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11
Aggregate PlanningAggregate Planning
22
Planning Tasks and ResponsibilitiesPlanning Tasks and Responsibilities
33
Types of Planning Over a Types of Planning Over a Time HorizonTime Horizon
Add FacilitiesAdd long lead time equipment
Schedule JobsSchedule PersonnelAllocate Machinery
Sub-ContractAdd EquipmentAdd Shifts
Add PersonnelBuild or Use Inventory
Long Range Planning
Intermediate Range Planning
Short Range Planning
Modify Capacity Use Capacity
*
*
*Limited options exist
44
The Production Planning ProcessThe Production Planning Process
Master Scheduling
Materials Planning
Capacity Planning
Production Planning
Sales Planning
Business Planning
Purchasing
Shop Floor control
Performance Measurement
yes
Resource OK?
PlanningOK?
no
yes
no
FEED
BAC
K
Objectives
Demands
Resources
Products
Materials
Capacity
Parts
Hours
Accountability
Bill of Materials
Inventory status
Routings
Top Management Planning
Operations management Planning
Operations Management Execution
55
Relationships of the Aggregate PlanRelationships of the Aggregate Plan
AggregatePlan for
Production
DemandForecasts,
orders
MasterProduction
Schedule, and MRP systems
Detailed WorkSchedules
ExternalCapacity
Subcontractors
Inventory OnHand
Raw MaterialsAvailable
Work Force
Marketplaceand Demand
Research andTechnology
ProductDecisions
ProcessPlanning & Capacity
Decisions
66
Meet demandMeet demandUse capacity Use capacity efficientlyefficientlyMatch capacity to Match capacity to demanddemandMeet inventory policyMeet inventory policyMinimize costMinimize cost
LaborLaborInventoryInventoryPlant & equipmentPlant & equipment
SubcontracSubcontractt
Aggregate Planning GoalsAggregate Planning Goals
77
Inputs and Outputs to APPInputs and Outputs to APP
CompanyPolicies
CompanyPolicies
StrategicObjectivesStrategic
ObjectivesCapacity
ConstraintsCapacity
Constraints
Units or dollarssubcontracted,
backordered, or lost
Units or dollarssubcontracted,
backordered, or lost
Size ofWorkforce
Size ofWorkforce
Productionper month
(in units or $)
Productionper month
(in units or $)
InventoryLevels
InventoryLevels
FinancialConstraintsFinancial
ConstraintsDemand
ForecastsDemand
ForecastsAggregateProductionPlanning
AggregateProductionPlanning
88
Production planning processProduction planning process
Corporate strategies
and policies
Business Plan
Aggregate Plan
Master Production Schedule
Aggregate demand forecast
EconomicPolitical
Competitive conditions
Establishes Operations and capacity strategy
Establishes Operations capacity
Establishes schedule for specific products
Required Inputs to the Production Required Inputs to the Production Planning SystemPlanning System
Planning for
production
External capacity
Competitors’behavior
Raw material availability
Market demand
Economic conditions
Currentphysical capacity
Current workforce
Inventory levels
Activities required for production
External to firm
Internal to firm
1010
Pure Strategies Pure Strategies -- The ExtremesThe Extremes
Level Strategy
Chase Strategy
Production equals
demand
Production rate is constant
Level production - produce at constant rate & use inventory as needed to meet demand
Chase demand - change workforce levels so that production matches demand
1111
Level ProductionLevel Production
ProductionProduction
DemandDemandU
nits
Uni
ts
TimeTime
1212
Chase DemandChase Demand
ProductionProduction
DemandDemand
Uni
tsU
nits
TimeTime
1313
Aggregate Planning StrategiesAggregate Planning StrategiesPure StrategiesPure Strategies
Capacity Options Capacity Options —— change capacity:change capacity:changing inventory levelschanging inventory levelsvarying work force size by hiring or varying work force size by hiring or layoffslayoffsvarying production capacity through varying production capacity through overtime or idle timeovertime or idle timesubcontractingsubcontractingusing partusing part--time workerstime workers
1414
Aggregate Planning StrategiesAggregate Planning StrategiesPure StrategiesPure Strategies
Demand Options Demand Options —— change demandchange demand::
influencing demand influencing demand –– pricing, promotionpricing, promotion
backordering during high demand backordering during high demand periodsperiods
counterseasonal product mixingcounterseasonal product mixing
Balancing Aggregate DemandBalancing Aggregate Demandand Aggregate Production Capacityand Aggregate Production Capacity
0
2000
4000
6000
8000
10000
Jan Feb Mar Apr May Jun
45005500
7000
10000
8000
6000
0
2000
4000
6000
8000
10000
Jan Feb Mar Apr May Jun
4500 4000
90008000
4000
6000
Suppose the figure to the right represents forecast demand in units
Suppose the figure to the right represents forecast demand in units
Now suppose this lower figure represents the aggregate capacity of the company to meet demand
Now suppose this lower figure represents the aggregate capacity of the company to meet demand
What we want to do is balance out the production rate, workforce levels, and inventory to make these figures match up
What we want to do is balance out the production rate, workforce levels, and inventory to make these figures match up
1616
Examples from Indian industryExamples from Indian industry
Automobiles Automobiles -- Mahindra _different Mahindra _different strategiesstrategiesTwo wheelers Two wheelers –– LML Ltd (flow)LML Ltd (flow)Process Process –– ACC refractoriesACC refractoriesHotels, RestaurantsHotels, RestaurantsServices Services ––
Banking , Credit cardsBanking , Credit cardsAirports _ flexi Airports _ flexi -- counterscounters
1717
APP Using Pure StrategiesAPP Using Pure Strategies
Hiring cost = $100 per workerFiring cost = $500 per worker
Inventory carrying cost = $0.50 pound per quarterProduction per employee = 1,000 pounds per quarter
Beginning work force = 100 workers
QUARTER SALES FORECAST (LB)
Spring 80,000Summer 50,000Fall 120,000Winter 150,000
Solved example:Solved example:
1818
APP Using Pure StrategiesAPP Using Pure Strategies
Hiring costHiring cost = $100 per worker= $100 per workerFiring costFiring cost = $500 per worker= $500 per worker
Inventory carrying costInventory carrying cost = $0.50 pound per quarter= $0.50 pound per quarterProduction per employeeProduction per employee = 1,000 pounds per quarter= 1,000 pounds per quarter
Beginning work forceBeginning work force = 100 workers= 100 workers
QUARTER SALES FORECAST (LB)
Spring 80,000Summer 50,000Fall 120,000Winter 150,000
Level production
= 100,000 pounds
(50,000 + 120,000 + 150,000 + 80,000)4
1919
Level Production StrategyLevel Production Strategy
Spring 80,000 100,000 20,000Summer 50,000 100,000 70,000Fall 120,000 100,000 50,000Winter 150,000 100,000 0
400,000 140,000
Cost = 140,000 pounds x 0.50 per pound = $70,000
SALES PRODUCTIONQUARTER FORECAST PLAN INVENTORY
2020
Spring 80,000 80,000 80 0 20Summer 50,000 50,000 50 0 30
Fall 120,000 120,000 120 70 0Winter 150,000 150,000 150 30 0
100 50
SALES PRODUCTION WORKERS WORKERS WORKERSQUARTER FORECAST PLAN NEEDED HIRED FIRED
Cost = (100 workers hired x $100) + (50 workers fired x $500)= $10,000 + 25,000 = $35,000
Chase Demand StrategyChase Demand Strategy
2121
APP Using Mixed StrategiesAPP Using Mixed Strategies
Production per employee= 100 cases per monthWage rate = $10 per case for regular production
= $15 per case for overtime= $25 for subcontracting
Hiring cost = $1000 per workerFiring cost = $500 per worker
Inventory carrying cost = $1.00 case per monthBeginning work force = 10 workers
January 1000 July 500February 400 August 500March 400 September 1000April 400 October 1500May 400 November 2500June 400 December 3000
MONTH DEMAND (CASES) MONTH DEMAND (CASES)
Summary: The Aggregate Operations PlanSummary: The Aggregate Operations Plan
Main purpose: Specify the optimal combination Main purpose: Specify the optimal combination ofof
production rate (units completed per unit of production rate (units completed per unit of time)time)workforce level (number of workers)workforce level (number of workers)inventory on hand (inventory carried from inventory on hand (inventory carried from previous period)previous period)
Product group or broad category (Aggregation)Product group or broad category (Aggregation)This planning is done over an intermediateThis planning is done over an intermediate--range planning period of 6 to18 months range planning period of 6 to18 months
Aggregate Planning Examples: Unit Aggregate Planning Examples: Unit Demand and Cost DataDemand and Cost Data
Materials $5/unitHolding costs $1/unit per mo.Marginal cost of stockout $1.25/unit per mo.Hiring and training cost $200/workerLayoff costs $250/workerLabor hours required .15 hrs/unitStraight time labor cost $8/hourBeginning inventory 250 unitsProductive hours/worker/day 7.25Paid straight hrs/day 8
Suppose we have the following unit demand and cost information:
Suppose we have the following unit demand and cost information:
Demand/mo Jan Feb Mar Apr May Jun
4500 5500 7000 10000 8000 6000
2424
Jan Feb Mar Apr May JunDays/mo 22 19 21 21 22 20Hrs/worker/mo 159.5 137.75 152.25 152.25 159.5 145Units/worker 1063.33 918.33 1015 1015 1063.33 966.67$/worker $1,408 1,216 1,344 1,344 1,408 1,280
Productive hours/worker/day 7.25Paid straight hrs/day 8
Demand/mo Jan Feb Mar Apr May Jun
4500 5500 7000 10000 8000 6000
Given the demand and cost information below, whatare the aggregate hours/worker/month, units/worker, and dollars/worker?
Given the demand and cost information below, whatare the aggregate hours/worker/month, units/worker, and dollars/worker?
7.25x22
159.5/0.15 =1063.322x8hrsx$8=$14
08
CutCut--andand--Try Example: Determining Try Example: Determining Straight Labor Costs and OutputStraight Labor Costs and Output
Chase StrategyChase Strategy(Hiring & Firing to meet demand)(Hiring & Firing to meet demand)
JanDays/mo 22Hrs/worker/mo 159.5Units/worker 1,063.33$/worker $1,408
JanDemand 4,500Beg. inv. 250Net req. 4,250Req. workers 3.997HiredFired 3Workforce 4Ending inventory 0
Lets assume our current workforce is 7 workers.Lets assume our current workforce is 7 workers.
First, calculate net requirements for production, or 4500-250=4250 units
Then, calculate number of workers needed to produce the net requirements, or 4250/1063.33=3.997 or 4 workers
Finally, determine the number of workers to hire/fire. In this case we only need 4 workers, we have 7, so 3 can be fired.
Jan Feb Mar Apr May JunDays/mo 22 19 21 21 22 20Hrs/worker/mo 159.5 137.75 152.25 152.25 159.5 145Units/worker 1,063 918 1,015 1,015 1,063 967$/worker $1,408 1,216 1,344 1,344 1,408 1,280
Jan Feb Mar Apr May JunDemand 4,500 5,500 7,000 10,000 8,000 6,000Beg. inv. 250Net req. 4,250 5,500 7,000 10,000 8,000 6,000Req. workers 3.997 5.989 6.897 9.852 7.524 6.207Hired 2 1 3Fired 3 2 1Workforce 4 6 7 10 8 7Ending inventory 0 0 0 0 0 0
Below are the complete calculations for the remaining months in the six month planning horizon
Below are the complete calculations for the remaining months in the six month planning horizon
Jan Feb Mar Apr May JunDemand 4,500 5,500 7,000 10,000 8,000 6,000Beg. inv. 250Net req. 4,250 5,500 7,000 10,000 8,000 6,000Req. workers 3.997 5.989 6.897 9.852 7.524 6.207Hired 2 1 3Fired 3 2 1Workforce 4 6 7 10 8 7Ending inventory 0 0 0 0 0 0
Jan Feb Mar Apr May Jun CostsMaterial $21,250.00 $27,500.00 $35,000.00 $50,000.00 $40,000.00 $30,000.00 203,750.00Labor 5,627.59 7,282.76 9,268.97 13,241.38 10,593.10 7,944.83 53,958.62Hiring cost 400.00 200.00 600.00 1,200.00Firing cost 750.00 500.00 250.00 1,500.00
$260,408.62
Below are the complete calculations for the remaining months in the six month planning horizon with the other costs included
Level Workforce Strategy (Surplus and Level Workforce Strategy (Surplus and Shortage Allowed)Shortage Allowed)
JanDemand 4,500Beg. inv. 250Net req. 4,250Workers 6Production 6,380Ending inventory 2,130Surplus 2,130Shortage
Lets take the same problem as before but this time use the Level Workforce strategy
Lets take the same problem as before but this time use the Level Workforce strategy
This time we will seek to use a workforce level of 6 workers
This time we will seek to use a workforce level of 6 workers
Jan Feb Mar Apr May JunDemand 4,500 5,500 7,000 10,000 8,000 6,000Beg. inv. 250 2,130 2,140 1,230 -2,680 -1,300Net req. 4,250 3,370 4,860 8,770 10,680 7,300Workers 6 6 6 6 6 6Production 6,380 5,510 6,090 6,090 6,380 5,800Ending inventory 2,130 2,140 1,230 -2,680 -1,300 -1,500Surplus 2,130 2,140 1,230Shortage 2,680 1,300 1,500
Note, if we recalculate this sheet with 7 workers we would have a surplusNote, if we recalculate this sheet with 7 workers we would have a surplus
Below are the complete calculations for the remaining months in the six month planning horizonBelow are the complete calculations for the remaining months in the six month planning horizon
Jan Feb Mar Apr May Jun4,500 5,500 7,000 10,000 8,000 6,000
250 2,130 10 -910 -3,910 -1,6204,250 3,370 4,860 8,770 10,680 7,300
6 6 6 6 6 66,380 5,510 6,090 6,090 6,380 5,8002,130 2,140 1,230 -2,680 -1,300 -1,5002,130 2,140 1,230
2,680 1,300 1,500
Jan Feb Mar Apr May Jun$8,448 $7,296 $8,064 $8,064 $8,448 $7,680 $48,000.0031,900 27,550 30,450 30,450 31,900 29,000 181,250.002,130 2,140 1,230 5,500.00
3,350 1,625 1,875 6,850.00
$241,600.00
Below are the complete calculations for the remaining months in the six month planning horizon with the other costs included
Below are the complete calculations for the remaining months in the six month planning horizon with the other costs included
Note, total costs under this strategy are less than Chase at $260.408.62
Note, total costs under this strategy are less than Chase at $260.408.62
LaborMaterialStorageStockout
Quantitative Techniques For AP
Pure StrategiesMixed StrategiesLinear ProgrammingTransportation Method
1414--3232
Pure Strategies – Chase & Level Production
Hiring costHiring cost = $100 per worker= $100 per workerFiring costFiring cost = $500 per worker= $500 per worker
Inventory carrying costInventory carrying cost = $0.50 pound per = $0.50 pound per quarterquarter
Regular production cost per poundRegular production cost per pound = $2.00= $2.00Production per employeeProduction per employee = 1,000 pounds per = 1,000 pounds per
quarterquarterBeginning work forceBeginning work force = 100 workers= 100 workers
QUARTERQUARTER SALES FORECAST (LB)SALES FORECAST (LB)
SpringSpring 80,00080,000SummerSummer 50,00050,000FallFall 120,000120,000WinterWinter 150,000150,000
Example:Example:
Level Production StrategyLevel Production Strategy
Level production
= 100,000 pounds(50,000 + 120,000 + 150,000 + 80,000)
4
Spring 80,000 100,000 20,000Summer 50,000 100,000 70,000Fall 120,000 100,000 50,000Winter 150,000 100,000 0
400,000 140,000
Cost of Level Production Strategy(400,000 X $2.00) + (140,00 X $.50) = $870,000
SALES PRODUCTIONQUARTER FORECAST PLAN INVENTORY
Chase Demand StrategyChase Demand Strategy
SpringSpring 80,00080,000 80,00080,000 8080 00 2020SummerSummer 50,00050,000 50,00050,000 5050 00 3030FallFall 120,000120,000 120,000120,000 120120 7070 00WinterWinter 150,000150,000 150,000150,000 150150 3030 00
100100 5050
SALESSALES PRODUCTIONPRODUCTION WORKERSWORKERS WORKERSWORKERS WORKERSWORKERSQUARTERQUARTER FORECASTFORECAST PLANPLAN NEEDEDNEEDED HIREDHIRED FIREDFIRED
Cost of Chase Demand Strategy(400,000 X $2.00) + (100 x $100) + (50 x $500) = $835,000
Mixed StrategyMixed Strategy
Combination of Level Production and Chase Demand strategiesExamples of management policies
no more than x% of the workforce can be laid off in one quarterinventory levels cannot exceed x dollars
Many industries may simply shut down manufacturing during the low demand season and schedule employee vacations during that time
General Linear Programming (LP) Model
LP gives an optimal solution, but demand and costs must be linearLet
Wt = workforce size for period tPt =units produced in period tIt =units in inventory at the end of period tFt =number of workers fired for period tHt = number of workers hired for period t
LP MODELMinimize Z = $100 (H1 + H2 + H3 + H4)
+ $500 (F1 + F2 + F3 + F4)+ $0.50 (I1 + I2 + I3 + I4)+ $2 (P1 + P2 + P3 + P4)
Subject toP1 - I1 = 80,000 (1)
Demand I1 + P2 - I2 = 50,000 (2)constraints I2 + P3 - I3 = 120,000 (3)
I3 + P4 - I4 = 150,000 (4)
Production 1000 W1 = P1 (5)constraints 1000 W2 = P2 (6)
1000 W3 = P3 (7)1000 W4 = P4 (8)
100 + H1 - F1 = W1 (9)Work force W1 + H2 - F2 = W2 (10)constraints W2 + H3 - F3 = W3 (11)
W3 + H4 - F4 = W4 (12)
Transportation method for Aggregate Planning
Used if no change in manpower Used if no change in manpower –– i.e. no hiring and i.e. no hiring and firing costsfiring costsh = holding costs per unith = holding costs per unitr = regular production cost / unitr = regular production cost / unito = overtime costs per unito = overtime costs per units = subcontracting costs per unit s = subcontracting costs per unit b = backordering costs per unitb = backordering costs per unitI = beginning InventoryI = beginning InventoryR = regular capacityR = regular capacityO = overtime capacityO = overtime capacityS = subcontracting capacity S = subcontracting capacity
3838
Transportation Table for Agg. PlanTransportation Table for Agg. PlanPeriod 1Period 1 Period 2Period 2 Period 3Period 3
Unused Unused CapacityCapacity(Dummy)(Dummy)
Total Capacity Total Capacity AvailableAvailable(Supply)(Supply)
Beginning Beginning InventoryInventory
00 hh 2h2h II
RegularRegular rr r+hr+h r+2hr+2hRR11
OvertimeOvertime oo o+ho+h o+2ho+2hOO11
SubcontraSubcontractct
ss s+h+h s+2hs+2hSS11
RegularRegular r+br+b rr r+hr+hRR22
OvertimeOvertime o+bo+b oo o+ho+hOO22
SubcontraSubcontractct
s+bs+b ss s+h+hSS22
RegularRegular r+2br+2b r+br+b rrRR33
OvertimeOvertime o+2bo+2b o+bo+b ooOO33
SubcontraSubcontractct
s+2bs+2b s+bs+b ssSS33
Total Total DemandDemand
DD11 DD22 DD33
Perio
d 3
P
eriod
2
P
eriod
1
Aggregate Planning Aggregate Planning –– assumptions madeassumptions madeRegular capacity same in all periods (No Regular capacity same in all periods (No holidays , festivals etc)holidays , festivals etc)Cost is a linear function of unit cost and Cost is a linear function of unit cost and number of units. (cost actually step a number of units. (cost actually step a function) function) Plans are feasible Plans are feasible –– sufficient capacity / sufficient capacity / inventory holding availableinventory holding availableAll costs associated with a decision are All costs associated with a decision are represented by a lump sum or per unit cost represented by a lump sum or per unit cost (Actually step function)(Actually step function)Cost figures can be reasonably estimatedCost figures can be reasonably estimatedInventory build up and withdrawal at Inventory build up and withdrawal at constant rate. Backlogs for entire period.constant rate. Backlogs for entire period.
ItemsItems
Product lines Product lines or familiesor families
Individual Individual productsproducts
ComponentsComponents
Manufacturing Manufacturing operationsoperations
Resource Resource LevelLevel
PlantsPlants
Individual Individual machinesmachines
Critical Critical work work
centerscenters
Production Production PlanningPlanning
Capacity Capacity PlanningPlanning
Resource requirements
plan
Rough-cut capacity
plan
Capacity requirements
plan
Input/ output control
Sales and Operations
Plan
Master production schedule
Material requirements
plan
Shop floor
schedule
All All work work
centerscenters
Hierarchical Nature of Planning
Disaggregation: process of breaking an aggregate plan into more Disaggregation: process of breaking an aggregate plan into more detailed plansdetailed plans
Collaborative PlanningCollaborative Planning
Sharing information and synchronizing Sharing information and synchronizing production across supply chainproduction across supply chain
Part of CPFR (collaborative planning, Part of CPFR (collaborative planning, forecasting, and replenishment)forecasting, and replenishment)
involves selecting products to be jointly involves selecting products to be jointly managed, creating a single forecast of managed, creating a single forecast of customer demand, and synchronizing customer demand, and synchronizing production across supply chainproduction across supply chain
Available-to-Promise (ATP)
Quantity of items that can be promised to customerDifference between planned production and customer orders already received
Capable-to-promisequantity of items that can be produced and made available at a later date
*CO= customer order
ATP in period 1 = (On-hand quantity + MPS in period 1) –(CO* until the next period of planned production)
ATP in period n = (MPS in period n) –(CO until the next period of planned production)
ATP: ExampleATP: Example
ATP: Example (cont.)ATP: Example (cont.)
ATP: Example (cont.)ATP: Example (cont.)
ATP in April = (10+100) ATP in April = (10+100) –– 70 = 4070 = 40ATP in May = 100 ATP in May = 100 –– 110 = 110 = --1010ATP in June = 100 ATP in June = 100 –– 50 = 5050 = 50
= 30= 30= 0= 0
Take excess units from April
1414--4747
Rule Based ATPRule Based ATPProduct Request
Is the product
available at this location?
Is an alternative product
available at an alternate location?
Is an alternative product
available at this location?
Is this product available at a
different location?
Available-to-promise
Allocate inventory
Capable-to-promise date
Is the customer willing to wait for
the product?
Available-to-promise
Allocate inventory
Revise master
schedule
Trigger production
Lose sale
YesYes
NoNo
YesYes
NoNo
YesYes
NoNo
YesYes
NoNo
YesYes
NoNo
4848
Aggregate Planning Aggregate Planning Steps and techniques for aggregate planningSteps and techniques for aggregate planning
1.1. Determine demand for each periodDetermine demand for each period2.2. Determine capacities for each period (regular, Determine capacities for each period (regular,
OT, subOT, sub--contracting etc) contracting etc) 3.3. Identify company / departmental policies that Identify company / departmental policies that
are pertinent (safety stock, level workforce)are pertinent (safety stock, level workforce)4.4. Determine unit costs Determine unit costs -- for regular time, OT, subfor regular time, OT, sub--
contracting, holding inventories, backorders, layoffs etccontracting, holding inventories, backorders, layoffs etc5.5. Develop alternative plans and compute cost for eachDevelop alternative plans and compute cost for each6.6. If satisfactory plan emerges, select one that best If satisfactory plan emerges, select one that best
satisfies objectivessatisfies objectives-- else repeat step 5. else repeat step 5.
4949
Aggregate Planning Aggregate Planning –– assumptions madeassumptions madeRegular capacity same in all periods (No Regular capacity same in all periods (No holidays , festivals etc)holidays , festivals etc)Cost is a linear function of unit cost and Cost is a linear function of unit cost and number of units. (cost actually step a number of units. (cost actually step a function) function) Plans are feasible Plans are feasible –– sufficient capacity / sufficient capacity / inventory holding availableinventory holding availableAll costs associated with a decision are All costs associated with a decision are represented by a lump sum or per unit represented by a lump sum or per unit cost (Actually step function)cost (Actually step function)Cost figures can be reasonably estimatedCost figures can be reasonably estimatedInventory build up and withdrawal at Inventory build up and withdrawal at constant rate. Backlogs for entire period.constant rate. Backlogs for entire period.
5050
Next _ MPS and MRPNext _ MPS and MRP
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