) Overtime is used to handle seasonal demand fluctuations. Answer: D 26) Which of the following statements regarding aggregate planning is TRUE? A) In a pure level strategy, production rates or work force levels are adjusted to match demand requirements over the planning horizon. B) A pure level strategy allows lower inventories when compared to pure chase and hybrid strategies. C) Mixed strategies in aggregate planning may utilize inventory, work force, and production rate changes over the planning horizon. D) Because service firms have no inventory, the chase strategy does not apply. E) A disadvantage of the option of changing inventory levels is that it forces abrupt production changes. Answer: C 27) In level scheduling, what is kept uniform from month to month? A) product mix B) inventory levels C) production/workforce levels D) demand levels E) sub-contracting levels Answer: C 28) Which of the following is NOT consistent with level scheduling? A) varying the use of subcontracting B) finding alternative work for employees during low-demand periods C) using built-up inventory to meet demand requirements D) varying production levels and/or work force to meet demand requirements E) All of the above are inconsistent with the pure level strategy. Answer: D 29) Which of the following is consistent with a chase strategy? A) vary production levels to meet demand requirements B) vary work force to meet demand requirements C) vary production levels and work force to meet demand requirements D) little or no use of inventory to meet demand requirements E) All of the above are consistent with a chase strategy. Answer: E 30) Which of the following is NOT an advantage of level scheduling? A) stable employment B) lower absenteeism C) matching production exactly with sales D) lower turnover E) more employee commitment Answer: C 31) A firm uses the chase strategy of aggregate planning. It produced 1000 units in the last period. Demand in the next period is estimated at 800, and demand over the next six periods (its aggregate planning horizon) is estimated to average 900 units. Which of the following tactics would be most representative of following a chase strategy? A) add 100 units to inventory in the next period B) add 200 units to inventory in the next period C) hire workers to match the 100-unit difference D) lay off workers to match the 200-unit difference E) implement a lower price point to increase demand Answer: D 32) Which of the following actions is consistent with the use of level scheduling? A) use inventory to meet demand requirements B) use overtime to meet higher-than-average demand requirements C) vary production levels to meet demand requirements D) vary work force to meet demand requirements E) none of the above Answer: A 33) ________ is a capacity option that works especially well in the service sector where labor needs are relatively unskilled. Answer: Using part-time workers 34) Developing a mix of ________ products is a widely used demand smoothing technique. Answer: counterseasonal 35) The ________ strategy sets production equal to forecasted demand. Answer: chase 36) ________ maintains a constant output rate, or work force level, over the planning horizon. Answer: Level scheduling 37) Identify (a) the demand options for aggregate planning; and (b) the capacity (supply) options for aggregate planning. Answer: (a) Demand options are: influencing demand (through price, promotion, advertising, selling), back ordering during high-demand periods, and counterseasonal product and service mixing. (b) Capacity options are: changing inventory levels, varying workforce size by hiring or layoffs, varying production rates through overtime or idle time, subcontracting, and using part-time workers. 38) Explain the fundamental difference between the "capacity options" and the "demand options" of aggregate planning strategies. Answer: Capacity options do not try to change the demand but attempt to absorb the demand fluctuations; capacity options deal with supply, not demand. Demand options try to smooth the demand pattern, but do not impact supply or capacity. 39) Compare the chase strategy versus level scheduling. Answer: The chase strategy sets production equal to forecasted demand, using varying workforce levels, overtime, idle time, part-time employees, or subcontracting. Its main advantage is low inventory levels. The level strategy maintains a constant output rate, production rate, or workforce level over the planning horizon. A stable workforce generally leads to better quality, less turnover and absenteeism, and more employee commitment to corporate goals. 40) The textbook illustrates demand management in the form of price cuts or discounts. Can demand manipulation for aggregate planning involve price increases? Explain; provide an example. Answer: The text did allude to price increases when it stated that air conditioners are "least expensive in winter"—they must be more expensive when demand is high. Lower prices for one circumstance imply higher prices (or lower discounts) in other circumstances. Student examples may build from text examples, or come from experience, such as: energy companies can use peak-load pricing; transit systems have higher rush-hour fares, etc. The bottom line is that higher prices may lower demand during certain periods. In some cases, that demand will be lost (with the revenue at least partially being made up in the form of a higher price per unit). In other cases, that demand will be pushed to a different period (smoothed), which is actually a good thing for the company from a cost perspective. 41) If a service firm were to attempt level scheduling for aggregate planning, should its level of output be at average demand, peak demand, or minimum demand? Answer: This is a critical-thinking question for students. The answer depends on the ability of customers to reschedule or reserve service times, and upon the organization's view toward lost sales. Level = average if customers can reserve or reschedule. Level = maximum if the organization wishes to prevent lost sales. 42) Most people would argue that a service firm must follow chase or mixed strategies. On the other hand, most state agencies, which are clearly service-oriented, are not at all able to "chase" demand. Discuss how they manipulate demand to allow the level strategy to be used. Answer: This is a critical-thinking item for students. Most will recognize that state agencies (driver's license, tax, etc.) are often level because of restrictions on their ability to hire and layoff at will. Most students will uncover examples from personal experience, such as: demand is forced to meet level capacity by queues, waiting lines, processing delays (back orders), appointments, or ultimately by lost "sales." 43) What is a disadvantage common to the following two strategies: (1) varying inventory levels and (2) back ordering during periods of high demand? Answer: Shortages or backorders may result in lost sales, i.e., customers may go elsewhere. Section 5 Methods for Aggregate Planning 1) Graphical techniques are easy to understand and use, but are not well-suited for generating optimal strategies. Answer: TRUE 2) The transportation method of linear programming is an optimizing approach to aggregate planning. Answer: TRUE 3) A firm practices a chase strategy. Production last quarter was 1000. Demand over the next four quarters is estimated to be 900, 700, 1000, and 1000. Hiring cost is $20 per unit, and layoff cost is $5 per unit. Over the next year, what will be the sum of hiring and layoff costs? A) $500 B) $2,500 C) $7,500 D) $7,000 E) $12,500 Answer: C 4) "An optimal plan for minimizing the cost of allocating capacity to meet demand over several planning periods" best describes which of the following? A) the linear decision rule B) simulation C) the management coefficients model D) the transportation method E) graphical methods Answer: D 5) A firm uses graphical techniques in its aggregate planning efforts. Over the next twelve months (its intermediate period), it estimates the sum of demands to be 105,000 units. The firm has 250 production days per year. In January, which has 22 production days, demand is estimated to be 11,000 units. A graph of demand versus level production will show that: A) the January requirement is below level production of 420 units. B) level production is approximately 1000 units per day. C) level production of 420 units per day is below the January requirement. D) level production is approximately 420 units per month. E) the firm must hire workers between December and January. Answer: C 6) Which of the following aggregate planning methods does not work if hiring and layoffs are possible? A) the linear decision rule B) simulation C) the management coefficients model D) the transportation method E) graphical methods Answer: D 7) A manager is applying the transportation model of linear programming to solve an aggregate planning problem. Demand in period 1 is 100 units, and in period 2, demand is 150 units. The manager has 125 hours of regular employment available for $10/hour each period. In addition, 50 hours of overtime are available for $15/hour each period. If holding costs are $2 per unit each period, how many hours of regular employment should be used in period 1? (Assume demand must be met in both periods 1 and 2 for the lowest possible cost and that production is 1 unit per hour.) A) 100 B) 125 C) 150 D) 50 E) none of the above Answer: B 8) ________ for developing aggregate plans work with a few variables at a time and are easy to understand and use. Answer: Graphical techniques 9) Among the mathematical approaches to aggregate planning, ________ is good at working with inventories, holding costs, overtime, and subcontracting, but not with hiring and layoffs. Answer: the transportation method of linear programming 10) Normally, the transportation model is used to solve problems involving several physical sources of product and several physical uses of the product, as in factories and warehouses. How is it possible to use the transportation model where the "routes" are from one time period to another? Describe how this provides aggregate planners with a usable mathematical model. Answer: Time travel is not involved. "From" regular time March "To" demand May simply describes when production took place to provide the units sold in May. "From" April production "To" March demand simply describes back orders — demand in one month is met by production in a later period. The algorithm is optimizing — it minimizes cost over the planning period; the algorithm balances supply and demand by combinations of capacity options and demand options. 11) Describe the advantages and limitations of the graphical method of aggregate planning. Answer: Advantages include that it is easy to understand and use. Limitations include: (1) it's a trial-and error approach, (2) there is no guarantee that it will provide an optimal solution, and (3) it works with only a few variables at a time. 12) List, in order, the five steps of the graphical method of aggregate planning. Is it possible that these steps can be properly followed and the solution properly implemented without using a graph? Explain. Answer: The steps are: 1. Determine the demand in each period. 2. Determine capacity for regular time, overtime, and subcontracting each period. 3. Find labor costs, hiring and layoff costs, and inventory holding costs. 4. Consider company policy that may apply to the workers or to stock levels. 5. Develop alternative plans and examine their total costs. The steps can be followed and the solution implemented with tables of values and without graphs. 13) Describe the advantages and limitations of the transportation method for aggregate planning. Answer: Advantages include that it provides an optimal solution, and it is flexible by allowing overtime, subcontracting, extra shifts, and inventory carryover options. However, it does not work when more factors such as hiring and layoffs are introduced. 14) Fairview Industries is preparing its aggregate plan for the second half of the year. The table below contains monthly demand estimates and working days per month. Complete the table by computing total demand, demand per day (for each month), and the average requirement (in units per day) over the sixmonth planning horizon. Prepare a graph of forecast demand and level production, by months, for the planning period. Label your graph carefully. Month July August September October November December TOTAL Expected Demand 18,000 21,000 17,500 12,500 12,000 13,500 Production Days 20 23 21 21 20 21 Demand per Day Expected Demand 18,000 21,000 17,500 12,500 12,000 13,500 94,500 Production Days 20 23 21 21 20 21 126 Demand per Day 900.00 913.04 833.33 595.24 600.00 642.86 Average =750 Answer: Month July August September October November December TOTAL