The EGAD Bottling Company has decided to introduce a new line of premium bottled water that will include several "designer" flavors. Marketing manager Georgianna Mercer 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 in the following table (quantities are in tankloads). Month May Jun Jul Aug Sep Oct Total Forecast 50 60 70 90 80 70 420 Production manager Mark Mercer (no relation to Georgianna) has developed the following information. (Costs are in thousands of dollars.) $1 per tankload 60 tankloads Regular production cost Regular production capacity Overtime production cost Subcontracting cost Holding cost. $1.6 per tankload $1.8 per tankload $2 per tankload per month Backlogs are not allowed 0 tankloads Backordering cost Beginning inventory Among the strategies being considered are the following: • Level production supplemented by up to 10 tankloads a month from overtime. • A combination of overtime, inventory, and subcontracting. Regular production should be the same each month. • Using overtime for up to 15 tankloads a month, along with inventory to handle variations. Regular production should be the same each month.
The EGAD Bottling Company has decided to introduce a new line of premium bottled water that will include several "designer" flavors. Marketing manager Georgianna Mercer 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 in the following table (quantities are in tankloads). Month May Jun Jul Aug Sep Oct Total Forecast 50 60 70 90 80 70 420 Production manager Mark Mercer (no relation to Georgianna) has developed the following information. (Costs are in thousands of dollars.) $1 per tankload 60 tankloads Regular production cost Regular production capacity Overtime production cost Subcontracting cost Holding cost. $1.6 per tankload $1.8 per tankload $2 per tankload per month Backlogs are not allowed 0 tankloads Backordering cost Beginning inventory Among the strategies being considered are the following: • Level production supplemented by up to 10 tankloads a month from overtime. • A combination of overtime, inventory, and subcontracting. Regular production should be the same each month. • Using overtime for up to 15 tankloads a month, along with inventory to handle variations. Regular production should be the same each month.
Practical Management Science
6th Edition
ISBN:9781337406659
Author:WINSTON, Wayne L.
Publisher:WINSTON, Wayne L.
Chapter2: Introduction To Spreadsheet Modeling
Section: Chapter Questions
Problem 20P: Julie James is opening a lemonade stand. She believes the fixed cost per week of running the stand...
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Transcribed Image Text:**Case Study: Eight Glasses a Day (EGAD)**
The EGAD Bottling Company has decided to introduce a new line of premium bottled water with various “designer” flavors. Marketing manager Georgianna Mercer anticipates increased demand due to the new offerings and growing public awareness of the health benefits of drinking more water. She has prepared the following six-month aggregate forecasts (quantities in tankloads):
| Month | May | Jun | Jul | Aug | Sep | Oct | Total |
|-------|-----|-----|-----|-----|-----|-----|-------|
| Forecast | 50 | 60 | 70 | 90 | 80 | 70 | 420 |
Production manager Mark Mercer (no relation to Georgianna) has developed the following cost information (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
- **Backordering cost**: Backlogs are not allowed
- **Beginning inventory**: 0 tankloads
**Strategies Considered**:
1. Level production supplemented by up to 10 tankloads a month from overtime.
2. A combination of overtime, inventory, and subcontracting, with consistent regular production each month.
3. Using overtime for up to 15 tankloads a month and inventory to manage variations, with consistent regular production each month.
**Questions**:
1. The goal is to choose the plan with the lowest cost. Which plan would you recommend?
2. Information about the new line has likely been shared with supply chain partners. Explain what specific information should be shared with various partners and the importance of this information exchange.
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