Aggregate Planning

Case #2: Aggregate Planning at In-Line Industries
In-Line Industries (ILI) produces recreational in-line skates. Demand is seasonal, peaking in the
summer months. ILI has forecasted the following demand in pairs of skates for their most
popular line of skates for the next 8 months:
Month Demand (pairs)
March 900
April 1500
May 2500
June 3000
July 1400
August 1000
September 600
October 400
The company will have 500 units in inventory at the beginning of March and would like to have
1000 units in inventory at the end of October in anticipation of increased demand during the
holiday season. There are currently 6 employees, each of whom can produce 220 units a month
in regular time. The cost of hiring an employee is $1200 and the cost of firing an employee is
$600. Labor cost per unit is $15 if produced in regular time and $20 if produced in overtime. The
inventory holding cost is $2 per unit/month. Backorders are assumed to have a cost of $10 per
unit/month.
Jack Stoner, the production manager, heard about “level” and “chase” aggregate plans and would
like to know which would be more appropriate in this case for the next 8 months.
Assume that you have been hired as a consultant and that your job is to respond to Jack’s
questions by developing the two plans he heard about and reporting to him in a memo the results
of your analysis. Which plan would you recommend? Make sure to include in your analysis, in
addition to cost, non-financial considerations such as customer service and other qualitative
operational considerations.