Production Planning: Hiring/Laying Off Costs Comparison (6-8 hires/layoffs)

A manufacturing company faces a challenge in producing products to meet customer demands, considering inventory costs and labor management issues. Three alternatives are proposed: Level Plan (ensuring no shortages), Chase Plan (hiring and laying off employees as needed), and Mixed Plan (moderating production levels). A financial comparison of the plans shows that the Mixed Plan is the most cost-effective in the long run, considering factors like customer relationships and labor market reliability. Therefore, it is recommended that the company adopt the Mixed Plan for its production planning.

Running Header: PRODUCTION PLANNING – MERIDIAN WATER PUMPS – CASE
ANALYSIS 1
Production Planning – Meridian Water Pumps – Case Analysis

Production Planning – Meridian Water Pumps – Case Analysis 2
Executive Summary
The focus of this report concerns the issues / concerns relating to planning of production
pertaining to medium sized pumps over the subsequent six months. As with most production
planning, the company in this context also faces various limitations, concerns, specific
planning and control related issues across various support and production function to
efficiently and effectively undertake production. The key issues facing the company includes
the fluctuating / cyclical demand for the productions which makes it difficult to plan its
supply levels, inventory management, people requirements, etc. On the basis of the data
available, the analysis of the production planning has been assessed by employing level
production planning, chase production planning, and mixed form of production planning.
As per the level plan proposed, the overall cost of production works out to US Dollar 628,810
and in terms of production planning it leads to shortages during month 4 and 5 as well as
there shall be one time hiring needs with no lay offs. As per the chase plan proposed, the
overall cost of production works out to US Dollar 625,550 and in terms of production
planning it leads to no shortages as well as there shall be hiring needs / layoffs in all of the
months. As per the mixed plan proposed, the overall cost of production works out to US
Dollar 626,475 and in terms of production planning it leads to no shortages as well as there
shall be one time hiring needs and minimal layoffs in two months.
Based on the assessments undertaken, it is proposed that the company adopt mixed form of
production planning thereby meeting the demand projections with efficiency and
effectiveness. This plan also has strategic significance and offers an ideal path towards longer
term growth potential.

Production Planning – Meridian Water Pumps – Case Analysis 3
Problem Definition
The focus of this analysis concerns the company called Meridian Water Pumps that focuses
on manufacturing and selling smaller sized water pumps. In specific, the focus of this report
concerns the issues / concerns relating to planning of production pertaining to medium sized
pumps over the subsequent six months. As with most production planning, the company in
this context also faces various limitations, concerns, specific planning and control related
issues across various support and production function to efficiently and effectively undertake
production.
At the outset, the key issues facing the company includes the fluctuating / cyclical demand
for the productions which makes it difficult to plan its supply levels, inventory management,
people requirements, etc. In this context, to start with a reliable and detailed demand
forecasting has been made available for the next six months. By basis upon this demand
estimate, the most optimal production planning is assessed in terms of financial and strategic
perspective by devising various different options and comparing them.
Analysis
On the basis of the data available, the analysis of the production planning is assessed by
employing level production planning, chase production planning, and mixed form of
production planning.
Level Plan – Qualitative & Quantitative Analysis
Development of the level form of production plan is critical to be undertaken. The overall
aggregate demand as per the six month forecast undertaken is equivalent to 4,650 water pump
units. As per the available inventory in current state as provided, the same is 50 and with the

Production Planning – Meridian Water Pumps – Case Analysis 4
inventory target required during the close of this focus six month needs to be 25. Hence,
technically it shall be required for reducing the production required over the next six months
for reaching 4625, that is 4650 (overall demand) less of 25 (end inventory target). The ratio
of 4625 and the planning of six months shall mean that the company shall be required on an
average for making 771 pumps each month for six months. The ratio between 771 (average
per month target for six months) and 25 (as per data provided, this is the amount of water
pumps a single worker could produce on a monthly basis) is equivalent to 30.84, meaning
~31 workers are required.
In terms of people planning and based on the computation that 31 workers are needed, the
following shall be key and relevant points – (i) The company shall be required for hiring 11
new workers as the prevailing people count is 20 and additional 11 need to be hired, and, (ii)
The immediate upfront cost shall be US Dollar 1100 as US Dollar 100 shall be hiring cost
with respect to each employee.
On hiring the new 11 employees, monthly production can be 775 with 31 workers each
producing 25 water pumps. The overall inventory during the closure of first month shall be
equivalent to 225 as the production output (775) along with the prevailing inventory totalling
50 shall aggregate to 825 which when will be subtracted with demand levels equivalent to
600.
Table 1 – Level Plan
Period
Month
1
Month
2 Month 3
Month
4
Month
5
Month
6 Remarks
Demand Estimates 600 750 1,000 850 750 700 Data Provided
Opening Inventory 50 225 250 25 -50 -25
Data Provided for
Month 1
Production Outcomes 775 775 775 775 775 775 31 Workers * 25

Production Planning – Meridian Water Pumps – Case Analysis 5
pumps each worker
Closing Inventory 225 250 25 -50 -25 50
Op. Inventory +
production -demand
estimates
Monthly Inventory
Cost 1,125 1,250 125 - - 250 $5 * Inventory
Table 2 – Level Plan Cost
Particulars Costs Remarks
Hiring Cost 1,100 11 new workers * $100
Wages 6,24,960
6 months * 21 days * 31 workers * 8 h / day *
$20
Inventory Cost 2,750 Sum of Monthly Inventory Costs
6,28,810
The qualitative issues concerning this plan includes the following –
 There are shortages, that is, production being lesser than demand during month 4 and
month 5. Such shortages can lead to customers becoming unhappy with the company
having potential financial as well as non-financial impacts. This service issue can stop
the customers to come back again to the company thereby affecting future sales and
even cause loss of customers as they could rely upon different suppliers. Hence, the
issues emanating from the shortage has significant outcomes
 In addition to the potential financial / strategic issues concerning customer
unhappiness, the increased efforts by sales / marketing personnel to meet, reach out
and appease the customers in lieu of the shortages also adds costs for undertaking the
business.
 The newly hired employees may take more time in fully oriented and training for
delivering the full capacity requirements causing production delays and other issues.
Chase Plan – Qualitative & Quantitative Analysis

Production Planning – Meridian Water Pumps – Case Analysis 6
The planning by way of the chase approach is evaluated in this section. With respect to this
strategy, the core assumption undertaken is that concerned target closing inventory equivalent
to 25 could be attained during the initial month and then sustained since then for subsequent
months. In a simplistic manner, the production each month shall be matching with the
demand estimates by suitable hiring / laying off the employees. However, in the first month
on account of the need to ensure ending inventory of 25, suitably adjustments shall be made
to target production and effectively there shall be 25 units less than demand estimate given
the opening inventory of 50.
Table 3 – Chase Plan
Period
Month
1
Month
2
Month
3
Month
4
Month
5
Month
6 Remarks
Demand Estimates 600 750 1,000 850 750 700 Data Provided
Total People 20 23 30 40 34 30
First month data
provided
Actual Needed 23 30 40 34 30 28
Production Outcome /
25
Change in People
Need 3 7 10 -6 -4 -2
Total People - Actual
Needed
Cost of Hiring /
Layoff 300 700 1,000 600 400 200
$100 each hire /
layoff
Opening Inventory 50 25 25 25 25 25
Data Provided for
Month 1
Production Outcomes 575 750 1,000 850 750 700
As per Demand; First
Month production
planned for closing
inventory to be 25
Closing Inventory 25 25 25 25 25 25
Op. Inventory +
production-demand
estimates
Monthly Inventory
Cost 125 125 125 125 125 125 $5 * Inventory
Wages 77,280 1,00,800 1,34,400 1,14,240 1,00,800 94,080
21 days * workers per
month * 8 h / day *
$20
Table 4 – Chase Plan Costs

Production Planning – Meridian Water Pumps – Case Analysis 7
Particulars Costs Remarks
Hiring Cost 3,200 Sum of Cost of Hiring / Layoff
Wages 6,21,600 sum of Wages
Inventory Cost 750
Sum of Monthly Inventory
Costs
6,25,550
The qualitative issues concerning this plan includes the following –
 At the outset, this plan ensures there are no shortages in any of the months and hence
any direct / indirect cost emanating from customer unhappiness is fully avoided.
 The biggest concern with this plan emanates from the people management issue. As
people are hired and laid off as per the requirements on a month to month basis the
company is subject to concerns like (i) hiring and laying off costs, (ii) concerns
orientation / training to ensure quality and full capacity delivery, and (iii) depleting
employee motivations, depleting perceptions in market as place of employment, etc.
Mixed Plan
The planning by way of the mixed approach is evaluated in this section. In this approach to
production planning, level schedule shall be employed for the initial three months, that is, up
till the overall demand increases in attaining the stage wherein the shortages shall take place.
Later, level schedule shall be employed over the subsequent 2 months and subsequently starts
for reducing employees with lower level demand element of the demand cycle starts again.
Table 5 – Mixed Plan

Production Planning – Meridian Water Pumps – Case Analysis 8
Period
Month
1
Month
2 Month 3
Month
4
Month
5
Month
6 Remarks
Demand Estimates 600 750 1,000 850 750 700 Data Provided
Total People 20 32 32 32 30 30
First month data
provided
Actual Needed 32 32 32 30 30 29
Production Outcome /
25
Change in People
Need 12 - - -2 - -1
Total People - Actual
Needed
Cost of Hiring /
Layoff 1,200 - - 200 - 100 $100 each hire / layoff
Opening Inventory 50 250 300 100 - -
Data Provided for
Month 1
Production Outcomes 800 800 800 750 750 725
800 for first month,
750 for 4th & 5th
month and 725 for 6th
month
Closing Inventory 250 300 100 - - 25
Op. Inventory +
production -demand
estimates
Monthly Inventory
Cost 1,250 1,500 500 - - 125 $5 * Inventory
Wages 1,07,520 1,07,520 1,07,520 1,00,800 1,00,800 97,440
21 days * workers per
month * 8 h / day *
$20
Table 6 – Mixed Plan Costs
Particulars Costs Remarks
Hiring Cost 1,500 Sum of Cost of Hiring / Layoff
Wages 6,21,600 sum of Wages
Inventory Cost 3,375
Sum of Monthly Inventory
Costs
6,26,475
At a qualitative level, this plan takes a middle road as compared to the level plan and chase
plan with moderation in people hiring / lay off while ensuring there are shortages for the
customers.

Production Planning – Meridian Water Pumps – Case Analysis 9
Alternatives
The financial comparison of the three alternatives proposed for the production planning are
presented as follows –
Table 7 – Financial Comparison of the Alternatives
Alternative
s
Hiring / Laying Off
Cost Wages
Inventory
Cost
Total
Cost
Level Plan 1,100 624,960 2,750 628,810
Chase Plan 3,200 621,600 750 625,550
Mixed Plan 1,500 621,600 3,375 626,475
Table 8 – Strategic Comparison of Alternatives
Alternatives
Supply Shortages to
Meet Customer
Demands
Hiring / Lay off Frequency
Level Plan Month 4 & 5 One time hiring
Chase Plan Nil Every Month
Mixed Plan Nil One time hiring & minimal layoffs
in months 4 &6
Recommendation & Implementation
On the basis of the detailed analysis undertaken to devise optimal production planning, a
number of factors have been suitably assumed to propose three different plans – the level
planning, chase planning, and, a mixed planning. The comparison of these plans both at a
financial as well as strategic level indicates a mixed bag.
At the outset, the plain financial cost comparison of the three plans indicates not too
significant difference and moreover the plain financial assessment only indicates the
favourability of the plans at a shorter term in this context.

Production Planning – Meridian Water Pumps – Case Analysis 10
In the more medium to longer term standpoint, specifically with respect to aspects like longer
term customer relationship, avoiding potential future losses in profitability, ensuring
reliability in labour market as preferred employer, etc. the mixed plan offers an optimal
approach to undertake the production.
Hence, it is proposed that the company adopt mixed form of production planning thereby
meeting the demand projections with efficiency and effectiveness. This plan also has strategic
significance and offers an ideal path towards longer term growth potential.