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893D21
Teaching Note
MACPHERSON REFRIGERATION LIMITED
Professor J. Haywood-Farmer prepared this teaching note as an aid to instructors in the classroom use of the case MacPherson
Refrigeration Limited, No. 9A93D021. This teaching note should not be used in any way that would prejudice the future use of the
case.
Ivey Management Services prohibits any form of reproduction, storage or transmittal without its written permission. This material is
not covered under authorization from CanCopy or any reproduction rights organization. To order copies or request permission to
reproduce materials, contact Ivey Publishing, Ivey Management Services, c/o Richard Ivey School of Business, The University of
Western Ontario, London, Ontario, Canada, N6A 3K7; phone (519) 661-3208; fax (519) 661-3882; e-mail: .
Copyright © 1993, Ivey Management Services Version: (A) 2002-12-16
SYNOPSIS
Linda Metzler, production planning manager, was developing an aggregate plan for the next year
and had to decide what plan to use. The case gives examples of chase and level plans and invites
students to construct better ones.
OBJECTIVES
This exercise is designed to expose students to the trade offs involved in the aggregate planning
process. Many of these are quantitative, but there are some qualitative ones as well. The case can
be solved using linear programming (LP); indeed LP is the best way to handle the quantitative
trade offs.
SUGGESTED ASSIGNMENT QUESTIONS
1. Construct an aggregate plan better than the ones shown in the case. What do you mean by a
“better plan?”
2. What criteria and assumptions did you use in constructing your plan?
3. How flexible is your plan?
4. How would your plan change if MacPherson produced to order rather than to stock?
, Page 2 8A93D21
5. What is the effect of the timing of the aggregate planning decision relative to that of the peak?
(What would be the effect if the planning cycle occurred at a different time of the year?)
6. What would be the effect of doing the aggregate planning with a longer (or even shorter) time
horizon? (Consider what your plan might look like if it covered 24 months (or six) instead of
12.)
SUMMARY OF DATA
Productivity 40 units per worker month
Regular time wage $2,400 per worker month
Overtime wage $3,300 per worker month
Hiring cost $1,800 per worker hired
Layoff cost $1,200 per worker laid off
Inventory holding cost $8 per appliance month held
Beginning capacity 160 workers, or 6,400 appliances per month
Beginning inventory 240 units
THE QUANTIFIABLE TRADEOFFS
1. Holding inventory versus laying off and rehiring.
For one worker you can draw the following table:
Period
1 2 3 4 5
Production 40 units 40 40 40 40
Cumulative Production 40 units 80 120 160 200
Inventory holding costs $320 640 960 1,280 1,600
Cumulative holding costs $320 960 1,920 3,200 4,800
The cost of laying off and rehiring is $3,000; therefore, if inventory is to be built and held for
four months ($3,200) or more it is cheaper to lay off and rehire.
2. Laying off and rehiring versus carrying idle workers.
Laying off and rehiring costs $3,000; an idle worker costs $2,400 (the regular wage).
Therefore, laying off and rehiring is attractive if a worker is to remain idle for longer than
3,000/2,400 = 1.25 months.
893D21
Teaching Note
MACPHERSON REFRIGERATION LIMITED
Professor J. Haywood-Farmer prepared this teaching note as an aid to instructors in the classroom use of the case MacPherson
Refrigeration Limited, No. 9A93D021. This teaching note should not be used in any way that would prejudice the future use of the
case.
Ivey Management Services prohibits any form of reproduction, storage or transmittal without its written permission. This material is
not covered under authorization from CanCopy or any reproduction rights organization. To order copies or request permission to
reproduce materials, contact Ivey Publishing, Ivey Management Services, c/o Richard Ivey School of Business, The University of
Western Ontario, London, Ontario, Canada, N6A 3K7; phone (519) 661-3208; fax (519) 661-3882; e-mail: .
Copyright © 1993, Ivey Management Services Version: (A) 2002-12-16
SYNOPSIS
Linda Metzler, production planning manager, was developing an aggregate plan for the next year
and had to decide what plan to use. The case gives examples of chase and level plans and invites
students to construct better ones.
OBJECTIVES
This exercise is designed to expose students to the trade offs involved in the aggregate planning
process. Many of these are quantitative, but there are some qualitative ones as well. The case can
be solved using linear programming (LP); indeed LP is the best way to handle the quantitative
trade offs.
SUGGESTED ASSIGNMENT QUESTIONS
1. Construct an aggregate plan better than the ones shown in the case. What do you mean by a
“better plan?”
2. What criteria and assumptions did you use in constructing your plan?
3. How flexible is your plan?
4. How would your plan change if MacPherson produced to order rather than to stock?
, Page 2 8A93D21
5. What is the effect of the timing of the aggregate planning decision relative to that of the peak?
(What would be the effect if the planning cycle occurred at a different time of the year?)
6. What would be the effect of doing the aggregate planning with a longer (or even shorter) time
horizon? (Consider what your plan might look like if it covered 24 months (or six) instead of
12.)
SUMMARY OF DATA
Productivity 40 units per worker month
Regular time wage $2,400 per worker month
Overtime wage $3,300 per worker month
Hiring cost $1,800 per worker hired
Layoff cost $1,200 per worker laid off
Inventory holding cost $8 per appliance month held
Beginning capacity 160 workers, or 6,400 appliances per month
Beginning inventory 240 units
THE QUANTIFIABLE TRADEOFFS
1. Holding inventory versus laying off and rehiring.
For one worker you can draw the following table:
Period
1 2 3 4 5
Production 40 units 40 40 40 40
Cumulative Production 40 units 80 120 160 200
Inventory holding costs $320 640 960 1,280 1,600
Cumulative holding costs $320 960 1,920 3,200 4,800
The cost of laying off and rehiring is $3,000; therefore, if inventory is to be built and held for
four months ($3,200) or more it is cheaper to lay off and rehire.
2. Laying off and rehiring versus carrying idle workers.
Laying off and rehiring costs $3,000; an idle worker costs $2,400 (the regular wage).
Therefore, laying off and rehiring is attractive if a worker is to remain idle for longer than
3,000/2,400 = 1.25 months.
