Managing Operations - Essay Example

The paper will therefore analyze the production strategy the managers should choose based on the total cost minimization objective as well as summarizing the information about the aggregate plan to be shared with the supply chain partners. Production strategy based on the Total Cost Minimization The total cost minimization normally occurs at appoint when the marginal cost (MC) curve cuts the average total cost (ATC) curve at its minimum point. This therefore means that, at the minimum point, marginal cost (MC) should be equals to the Average Cost (AC).

In most cases, the decision problems are usually molded as being a cost-minimization problem, and therefore, in every network, models usually have a minimization objective. The reasoning behind this is that, in particular, the decision situations never influences the income, hence minimizing costs will increase the opportunities of maximizing the profit (Shim & Siegel, 2002). The production manager should choose on pricing-based as a production strategy to help in making decision based on the total cost minimization.

When managers use price-based strategy, the products are usually planned according to cost-plus pricing, value-based pricing as well as target-return pricing. All these are set in such a way that the new product in the market has a competitive advantage over other similar products. Therefore, when there is no overtime for employees, managers have to make sure that the time spent by those employees is compensated for as opposed to when they work on normal hours (Media, 2010). Aggregate Plan The aggregate forecasts of the tank loads for several flavors should be shared to various supply chain partners.

The forecast contains the intended tank load production every month from May through September. The company’s production capacity every month is also very important information for the suppliers. The company’s maximum tank loads production in a particular month is 60 tank loads, in May the forecast is 50 tank loads, in June it is 60, in July 70, in August 90, September 80 and finally October 70.There are several months where the forecasted production in a month exceeds the company’s ability these are the months of July, August September and October.

Therefore this information on the extra tank loads that the company needs is very crucial supply chain partners. This is because from the information they will get to know of any extra tank loads that the company might require in a particular month and therefore their services might be required. This will give them a chance to offer the company their services in terms of producing the extra tank loads that they have forecasted and yet they are not in a position as a company to produce (Shim & Siegel, 2002).

The other Very important information that the supply chains need is the amount of money that is set aside by the company as cost of subcontracting as well as overtime production by various supply chains. Subcontracting and over production by the suppliers who are available is $1600 and $1800 per tank load. Therefore with this information any supply chain that intends to supply the extra trainloads can be in a position to set a price for their tank loads. They will ensure that they come up with prices that will give them a chance to be chosen as the preferred supplier for the extra tank loads.

They also need to know the cost of holding tank loads in a month as well as backordering if made by the company. This will help them make a