Eight Glasses A Day:
The EGAD Bottling Company has decided to introduce a new line of premium bottled water that will include several designer flavors. Marketing manager Georgianna is predicting an upturn in demand based on the new offerings and the increased public awareness of the health benefits of drinking more water. She has prepared aggregate forecasts for the next six months, as shown,
Month May June July Aug Sep Oct Total
Forecast 50 60 70 90 80 70 420
Production manager Mark Mercer, has developed the following information. (Note: Costs are in thousands of dollars).
Regular production cost: $1 per tankload
Regular production capacity: 60 tankloads
Overtime production cost: $1.6 per tankload
Subcontracting cost: $1.8 per tankload
Holding cost: $2 per tankload per month
Back ordering cost: $5 per month per tankload
Beginning inventory: 0 units
Among the strategies being considered are:
1. Level production supplemented by up to 10 tank loads a month from overtime
2. A combination of overtime, inventory and subcontracting.
3. Using overtime for up to 15 tank loads a month, along with inventory to handle variations.
QUESTIONS:
1. The objective is to choose the plan that has the lowest cost, which plan would you recommend?
2. Presumably, information about the new line has been shared with supply chain partners. Explain what information should be shared with various partners and why sharing that information is important?