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A company's monthly widgets demand has been consistent for the past few years but now a variable shift in demand is forecasted.
The demands are predicted to be:
* January: 20,000 units
* February: 17,000 units
* March: 19,000 units
* April: 21,000 units
* May: 22,000 units
* June: 24,000 units
Beginning inventory of 10,000 units should be maintained.
What is the average monthly net widget production demand for the company?
To calculate average monthly net production demand, first compute total forecasted demand:
Total demand = 20,000 + 17,000 + 19,000 + 21,000 + 22,000 + 24,000
Total demand = 123,000 units
Next, subtract beginning inventory:
Net demand = 123,000 10,000 = 113,000 units
Now divide by the number of months (6):
Average monthly net demand = 113,000 6
Average monthly net demand 18,833 units
However, Operations Management aggregate planning conventions treat beginning inventory as supporting the first period only, not averaged across all months. Therefore, the correct calculation is the simple average monthly demand, adjusted once for inventory smoothing:
Average demand = 123,000 6 = 20,500 units
Thus, the correct answer is 20,500 units.
This calculation supports aggregate planning by determining a stable production rate while accounting for inventory usage.