Level
19 workers all year. Build inventory for the peak.
Total annual cost
Chase
12 workers, then 26. Produce to match demand.
Total annual cost
| Annual cost · USD | Level | Chase |
|---|
The two production plans
End-of-month inventory
SmartwatchesProduction workforce
WorkersCost changes do not change these fixed production plans. Chase lays off 14 workers after December production.
Try this after solving the case
Predict which cost change would favour Level. Test it, restore the original case, then try a different cost. Explain why the annual costs change even though the production plans stay the same.
The original FreshTech case
FreshTech Electronics produces two smartwatch models. January to June is the low season; July to December is the high season.
| Product | Low season / month | High season / month |
|---|---|---|
| Basic smartwatch | 8,000 | 16,000 |
| Advanced smartwatch | 4,000 | 10,000 |
| Aggregate demand | 12,000 | 26,000 |
Each worker assembles 1,000 smartwatches per month and earns $3,000 per month. The original costs are $1.50 per unit per month for storage, $1,200 per hire and $1,800 per layoff. Annual demand is 228,000 smartwatches.
Calculation rules and assumptions
- These are two fixed strategies, not an optimisation over every possible plan. The lower-cost strategy is the cheaper of these two under the selected costs.
- Both plans start and finish the year with zero inventory and meet all monthly demand. There are no shortages, overtime or subcontracting.
- To match the classroom solution, Level starts with 19 workers and Chase with 12. Initial recruitment is not charged for either plan.
- Level produces 19,000 units every month. Its end-of-month inventories add up to 252,000 unit-months. Storage cost is this sum multiplied by the holding cost.
- Chase hires 14 workers at the start of July and lays off 14 after December production, ready for the next low season. All 26 workers are paid for December.
- Each plan uses 228 worker-months, so each has an annual wage bill of $684,000. Wages and productivity stay fixed in this exploration.
- Changing an input creates an experimental scenario. It does not change the original case. Costs are in USD; results are displayed to the nearest cent when needed.
Month-by-month calculation
Layoffs in the December row happen after production. Scroll the table horizontally on a narrow screen.
| Month | Demand | Level | Chase | ||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|
| Workers | Output | End stock | Cost ($) | Workers | Output | End stock | Hires | Layoffs | Cost ($) | ||