3. A warehouse has to meet the demand for a product shown below. Each unit of stock remaining at the
end of a month has a notional holding cost of £20. If there are shortages, 20% of orders are lost at a
cost of £200 a unit, and the rest are met by back orders, at a cost of £50 a unit. A production department
sends the product to the warehouse. Designed capacity of this department is 400 units a
month, but utilisation seldom exceeds 80%. Every time the production rate is changed it costs
£15,000. How would you set about designing an aggregate plan for the product?
Month 1 2 3 4 5 6 7 8
Aggregate demand 310 280 260 300 360 250 160 100