Green Mills Case Study

Executive Summary

Green Mills Inc operates and owns many lumber mills in the Northwestern United States. The company is considering expanding its opination to Chile in order to reduce the total cost of raw materials. Therefore, the director of the company, Bob Thomas wants to develop aggregate planning for the coming year. And this backward vertical integration could through the different aggregate planning strategies including the chase, level production planning strategies to reduce the cost of raw materials. Bob has to make the decision to their strategies for production planning.

Discuss the Evidence

The purpose of aggregate planning is minimizing total cost for producing raw lumber from Chile in the amounts needed by Green Milles. There is also some constraint for the plan. The maximum available shipping capacity was 1500,000 broad feet per month. And also in the lumber industry, workers were hired on a monthly basis. The undertime was paid. Overtime was limited to 25% of the regular time hours. Backordering was not permitted due to the competitive nature of the lumber products markets.

Analysis

Based on the company monthly demand forecast, production costs and other various cost factors. The production plan and capacity of the workforce have been calculated separately for the Chase and level strategy as shown in the excel spreadsheets.

For the level strategy plan, we decided to use the maximum the overtime with produce total cost about $5,057,500. The pros of this strategy is a steady workforce and set capacity to accommodate average demand. The cons of level strategy are high inventory and increase backlogs. However, the level strategy requires Green mills has a strong and accurate forecast for implantation of this strategy.

For the Chase strategy plan, we decided to use without overtime option and also based on the production plan to hire or layoff new employees, which generate about $4,632,000 in total cost. This strategy is looking to dynamically match demand with the production plan. The pros of this strategy are lower inventory level and backlogs. From the calculations show, there is minimum inventory on hand that could help save for the inventory cost. The cons of this strategy are potential lower productivity and unstable of the workforce. In addition, this strategy has to constantly changing short term capacity which challenging to operation and management for Green mills.

Conclusion

According to the cost, pros and cons comparison for the two plan are discussed and calculation and the purpose of aggregate planning, the most recommended option for the director Bob is to choice the chase strategy. The chase strategy could produce exactly what is needed each period demand and set workforces capacity to satisfy period demands. The total