Learning Goal: I’m working on a supply chain question and need an explanation an
Learning Goal: I’m working on a supply chain question and need an explanation and answer to help me learn.
The Golden Eagle Bike Company manufactures two types of bicycles (or bikes): standard and
custom. All standard bikes are exactly the same and can be manufactured in advance of demand and
held in inventory. Custom bikes are designed by the customer and hence are made to order. A
customer pays a premium for a custom bike and expects to receive their bike after a minimal delay.
The manufacture of both types of bikes are labor-intensive; each standard bike requires 10 hours of
labor, while each custom bike requires 18 hours of labor.
Golden Eagle has the following forecast of demand for its bikes for the next 6 months:
The regular workforce at the start of July consists of 10 associates, before any hiring or firing
decisions; each associate works 160 hours per month on regular time and is paid $17 per hour, for a
total of $2720 per month. Each associate is completely cross-trained and can work on any model of
In each month, each associate will be paid for the entire month (160 hours), regardless of whether or
not they are fully utilized. For instance, if the production plan requires only 150 hours of work for each
associate, then each associate is still paid for the entire 160 hours and will be assigned to some non
production activity for the unscheduled timeThe inventory holding cost is $9 per month for a standard bike. Custom bikes are not held in inventory.
The starting inventory of standard bikes is zero. The company wants to end the year with an inventory
of 75 standard bikes (i.e., at the end of December).
To hire and train an associate costs $600. To layoff (or fire) an associate costs $400.
To answer the following questions you need to develop a production plan for Golden Eagle. You should
assume (for simplicity) the following:
There is no lead time for hiring and training a new associate.
All hiring and firing decisions are made at the start of each monthAll hiring and firing decisions are made at the start of each month.
You cannot have fractional associates; the number of associates in each month is always integral.
The number of standard bikes produced and held in inventory can be fractional (that is, you should not make
these as integer variables).
The standard bike inventory should be non-negative.
You should model the inventory as of the end of each month, and you should charge the inventory holding cost
based on the end of month inventory.
The demand for custom bikes needs to be met within the month of the demand and cannot be delayed until
the next month; for instance, in July Golden Eagle will need to make 50 custom bikes to satisfy demand.
The objective of the production plan is to minimize the total cost, subject to meeting the demand. The total
cost includes labor costs (regular time), cost of hiring and firing associates, and inventory holding costs.
For the minimal cost production plan, provide the following decisions: