Mini Proposal of Increase 2020

MINI PROPOSAL OF INCREASE 2020
OPTIMIZING INCREASE GROUP’S PRODUCTION STRATEGY FOR

PROFIT MAXIMIZATION USING EXCEL-BASED DECISION
SUPPORT SYSTEM AND AGGREGATE PRODUCTION PLANNING
BY:
TAMBAT TEAM
INDUSTRIAL ENGINEERING
FACULTY OF INDUSTRIAL TECHNOLOGY
BANDUNG INSTITUTE OF TECHNOLOGY
BANDUN
INCREASE 2020
INDUSTRIAL CREATIVE SEASON
FAKULTAS REKAYASA INDUSTRI – TELKOM UNIVERSITY
Jl. Telekomunikasi No.1, Terusan Buah Batu, Bandung, 40257
Telepon : (022) 7564108 ; ext 2201 , Fax : (022) 7566345
I. BACKGROUND
INCREASE is a food manufacturing company in Indonesia, and it has been
producing bread for ten years. INCREASE produces high quality food products. By
implementing vertical integration strategy, INCREASE has four distributors which
were placed throughout Indonesia. Due to the unexpected rise of the demand for
the company’s products (bread), INCREASE is now facing some lost sales. This
happens because the price of rice in the market is extremely increasing over time.
Regarding the problem explained in the first paragraph, the historical demand
of the company needs to be further analyzed so that the company may then forecast
the future demand with a certain method. The result of this process will give a
visualization of the characteristics of the future-state demand. The data processing
begins with the aggregation of the current demand and then forecast the aggregated
data with respect to the data trend. The result of the forecast will then be
disaggregated to find the targeted distribution volume for each region (Medan,
Makassar, Bandung, and Malang).
Moreover, INCREASE must then conduct a production planning and control as
a result of the unexpected increase of the demand. With this planning, the company
is expected to determine the right amount of the production volume of each raw
material, workforce level, and any policies regarding the production. In addition,
INCREASE is also expected to be able to fulfill the demand effectively and
efficiently so that the productivity will be suitable to what the company targeted.
II. PROBLEM FORMULATION
In order to give a more detailed information about the problem situation in this
system, one particular problem identification tool will be used. The tool used in this
section is the rich picture diagram. This Figure 1 below depicts the suitable rich
picture diagram of the problem explained above.
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Figure 1 Rich picture diagram
After describing the current state of the problem, the indicator of the problem
needs to be found. One of the tools which can be used to indicate the problem is
gap analysis. Gap analysis is used to compare and contrast the actual condition with
the expected condition of the system. In this analysis, the actions taken to transform
the current condition into ideal condition will also be determined. The gap analysis
of this problem can be seen in Attachment A. In addition, this analysis is only based
on the problem owner’s view. The problem is now found as seen in the gap
analysis. The problem then needs to be further analyzed. The root cause of the
problem should be found to give information about the part of the system that needs
to be changed or added or eliminated. So as to find the root cause of the problem,
fishbone diagram is used. The diagram is visualized as in Figure 1.
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Figure 2 Fish bone diagram
The discovery of the root cause begins with the identification of the problem
indicator. This diagram divides the root cause of the problem into four aspects. The
aspects considered in this problem are man, method, environment, and
management.
In the method aspect, it is known that the demand of the bread is still not
deterministic for the future state, so forecasting is essentially needed to perform the
production. Not only the number of demanded quantity, but also the quantity
ordered and the reorder point has not yet known. This situation holds up the
company to conduct the production efficiently, in term of money and many aspects
impacting the production process. Moreover, the company is using the vertical
integration strategy to produce the product which makes all decisions are taken by
the company itself.
The environment aspect also plays a role to cause this problem. It is because of
the locations of the suppliers and distributors. The optimal way of spreading the
end product and accepting the raw material has not been found which ends up
making the company expends more than needed in terms of transporting these items
in and out the company’s plant in Jakarta. The unexpected increase of the rice price
also makes the demand high for the bread which makes the company needs extra
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thought on meeting the demand. The last aspect to consider is the management
aspect. In order to find the correct demand for the future, the time constraint needs
to be thought for further processing. Also, there is expiration in each materal and
the hired and fired work force. These limited resources shall need further
management to be allocated to optimize the cost. In the man aspect, the
management is still unable to conduct a forecast and adapt to the future state
demand.
The production problem of this system is then analyzed to find the indicator and
root cause of the problem. To have a detailed definition of the problem, the
CATWOE analysis is made as given in the Table 1 below.
Table 1 CATWOE analysis
No. Element Description

1. Customer Suppliers and distributors of INCREASE
2. Actor The Purchasing Department and Human Resource
Management of INCREASE
3. Transformation The amount of each raw material to achieve the
maximum fulfilment rate and minimum distribution
cost
4. Worldview Maximum fulfilment rate and minimum production
and distribution cost
5. Owner INCREASE Management
6. Environment Competitors, rice price, unstable demand,
geographical location
III. PURPOSE
The general purpose of this research is to maximize the fulfillment rate by using
production planning and control method. Based on the decided problem
formulation, the general purpose is then branched to a few specific purposes as
below.
1. Planning the optimal production strategy for 2020.
2. Deciding the best route to distribute the product.
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3. Designing a strategic decision to overcome the increasing demand.

IV. BENEFIT
The following is the benefit of this research:
1. INCREASE may enhance its fulfillment rate by 2020.
2. INCREASE may reduce its production and distribution cost.
3. INCREASE may continuously increase the profit.
4. INCREASE may plan the production in real time to meet the fluctuative demand
in long time horizon.
V. THEORY
V.1 Forecasting
In order to estimate the future production level of bread, forecasting must
be done. Quantitative forecasting can be done according to demand data
collected in the past with assumptions that the data pattern will be repeated
again in the future. Historical data shows steadily increasing demand level
trend. A method used to forecast production level in the future for trend data
pattern is double exponential smoothing using Holt’s Method. This method
considers trend factor in data. To remove the influence of level and trend in
the data, data from previous periods are required. Below is the equation used
in double exponential smoothing using Holt’s Method.
𝐵𝑡 = 𝛼𝐷𝑡 + (1 − 𝛼)(𝐵𝑡−1 + 𝑇𝑡−1 )
𝑇𝑡 = 𝛽(𝐵𝑡 − 𝐵𝑡−1 ) + (1 − 𝛽)𝑇𝑡−1
𝐹𝑡+𝑘 = 𝐵𝑡 + 𝑘𝑇𝑡
With:
Dt = demand level for period t
Bt = intercept value for period t
Tt = slope value for period t
𝛼, 𝛽 = smoothing constants
Ft+k = forecasting done in period t for k period ahead
V.2 Aggregate Planning
Based on the previous section, to solve problems faced by INCREASE
Group, planning of capacity required is needed, comprising of number of
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work force required, number of units produced, regular time and overtime
required. In this section, the problem will be solved using linear
programming formulation. The reference model used to solve the problem
is aggregate planning problem. The model is modified to suit the problem
that INCREASE has. The model modification will be explained further in
Discussion Case Study section. The elements of the mathematical reference
model are as follow.
a. Parameters
The parameters below are assumed to be known as in Attachment B.
b. Problem Variables
The following are the problem variables as shown in Attachment C.
c. Objective Function
The goal is formulated as below is to minimize this equation.
𝑍 = ∑𝑇𝑡=1 𝐶𝑟 × 𝑃𝑡 + 𝐶𝐻 × 𝐻𝑡 + 𝐶𝑓 × 𝐹𝑡 + 𝐶𝐼 × 𝐼𝑡 + 𝐶𝑈 × 𝑈𝑡 + 𝑆𝑡 × 𝐶𝑆
d. Constraints
There are five constraints that required for solving the problem. The
constraints are used to ensure the amount of labor and units as below.
 Conservation of work force
𝑊𝑡 = 𝑊𝑡−1 + 𝐻𝑡 − 𝐹𝑡
 Production level constraint
The production level to fulfill the customer’s demand is greater than
the forecasted demand. It is formulated as below:
𝑃𝑡 ≥ 𝐷𝑡
 Constraints relating production levels to workforce levels
𝑃𝑡 = 𝐾𝑁𝑡 𝑊𝑡 + 𝑂𝑡 − 𝑈𝑡
 In the same month, it either hires or fires the worker
𝐻𝑡 𝐹𝑡 = 0
 All the problem variables needed to be non-negative
To solve this problem, conservative rounding is used because the values
of the problem variables will not be integers. By using this method, the
solution of this problem formulation is not optimal, but it is near optimal.
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However, it is possible to take integer constraint to the mathematic model,

but it will take long computational time and it is considered not efficient in
this problem context. The advantages of using this method is it requires only
small computational effort.
V.3 Material Requirement Planning (MRP)
Material Requirement Planning (MRP) is one of the tools which can be
used to assure that the products are made in time and able to fulfil the
exploding of the final requirement from the raw material. This tool is time-
phased so the time constraint is very much concerned and determining the
production number of each period of time. The inputs needed to conduct an
MRP are Master Production Schedule (MPS), product structure file, and
inventory master file and the output of this tool is Planned Order Release
(PORL). MPS is the output of the aggregate planning that has been
discussed earlier. Output from MRP is Planned Order Release (PORL) as
purchasing schedule of the supplies.
VI. DISCUSSION OF CASE STUDY
Forecasting is the first step to solve the problem that INCREASE faces. As
known before, the method used in 2019 has failed to meet a sudden customer’s
escalated demand. Therefore, to get maximum profit in 2020, INCREASE needs to
plan their production thoroughly. The assumption taken in this method is that the
pattern of the historical data will continue in the future in certain degree.
Using mathematical formulation in previous section, the demand is forecasted
as in the Table 2. The alpha and beta chosen as parameter values are 0.4 and 0.05
consecutively. The values are decided based on how confident the management is
to the historical data. The lesser value of alpha and beta, the bigger the confidence
is on using historical data. By taking 0.4 and 0.05 as the values of alpha and beta,
it means that the management value the older data with lesser point (in other words
it is hard to believe that a certain pattern continues). As seen in the Table 2 below,
the demand is projected to escalate trough 2020. This pattern is the same as the one
before.
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Table 2 Forecasted Demand (Dt)
Period 1 2 3 4 5 6
Forecasted Demand
9455 9642 9829 10016 10203 10390
(Dt)
Period 7 8 9 10 11 12
Forecasted Demand
10577 10764 10951 11138 11324 11511
(Dt)
VI.1 Production Planning

With respect to the mathematical model explained in section V.2, a
model made to ensure INCREASE can fulfill the demand by adjusting the
production plan. The model has been modified because the current condition
of INCREASE didn’t need the use of inventory. Bread don’t have long
product life, so we assume the bread have one month expired date since
produced. Here is the parameter used for finding the optimal solution as in
Table 3.
Table 3 Parameterization
Paremeter Description Unit Value

Cr Cost of a bread sold Dollar / unit 0.1
Ch Cost of an employee hired Dollar / 24.6
worker
Cf Cost of an employee fired Dollar / 50
worker
Ot Cost of one hour of overtime Dollar / hour 1.8
Nt Number of days available for each t Day Table 9
J Cost of production in Friday Dollar/month 64.32
Nrt Number of regular days in month t Day Table 9
W0 Initial workforce Worker 12
K Unit produced by one worker in an Unit 4
hour
Exp Expired day for bread Day 5
R Cost of production in regular day Unit 100
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Paremeter Description Unit Value

Dt Demand for each t Unit Table 9
Oav Hours overtime available Hour 140
Wr Regular day salary Dollar / hour 2.3
Cost of production at Fridays is cost of 6 hours of work multiplied by the
hourly wage. Unit produced by a worker every hour is estimated by dividing
the number of produced items in a month (6600 units) to the amount of
month available in a year (12 months). In other words, each worker is able
to produce 550 units a month, 25 units a day, and 4 units in an hour with
assumption that there are 22 working days in a month and 7 working hours
in a day. Overtime could be conducted only in 8 days in a month. Since
Fridays only have 6 hours of work, they still can be used for another 18
hours. There are 4 Fridays each month so there are 72 hours overtime in
Fridays and other 17 x 4 hours in regular day. Then, we have a maximum of
140 hours in a week for working overtime. After taking all aspects into
account, the equation to minimize cost with five constraints at 5.2 is shown
below in Table 4.
Table 4 Variables
Variable Description Unit

𝑊𝑡 Worker in t period Worker
𝑃𝑡 Unit produced each t Unit
𝐻𝑡 Hired each t Worker
𝐹𝑡 Fired each t Worker
𝑂𝑢𝑡 Overtime used day
This is the objective function and constraints for production planning

model.
Min: 𝑍 = ∑12
𝑡=1 𝐶𝑟 × 𝑃𝑡 + 𝐶ℎ × 𝐻𝑡 + 𝐶𝑓 × 𝐹𝑡 + 𝑂𝑡 × 𝑂𝑢𝑡 + 𝐽 × 𝑊𝑡 + 𝑊𝑡 × (𝑁𝑟𝑡 − 4) × 𝑅
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There are five constraints that required for solving the problem. The
constraints are used to ensure the amount of labor and units as below.
a. Conservation of work force
𝑊𝑡 = 𝑊𝑡−1 + 𝐻𝑡 − 𝐹𝑡
b. Production level constraint
The production level to fulfill the customer’s demand is greater than the
forecasted demand. It is formulated as below.
𝑃𝑡 ≥ 𝐷𝑡
c. Constraints relating production levels to workforce levels
𝑃𝑡 = 7𝐾𝑁𝑟𝑡 𝑊𝑡 + 24𝑊𝑡 𝐾 + 𝐾𝑊𝑡 𝑂𝑡
d. In the same month, it either hires or fires the worker
𝐻𝑡 𝐹𝑡 = 0
e. Available amount of overtime allowed in a month (in hour)
𝑂𝑡 ≤ 140
The model was solved using solver on Excel, this is the optimal solution
we have for production planning for 12 months in 2020 including the
number of work force hired, fired, and hours of overtime used. The model
gives the objective value of $392,150.33.
Table 5 Optimal Solution
Friday Unit
Demand Days Worker Hire Fire Overtime Difference
Exclude Produced
t Dt Nt Nrt Pt Wt Ht Ft Out
1 9455 23 19 9472 8 0 4 139 17
2 9642 21 17 9648 9 1 0 125 6
3 9829 22 18 9864 9 0 0 124 35
4 10016 22 18 10044 9 0 0 129 28
5 10203 21 17 10240 10 1 0 113 37
6 10390 22 18 10440 9 0 1 140 50
7 10577 23 19 10584 9 0 0 137 7
8 10764 21 17 10800 10 1 0 127 36
9 10951 22 18 10960 10 0 0 124 9
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Friday Unit
Demand Days Worker Hire Fire Overtime Difference
Exclude Produced
10 11138 22 18 11160 10 0 0 129 22
11 11324 21 17 11352 11 1 0 115 28
12 11511 23 19 11520 10 0 1 131 9
sum 263 215 126084 114 4 7 1533
There are still some differences between unit produced and demand from
market, so INCREASE should make marketing strategy such as price promo
for the number of products produced more than demand.
Since the company has acknowledged the number of aggregate units to
be produced, INCREASE then needs to make a production schedule and
inventory control. Material Requirements Planning (MRP) is a system that
allocates materials that are required and maintains the lowest level of
inventory. The lead time is assumed to be a month, because that is the
minimum period for suppliers to ship the materials from different city.
The materials have different lot sizes because the multiple of order for
material is given. Lot sizing is used to determine the lot size purchased with
the lowest cost.
 For Wheat Flour, lot sizing used is Least Unit Cost (LUC) with given lot
size 100 kg. This technique is used to determine the trial lot size based
on the multiple of order and calculate the ordering cost and holding cost
for each trial lot size. From that trial lot size, the material must be
purchased for each month with one month lead time.
 For Dry Yeast, lot sizing used is Period Order Quantity (POQ) with given
lot size 5 kg. EOQ (Economic Order Quantity) is needed to calculate
fixed number of period requirement to purchase the materials.
2𝑑𝑆 2(74)(5,71)
𝐸𝑂𝑄 = √ = √ = 89 𝑢𝑛𝑖𝑡𝑠
ℎ 0,1071
12 12
𝑃𝑂𝑄 = = = 1 𝑚𝑜𝑛𝑡ℎ𝑠
𝐷 3856,67
(𝑄 ) (
89 )
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From that trial lot size, the material must be purchased for each month
with lead time one month.
 For Sugar, lot sizing used is Least Unit Cost (LUC) with given lot size
100 kg. The trial lot size is calculated to know when the material must
be purchased. When the cost per unit each trial lot size is rising, then
the material must be purchased on that period. From that trial lot size,
the material must be purchased for each month with lead time one
month.
 For Salt, lot sizing used is Period Order Quantity (POQ) with lot size 1
kg or Lot-For-Lot (LFL).
2𝑑𝑆 2(27)(5,71)
𝐸𝑂𝑄 = √ = √ = 61 𝑢𝑛𝑖𝑡𝑠
ℎ 0,083
12 12
𝑃𝑂𝑄 = = = 3 𝑚𝑜𝑛𝑡ℎ𝑠
𝐷 321
(𝑄 ) (
61 )
From that trial lot size, the material must be purchased for three months
with lead time one month. MRP for each material is attached. After
calculating the net requirement with each lot size, the amount of materials
required is summarized below.
Table 6 Planned Order Released for procurement
Period
Material
1 2 3 4 5 6 7 8 9 10 11 12
Wheat Flour 1500 1600 1600 1700 1700 1700 1800 1700 1800 1900 1900 0
Dry Yeast 0 70 70 75 65 75 75 75 80 80 80 0
Sugar 1700 1800 1900 1800 1900 1900 2000 2000 2000 2100 2100 0
Salt 0 0 0 79 0 0 82 0 0 86 0 0
VI.2 Distribution Strategy

Another problem INCREASE faces that needs to be overcome is the best
alternative of transportation to find the minimum distribution cost. The
company has trucks as its assets. There are four distributors that are located
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in four different cities. These cities are Medan, Makassar, Bandung, and
Malang. Based on the data, the plant is located somewhere in West Java.
The distribution strategy will outcome the best way INCREASE has to take
to distribute the products with lowest cost.
It is known that the land route is more likely to be used for in-land
transportation. This means that the distribution to Bandung and Malang
which are located in West Java and East Java consecutively must be
conducted by land. It is also stated that distribution that is done outside Java
must be done either by sea or air. Table 7 below reveals the duration and
cost for each distribution plan.
Table 7 Optimization of distribution cost
Driver
Distance Duration Quantity Quantity
City Transportation wage Price (USD)
(km) (hours) (Litre) (Barrel)
(USD)
Land 1228,3 20,471667 81,886667 409,433333 2,57505241 236,389811

Medan Sea 60 196,203543
Air 2,33 401,862679
Bandung Land 58,8 0,98 3,92 19,6 0,12327044 11,3162264
Malang Land 493,5 8,225 32,9 164,5 1,03459119 94,9754717
Land 961 16,016667 64,066667 320,333333 2,01467505 184,94717
Makassar Sea 60 153,506151
Air 2,3 314,410189
The red lines in the table indicate the infeasible alternative of distribution
and the green lines indicate the chosen alternative. To calculate the cost for
the distribution route to Medan and Makassar by sea and air, the cost for
land route should firstly be calculated because these routes are 83% and
170% from the land route consecutively. So to minimize the cost, the
distribution strategy for Medan and Makassar distributors use the sea route.
This is because the production is finished every end of month and it only
takes 3 days (lead time) to distribute the items to these cities. In other words,
the time constraint is not really concerned here because the production has
been finished earlier. The total distribution cost after choosing the best
alternatives for each city is $456.00.
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VI.3 Future Expansion

1. INCREASE new plant in Medan
Rise of rice price makes a huge increase of bread demand all over
Indonesia. INCREASE has 4 distributors located in Bandung, Malang,
Makassar, and Medan. As known before, INCREASE has a plan to expand
its business throughout Indonesia. Moreover, huge number of production
and demand indicate that INCREASE needs to make a new production plant
to fulfill their demand. It’s concerned that if INCREASE only has one plant,
it will not fulfill the demand in the future, causing lost sales and major loss
to the company.
To predict the increase of demand in 4 cities which INCREASE supply
their product, we need to know the amount of bread distributed to the 4
cities. The amount of bread distributed to the 4 cities are estimated by
market sizing tools. It is estimated by using the amount of citizens in the
corresponding city. From market sizing analysis, Medan and Bandung are
the biggest markets for INCREASE.
The following table shows the proportion of bread distributed to each
city.
Table 8 Market Share for each distributor
City Market
Bandung 36%
Makassar 20%
Malang 12%
Medan 32%
Based on the table shown above and since Bandung already close to
current plant, INCREASE should make new plant at Medan. We projected
the financial from the plant’s construction to see whether it is profitable or
not. Rate of return analysis and payback period analysis are the parameters
that used in deciding whether this project is feasible and profitable. The
following graphic shows cash flow over the years if INCREASE decide to
make a new plant in Medan. Benefit of making new plant at Medan are
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cutting transportation cost to Medan and reduce work load at INCREASE

main load.
Cash Flow
$40.000,0 $30.913,3
$26.119,1
$21.325,0
$16.530,8
$20.000,0 $11.736,7
$6.942,5
$-
0 1 2 3 4 5 6
$(20.000,0)
$(40.000,0)
$(60.000,0)
$(66.666,7)
$(80.000,0)
Figure 3 Cash flow diagram
Based on the calculations shown in the Attachment K, calculated rate

of return is about 13.95% and the payback period is about 1.12 years after
the construction of the new plant. The 1.12 years payback period means that
it takes 1.12 years for INCREASE to gain back their investment cost. The
plant is planned to be built in the end of year 2020 and expected to be
finished by the end of 2021. In 2022, the plant shall begin the production.
2. Implementation of decision support system using Macro in Microsoft
Excel
Due to significant increase in demand, INCREASE needs to improve
the company’s production planning in order to maximize fulfillment rate
using decision support system. Decision support system can help production
managers to make better judgement and more accurate data-driven decision.
Our team suggests INCREASE Group to implement Excel-based Macro
decision support system to be used company-wide to assist production
system. Excel-based decision support system is chosen because it is cost-
efficient to be created and easier to be used by various stakeholders,
compared to other alternatives such as making decision support system
software from scratch or buying expensive software from other company.
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Excel-based Macro decision support system can also be adjusted to the

company’s requirement easily.
When production manager receives sales data, the manager will enter
the data as an input to Macro. The decision support system will generate
forecasted demand for the next year ahead, production plans such as number
of people hired, fired, overtime hours required, and material requirement
planning.
Below are the interfaces of the decision support system.
Figure 4 Excel based decision support system interface
In order to keep up with the ever increasing demand, productivity must

be significantly improved. Our team recommends INCREASE Group to
invest in smart manufacturing technology such as factory automation,
robotic, data analytics and internet of things. Factory automation and robotic
can speed up the production speed significantly so more bread can be
produced with limited amount of labor, thus keeping labor cost minimal
while still maximizing demand fulfillment rate. Implementation of internet
of things can help data collection from machineries in real-time, and using
data analytics, production manager can identify potential machine
problems, prevent downtime, predict maintenance, so the company may
avoid any potential machine breakdown problems that may cause loss to the
company. Investment in smart manufacturing may be costly at first, but it
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will bring many benefits in the long-term as it makes the production more
cost-efficient.
VII. Conclusion and Suggestion
VII.1 Conclusion
According to the conducted research in INCREASE, the conclusions
to answer the purpose of this research are as follows:
1. INCREASE needs to implement the aggregate planning such as the
amount of labor needed, the production level, the overtime needed
shown in Table 5 and procure the supplies based on Table 6.
2. INCREASE needs to distribute the bread through sea to Medan and
Makassar and through land to Bandung and Malang to get the lowest
cost.
3. In order to expand their business and overcome the increase of the
demand, INCREASE needs to build a new plant in Medan with internal
rate of return of 13.95% which indicates the investment is profitable
and with 1.12 years payback period. Furthermore, INCREASE needs to
implement Excel-Based Macro Decision Support System to help the
production manager on making better judgments and more accurate
data driven decision.
VII.2 Suggestion
According to the conducted research in INCREASE, the suggestions
given to INCREASE are as below:
1. To take advantage of the significant rise of demand, INCREASE should
improve their marketing and sales strategy in order to increase sales so
that INCREASE can be the market leader and get the maximum profit
2. Considering that the capital city will be relocated to Borneo,
INCREASE should place a distributor in Borneo.
3. INCREASE should continuously evaluate product quality to maintain
customer satisfaction.
17
INCREASE 2020
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VIII. Attachment
Attachment A Gap analysis
Expectation Actual Gap Actions to be Taken

Customer demand ca The There is still unfulfill Forecasting future
n be fulfilled effectiv fulfillment rate is ap ed demand which sh state demand based o
ely proximately 62% ould be met so that n historical data
which means not all the company’s profit and planning the pro
demands are met can arise duction for the next
12
months and making s
trategy so that INCR
EASE can meet its
lowest production
cost
Vertical integration s Production cost is INCREASE could in Considering other alt

trategy is expected to still reducible crease their profit if t ernative decisions (i.
reduce production c hey reduce the produ e choosing to buy ra
ost ction cost as low as p w material from sup
ossible pliers and selecting t
he best route to deliv
er customer’s deman
d on time)
Attachment B Parameters
Parameter Description
𝐶𝑟 Cost of producing one unit on regular time
𝐶𝑓 Cost of firing one worker
𝐶𝐻 Cost of hiring one worker
18
INCREASE 2020
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Parameter Description
𝐶𝑂 Incremental cost of producing one unit on overtime
𝐶𝑈 Idle cost per unit of production
𝐶𝑆 Cost to subcontract one unit of production
𝑛𝑡 Number of production days in period t
𝐾 Number of aggregate units produced by one worker in one
day
𝐼0 Initial inventory on hand at the start of the planning horizon
𝑊0 Initial workforce at the start of the planning horizon
𝐷𝑡 Forecast of demand in period t
Attachment C Problem variables
Variable Description
𝑊𝑡 Worker level in period t
𝑃𝑡 Unit produced in period t
𝐻𝑡 Hired in period t
𝐹𝑡 Fired in period t
𝐼𝑡 Inventory level in period t
𝑂𝑡 Overtime production in units
𝑈𝑡 Worker idle time in units
𝑆𝑡 Number of units subcontracted from outside
Attachment D Result of forecasting
Period D(t) B(t) T(t) F(t)

1 5000 5000 0 -
2 5150 5060 3 5000
3 5200 5117.8 5.74 5063
4 5200 5154.124 7.2692 5123.54
5 5400 5256.836 12.04134 5161.393
6 5800 5481.326 22.66379 5268.877
19
INCREASE 2020
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Period D(t) B(t) T(t) F(t)

7 5600 5542.394 24.58399 5503.99
8 5900 5700.187 31.24443 5566.978
9 5900 5798.859 34.6158 5731.431
10 6200 5980.085 41.94631 5833.475
11 6320 6141.219 47.90569 6022.031
12 6700 6393.475 58.1232 6189.124
13 8400 7230.959 97.09125 6451.598
14 9600 8236.83 142.5302 7328.05
15 10600 9267.616 186.943 8379.36
1 9454.559
2 9641.502
3 9828.445
4 10015.39
5 10202.33
6 10389.27
7 10576.22
8 10763.16
9 10950.1
10 11137.05
11 11323.99
12 11510.93
Attachment E Wheat flour lot sizing calculation
Combined Periods Trial Lot Size (kg) Cummulative Cost Cost per Unit
1 1600 270,0012 0,168751

1,2 3100 1026,165 0,331021
2 1500 253,1261 0,168751
2,3 3100 1047,38 0,337864
3 1600 270,0012 0,168751
3,4 3200 1064,898 0,33278
4 1600 270,0012 0,168751
20
INCREASE 2020
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Combined Periods Trial Lot Size (kg) Cummulative Cost Cost per Unit
4,5 3300 1104,916 0,334823
5 1700 286,8763 0,168751
5,6 3400 1134,969 0,333815
6 1700 286,8763 0,168751
6,7 3400 1137,541 0,334571
7 1700 286,8763 0,168751
7,8 3500 1181,737 0,337639
8 1800 303,7514 0,168751
8,9 3500 1165,666 0,333047
9 1700 286,8763 0,168751
9,10 3500 1173,38 0,335251
10 1800 303,7514 0,168751
10,11 3700 1236,702 0,334244
11 1900 320,6264 0,168751
11,12 3800 1272,863 0,334964
12 1900 320,6264 0,168751
Attachment F MRP wheat flour
Wheat LLC
Item : Flour : 1 Period (Month)
Lot size : 100 LT : 1 0 1 2 3 4 5 6 7 8 9 10 11 12
15 15 15 16 16 16 17 17 17 18 18 18
Gross requirements 0 35 34 98 28 59 92 15 50 76 08 40 67
16
Scheduled receipts 00
Projected on hand 65 31 33 5 46 54 39 89 13 5 65 98
14 15 15 16 16 16 17 16 17 18 18
Net requirements 0 69 67 95 54 46 61 11 87 95 35 02
15 16 16 17 17 17 18 17 18 19 19
Planned order receipts 00 00 00 00 00 00 00 00 00 00 00
15 16 16 17 17 17 18 17 18 19 19
Planned order releases 00 00 00 00 00 00 00 00 00 00 00 0
Total $
cost 64.114,20
Attachment G MRP dry yeast
Item : Dry Yeast LLC : 1 Period (Month)

Lot size : 5 LT : 1 0 1 2 3 4 5 6 7 8 9 10 11 12
Gross requirements 67 68 70 71 72 74 75 76 77 79 80 81
21
INCREASE 2020
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Planned order releases 70 70 75 65 75 75 75 75 80 80 80
Total cost 2400
Attachment H MRP sugar
Combined Periods Trial Lot Size Cummulative Cost Cost per Unit
1 1800 361.62 1,395139

1,2 3500 84.586.936 0.24167696
2 1700 341.53.00 1,395139
2,3 3500 8.694.952 0.2484272
3 1800 361.62 1,395139
3,4 3700 89.794.264 0.2426872
4 1900 381.71 1,395139
4,5 3700 8.946.872 0.241807351
5 1800 361.62 1,395139
5,6 3700 89.850.516 0.242839232
6 1900 381.71 1,395139
6,7 3800 9.185.148 0.241714421
7 1900 381.235 0.20065
7,8 3900 94.447.108 0.242172072
8 2000 401.08.00 1,395139
8,9 4000 96.729.332 0.24182333
9 2000 401.08.00 1,395139
9,1 4100 99.479.612 0.2426332
10 2000 401.08.00 1,395139
10,11 4100 9.932.496 0.242256
11 2100 421.89 1,395139
11,12 4200 101.518.788 0.2417114
12 2100 421.89 1,395139
Attachment I MRP sugar
Sug LL
Item : ar C: 1 Period (Month)
Lot size LT
: 100 : 1 0 1 2 3 4 5 6 7 8 9 10 11 12
17 17 17 18 18 19 19 19 19 20 20 20
18
16 17 18 17 18 18 19 19 19 20 20
22
INCREASE 2020
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17 18 19 18 19 19 20 20 20 21 21
17 18 19 18 19 19 20 20 20 21 21
Planned order releases 00 00 00 00 00 00 00 00 00 00 00 0
Total
Cost 21332
Attachment J MRP salt
Item : Salt LLC : 1 Period (Month)

Lot size : LFL LT : 1 0 1 2 3 4 5 6 7 8 9 10 11 12
Projected on hand 0 50 25 0 53 27 0 55 28 0 58 29 0
Planned order receipts 79 82 86
Planned order releases 79 82 86
Total cost 380,445
Attachment K Financial projection
Year 0 1 2 3 4 5 6
Income
$ $ $ $ $ $
Revenue $ - 47,991.2 58,143.5 68,295.8 78,448.1 88,600.5 98,752.8
$ $ $ $ $ $
Total $ - 47,991.2 58,143.5 68,295.8 78,448.1 88,600.5 98,752.8
Expenses
$
Invest $ 66,666.7 - $ - $ - $ - $ - $ -
$ $ $ $ $ $
Material $ - 25,328.7 30,686.8 36,045.0 41,403.2 46,761.3 52,119.5
$ $ $ $ $ $
Maintenance $ - 1,000.0 1,000.0 1,000.0 1,000.0 1,000.0 1,000.0
$ $ $ $ $ $
Labor $ - 14,720.0 14,720.0 14,720.0 14,720.0 14,720.0 14,720.0
$ $ $ $ $ $
Total $ 66,666.7 41,048.7 46,406.8 51,765.0 57,123.2 62,481.3 67,839.5
$ $ $ $ $ $
Cash Flow $(66,666.7) 6,942.5 11,736.7 16,530.8 21,325.0 26,119.1 30,913.3
IRR 13.95%
Payback
Period 1.12 Tahun
23
INCREASE 2020
Telepon : (022) 7564108 ; ext 2201 , Fax : (022) 7566345
IX. References
Crandall, R. (2008). Demand Forecasting - Art, Science, or Chaos/. Teaching Pedagogy, 914.
Daellenbach, H. G., & McNickle, D. C. (2005). Decision Making Through Systems Thinking.
London: Palgrave Macmillan.
Nahmias, S., & Olsen, T. L. (2015). Production and Operation Analysis. Illinois: Waveland
Press.
24

Mini Proposal of Increase 2020

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MINI PROPOSAL OF INCREASE 2020

OPTIMIZING INCREASE GROUP’S PRODUCTION STRATEGY FOR

Figure 1 Rich picture diagram

Figure 2 Fish bone diagram

No. Element Description

3. Designing a strategic decision to overcome the increasing demand.

However, it is possible to take integer constraint to the mathematic model,

Table 2 Forecasted Demand (Dt)

VI.1 Production Planning

Paremeter Description Unit Value

Paremeter Description Unit Value

Variable Description Unit

This is the objective function and constraints for production planning

VI.2 Distribution Strategy

Land 1228,3 20,471667 81,886667 409,433333 2,57505241 236,389811

VI.3 Future Expansion

cutting transportation cost to Medan and reduce work load at INCREASE

Figure 3 Cash flow diagram

Based on the calculations shown in the Attachment K, calculated rate

Excel-based Macro decision support system can also be adjusted to the

Figure 4 Excel based decision support system interface

In order to keep up with the ever increasing demand, productivity must

Expectation Actual Gap Actions to be Taken

Vertical integration s Production cost is INCREASE could in Considering other alt

Attachment C Problem variables

Attachment D Result of forecasting

Period D(t) B(t) T(t) F(t)

Period D(t) B(t) T(t) F(t)

Attachment E Wheat flour lot sizing calculation

1 1600 270,0012 0,168751

Attachment F MRP wheat flour

Attachment G MRP dry yeast

Item : Dry Yeast LLC : 1 Period (Month)

Planned order receipts 70 70 75 65 75 75 75 75 80 80 80

Attachment H MRP sugar

1 1800 361.62 1,395139

Attachment I MRP sugar

Attachment J MRP salt

Item : Salt LLC : 1 Period (Month)

Attachment K Financial projection

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