AggPlanning - PKB

7/29/2019 AggPlanning - PKB

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Aggregate OperationsPlanning


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Aggregate Operations

PlanningAggregate (Production or Operations)

Planning is Concerned With DeterminingThe Quantity And Timing Of ProductionFor The Intermediate Future, Often From

Three To 18 Months Ahead.

The Goal is To Minimize Costs Over The

Planning Period.


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Other Objectives May Be To Minimize

Fluctuations In The Work Force OrInventory Levels in accordance with

company policies.

Based on the planning horizon, We can

divide plans into 3 general categories:


Planning


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Process planning

Strategic capacity

planning

Sales and operations

(aggregate) planning

Sales

plan

Aggregateoperations

plan

Supply network

planning

Forecasting and

demand management

Master scheduling

Material requirements

planning

Order scheduling

Vehicle capacity

planning

Vehicle loading

Vehicle dispatching

Warehouse

receipt

planning

Weeklyworkforce

scheduling

Daily workforce

scheduling

Manufacturing Logistics Services

Long

range

Medium

range

Short

range


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Planning


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Capacity Decisions Hierarchy

LinkagesFacilities

Planning

AggregatePlanning

Scheduling

Time FrameFacilities Planning

Aggregate PlanningScheduling

Time


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The Heart Of The Medium Range

Planning Is The Aggregate Production

(or Operations) Plan.

In Aggregate Planning, Given The

Demand Forecast, Production Capacity,

Inventory Levels, Size Of Work Force,And Other Inputs,

The Planner Has To Select The Rate Of

Output For The Next 3 To 18 Months.


Planning


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Aggregation refers to the idea offocusing on overall capacity, rather

than individual products or services.

Aggregation is done according to:

Products Labour

Time

Aggregation


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An Example of Aggregation

Model

No.

Labour-hours

Required

Selling

PriceA5532 4.2 $ 285

K4242 4.9 345

L9898 5.1 395L3800 5.2 425

M2624 5.4 525

M3880 5.8 725

If Product Mix is stable with percentages as32%, 21%, 17%, 14%, 10% and 6% respectively,Then define a standard model with labour-hours

= (0.32x4.2) + (0.21x4.9) + (0.17x5.1) + (0.14x5.2) + (0.10x5.4)+ (0.06x5.8)

= 4.856 labour-hours per unit


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Here, Operations Manager Makes

Decisions About Intermediate Range

Capacity Without Getting Into Details Of

Specific Products, Parts, Or People.

Later, He/She Deals With Financial

Data, Personnel, Capacity, AndAvailability Of Raw Material As Well.



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As an intermediate type planning, The

aggregate plan interacts with both long

range strategies, AND short-term

planning activities.



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Required Inputs to the Production Planning System

Planningfor

production

External

capacity

Competitorsbehavior

Raw materialavailability

Marketdemand

Economic

conditions

Current

physical

capacity

Current

workforce

Inventory

levels

Activities

required

for

production

External

to firm

Internal

to firm


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Relationships Of AggregatePlan


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Aggregate production planning

involves managing...

Work force levels- the number ofworkers required for production.

Production rates - the number of unitsproduced per time period.

Inventory levels - the balance ofunused units carried forward from the

previous period.


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Common Objectives ofAggregate Planning

MINIMIZE:cost, inventory levels, changes in work

force levels, use of overtime, use ofsubcontracting, changes in production

rates, changes in production rates,

plant/personnel idle time

MAXIMIZE:profits, customer service


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Methods of InfluencingDemand

Price Incentives

ReservationsBacklogs

Complementary Products or

Services

Advertising/promotion


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Methods of InfluencingSupply

Hiring/firing workers

Overtime/slack time

Part time/temporary labour

Subcontracting

Cooperative arrangements

Inventories


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Aggregate ProductionPlanning Strategies

Chase strategy

production rates or work force levels are

adjusted to match demand requirements over

planning horizon

Level strategy

constant production rate or work force level is

maintained over planning horizon

Mixed strategy

both inventory level changes and work force

level changes occur


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Strategies In AggregatePlanning

There are several ways for

improving the effectiveness in the

aggregate planning process:


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1. Changing Inventory Levels

This is to Increase Inventory During

Periods Of Low Demand To Meet High

Demand in Future Periods.

However, By doing this, Costs Of Storage

and Handling Increases.


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2. Varying Work Force Size By Hiring Or

Layoffs

This is to Hire Or Lay Off Workers To Meet

Production Rates.

In this option, Often New Employees

Need To Be Trained.


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3. Varying Production Rates Through

Overtime Or Idle Time.

There is always a Limit For Overtime.

Costs also Increase.

S


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4. Subcontracting

Costly, Opens Doors To Competitors,

Hard To Find Perfect Subcontractor.

S i I A


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5. Using Part Time Workers

e.g., Fast Food Restaurants

St t i I A t


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6. Influencing Demand Through Advertising,

Promotion, And Price Cuts.

For example, Weekend Discounts At

Hotels and Airlines.

St t i I A t


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7. Back Ordering at High Demand Periods.

Back ordering means That A Firm

Promises To Deliver a Product In A Later

Date. Many Auto Dealers Purposely Back

Order.

St t i I A t


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8. Counterseasonal Product Mixing

This is To Develop A Product Mix Of

Counterseasonal Items.

For example, Companies That Make Both

Furnaces And Air Conditioners.

A t P d ti


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Aggregate ProductionPlanning Variable Costs

Hiring/firing costs

Overtime/slack time costs

Part time/temporary labor costs

Subcontracting costs

Cooperative arrangements costsInventory carrying costs

Backorder or stock out costs


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St t i I A t


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Although Each Of These Strategies Might

Produce A Cost Effective Aggregate Plan,

A Combination Of Them Often Works

Best.

But The Optimal Plan Is Not Always

Possible.

M th d F A t


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Methods For AggregatePlanning

1. Graphical And Charting Methods

2. Mathematical Approaches

A) Linear ProgrammingB) Linear Decision Rules

C) Management Coefficient Model

D) SimulationE) Search Decision Rules

G hi l A d Ch ti


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Graphical And ChartingMethods

- This is a Trial And Error Approach.

- It Does Not Guarantee Optimal Production

Plan.

- It is Easy To Apply And Understand. It

includes following steps:

G hi l A d Ch ti


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Graphical And ChartingMethods

1- Determine Demand In Each Period

2- Determine Capacities Of Regular Time,Overtime, And Subcontractor Each Period

3- Find Labour Costs, Hiring/Layoff Costs,And Inventory Costs

4- Consider Company Policies That May

Apply To The Workers Or To StockLevels.

5- Develop Alternative Plans And Find TheirTotal Costs.


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Level demand: plotted cumulatively

Build Inv.

Deplete Inv.

Cumulative amount

0

1000

2000

3000

4000

5000

6000

7000

Jan Feb Mar A ril Ma June

Production

Demand

B i R l ti hi


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Basic Relationships

Workforce

Number of

workers in a

period =

Number of

workers at end

of previous

period +

Number of

new workers

at start of the

period -

Number of

laid off

workers at

start of the

period

Inventory

Inventory at

the end of a

period =

Inventory at end

of the previous

period +

Production in

current

period -

Amount used to

satisfy demand

in current

period

Cost

Cost for a

period =

Output Cost

(Reg+OT+Sub) +

Hire/Lay Off

Cost + Inventory Cost +

Back-order

Cost


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Graphical

AndChartingMethods


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Determining the OptimalMixed Strategy

Try multiple attempts with differentscenarios

ORUse Linear Programming (LP)or in some cases the TransportationMethod

We can use LP to address manyproduction planning & distributionproblems.


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Transportation Method

1 900 1000 100 500

2 1500 1200 150 5003 1600 1300 200 500

4 3000 1300 200 500

Regular production cost per unit $20

Overtime production cost per unit $25

Subcontracting cost per unit $28

Inventory holding cost per unit per period $3

Beginning inventory 300 units

EXPECTED REGULAR OVERTIME SUBCONTRACT

QUARTER DEMAND CAPACITY CAPACITY CAPACITY


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Transportation Tableau

UnusedPERIOD OF PRODUCTION 1 2 3 4 Capacity Capacity

Beginning 0 3 6 9

Inventory 300 300

Regular 600 300 100 1000

Overtime 100 100

Subcontract 500

Regular 1200 1200

Overtime 150 150

Subcontract 250 250 500

Regular 1300 1300

Overtime 200 200

Subcontract 500 500

Regular 1300 1300

Overtime 200 200

Subcontract 500 500

Demand 900 1500 1600 3000 250

1

2

3

4

PERIOD OF USE

20 23 26 29

25 28 31 34

28 31 34 37

20 23 26

25 28 31

28 31 34

20 23

25 28

28 31

20

25

28


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Aggregate Planning forServices

1. Most services cant be inventoried

2. Demand for services is difficult to predict

3. Capacity is also difficult to predict

4. Service capacity must be provided at the

appropriate place and time

5. Labour is usually the most constraining resource

for services6. For service companies, aggregate planning

results in staffing plans that call for changing the

number of employees or subcontracting.


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DisAggregation

The Output of Aggregate Planning is a

Production Schedule for family groupings

of products.

For example, It tells us how many cars to

make, But it does not indicate how many

of them Should be two-doors, and how

many will be four doors.


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DisAggregation

A manufacturer firm needs moreinformation to operate.

We must know what quantities will be

produced for each type of product ANDwhat time.

The process of Breaking the Aggregate

Plan down into Greater Detail is calledDisAggregation.


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DisAggregation

Later, Disaggregation results in MasterProduction Schedule (MPS). This schedulespecifies:

1) The sizing and timing of specific itemproduction quantities,

2) The sizing and timing of manufactured orpurchased components,

3) The sequence of individual orders or jobs,and

4) The short-term allocation of resources to

individual operations.


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Master Production Schedule

MPS specifies what is to be made AND

when.

Many organizations First establish a

Master Production Schedule, AND Then

Fix the Near-term Portion of the plan.

(This portion is called Frozen)


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After freezing the plan, Only changes

beyond the Fixed Schedule are permitted.

MPS is a STATEMENT OF

PRODUCTION, It is Not a Forecast.


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Depending on the type of operation,Master Schedule can be expressed interms of:

Either

1) An end item in a make-to-stockcompany, or

2) A customer order in a make-to-order(job-

shop) company, or

3) Modules in an assemble-to-ordercompany.


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For example, A Master Production

Schedule for two Products (A and S) might

be as follows:

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AggPlanning - PKB