Floggit Company Case Summary
It is the end of the financial year (the winter quarter). Floggit Ltd, a new startup, produces one product, for which the demand in units for the next four quarters is predicted to be:
Quarter Spring Summer Autumn Winter
Demand 70 100 110 120
Assuming all the demand is to be met, there are various production policies that might be followed: One extreme: Track demand with production and carry no inventory;
The other extreme: Produce at a constant rate of 100 units per quarter (i.e., the average demand) and allow inventory to absorb the fluctuations in demand;
Intermediate policy: Allow some variation (but not too much: how much is best?) in production, and absorb the remaining fluctuations in demand by (a smaller) inventory.
Floggit’s factory is limited to 60 units per quarter normal production. Above that produc- …show more content…
There are costs associated with
• Holding inventory: Floggit estimates an inventory holding cost of $30 for each unit of inventory at the end of each period
• Varying the production level: Floggit estimates that changing the production level from one period to the next costs $20 per unit. [Thus, if 90 were made in one period and 120 in the next, then the cost of changing would be $20 × (120 − 90) = 20 × 30 = 600.]
• Normal production: up to 60 units per quarter, at a cost per unit of $100
• Overtime production: this is seasonal both in quantity that can be produced and in cost per unit:
Quarter Spring Summer Autumn Winter
Production capacity (units) 40 60 90 80
Production cost/unit ($) 120 130 140 130
There is an inventory capacity of at most 50 units.
You may assume that initial inventory is zero and the current production level is 60 units in this (winter) quarter. Floggit require that these same levels be returned to at the end
Quarter Spring Summer Autumn Winter
Demand 70 100 110 120
Assuming all the demand is to be met, there are various production policies that might be followed: One extreme: Track demand with production and carry no inventory;
The other extreme: Produce at a constant rate of 100 units per quarter (i.e., the average demand) and allow inventory to absorb the fluctuations in demand;
Intermediate policy: Allow some variation (but not too much: how much is best?) in production, and absorb the remaining fluctuations in demand by (a smaller) inventory.
Floggit’s factory is limited to 60 units per quarter normal production. Above that produc- …show more content…
There are costs associated with
• Holding inventory: Floggit estimates an inventory holding cost of $30 for each unit of inventory at the end of each period
• Varying the production level: Floggit estimates that changing the production level from one period to the next costs $20 per unit. [Thus, if 90 were made in one period and 120 in the next, then the cost of changing would be $20 × (120 − 90) = 20 × 30 = 600.]
• Normal production: up to 60 units per quarter, at a cost per unit of $100
• Overtime production: this is seasonal both in quantity that can be produced and in cost per unit:
Quarter Spring Summer Autumn Winter
Production capacity (units) 40 60 90 80
Production cost/unit ($) 120 130 140 130
There is an inventory capacity of at most 50 units.
You may assume that initial inventory is zero and the current production level is 60 units in this (winter) quarter. Floggit require that these same levels be returned to at the end