A company makes standard-specification bicycles. The indicative order book for the next 3 months is a forecast of 640 cars broken down as follows:
- January: 230 cars
- February: 200 cars
- March: 210 cars
The company employs 20 full-time people who can each produce 9 cars a month at the cost of $500 per car. Inventory carrying costs are $50 per car per month and stockout costs are $590 per car per month. If the company has an inventory of 10 cars at the end of December, develop the following plans and select the least expensive. Highlight any assumptions you make in your calculations.
- Plan A involves hiring no new workers or using overtime. Any shortfalls are made up with subcontracting at a cost of $675 per car
- Plan B involves working overtime with each employee producing 1 extra car per month at an extra cost of $150 per car.
- Plan C involves employing temporary workers on an as needed monthly basis with a hiring cost of $1000 per employee and termination costs of $500. Temporary employees can only produce 6 cars a month.
Please indicate a brief interpretation of your work in not more than 300 words