Agregate Planning

To Accompany Krajewski & Ritzman Operations Management: Strategy and Analysis, Seventh Edition © 2004 Prentice Hall, Inc. All rights reserved.

Alternatives

Quarter

1

2

3

4

TotalCapacity

UnusedCapacity

Requirements

Qua

rter

Subcontract

Overtime

Regular time

Subcontract

Overtime

Regular time

Subcontract

Overtime

Regular time

Subcontract

Overtime

Regular time

Beginning

inventory

1

2

3

4

Aggregate Aggregate PlanningPlanning

Chapter 14Chapter 14


Planning RelationshipsPlanning Relationships

Figure 14.1Figure 14.1

Business Business or annual or annual planplan





Production Production or staffing or staffing planplan




MPS or MPS or workforce workforce scheduleschedule
















Managerial InputsManagerial Inputs


Aggregate plan



Aggregate plan

Customer needs Demand forecasts Competition behavior

Distribution and marketing




Cost data Financial condition of firm

Accounting and financeAggregate

plan






Labor-market conditions Training capacity

Human resources



plan






New products Product design changes Machine standards

EngineeringLabor-market conditions Training capacity

Human resources



plan






Supplier capabilities Storage capacity Materials availability

Materials



Human resources



plan






Supplier capabilities Storage capacity Materials availability

Materials

Current machine capacities Plans for future capacities Workforce capacities Current staffing level

Operations



Human resources



plan





Aggregate Planning Aggregate Planning ObjectivesObjectives

Minimize Costs/Maximize ProfitsMinimize Costs/Maximize Profits Maximize Customer ServiceMaximize Customer Service Minimize Inventory InvestmentMinimize Inventory Investment Minimize Changes in Production RatesMinimize Changes in Production Rates Minimize Changes in Workforce Minimize Changes in Workforce

LevelsLevels Maximize Utilization of Plant and Maximize Utilization of Plant and

EquipmentEquipment


Aggregate Planning StrategiesAggregate Planning StrategiesTABLE 14.1 PLANNING STRATEGIES FOR AGGREGATE PLANS

Possible Alternatives Possible AlternativesStrategyduring Slack Season during Peak Season

4. Level #2: constant Layoffs, building antici- Hiring, depleting antici-output rate pation inventory, pation inventory, over-

undertime, vacations time, subcontracting, backorders, stockouts

1. Chase #1: vary workforce Layoffs Hiringlevel to match demand

2. Chase #2: vary output Layoffs, undertime, Hiring, overtime,rate to match demand vacations subcontracting

3. Level #1: constant No layoffs, building No hiring, depletingworkforce level anticipation inventory, anticipation inventory,

undertime, vacations overtime, subcontracting, backorders, stockouts


Aggregate Planning ProcessAggregate Planning Process


Determine requirements for planning horizon




Identify alternatives, constraints, and costs






Prepare prospective plan for

planning horizon







planning horizon

Is the plan acceptable?







planning horizon


NoNo







planning horizon

Implement and update the plan


NoNo

YesYes







planning horizon

Move aheadto next

planning session

Implement and update the plan


NoNo

YesYes



Aggregate Planning CostsAggregate Planning Costs

Regular-Time CostsRegular-Time Costs Overtime CostsOvertime Costs Hiring and Hiring and

Layoff CostsLayoff Costs Inventory Inventory

Holding CostsHolding Costs Backorder and Stockout CostsBackorder and Stockout Costs


Level Strategy Level Strategy for Servicesfor Services

Dock Aisle



DockDock AisleAisle

Example 14.1Example 14.1

TIME PERIODTIME PERIOD

11 22 33 44 55 66 TotalTotal

Requirement*Requirement* 66 1212 1818 1515 1313 1414 7878

Current employment = 10 part-time clerksCurrent employment = 10 part-time clerks * Number of part-time employees* Number of part-time employees



DockDock AisleAisle


11 22 33 44 55 66 TotalTotal


Current employment = 10 part-time clerksCurrent employment = 10 part-time clerks

1.1. No more than 10 new hires in any periodNo more than 10 new hires in any period2.2. No backorders are permittedNo backorders are permitted3.3. Overtime can not exceed 20% of regular-time capacityOvertime can not exceed 20% of regular-time capacity4.4. The following costs can be assigned:The following costs can be assigned:

Regular-time wageRegular-time wage $2,000/period at 20 $2,000/period at 20 hours/weekhours/week

Overtime wagesOvertime wages 150% of regular-time150% of regular-timeHiringHiring $1,000/person$1,000/personLayoffsLayoffs $500/person$500/person

* Number of part-time employees* Number of part-time employees




Dock Aisle


11 22 33 44 55 66 TotalTotal






Peak Requirement




Dock Aisle


11 22 33 44 55 66 TotalTotal






Peak Requirement

1.20w = 18 employees in peak period




Dock Aisle


11 22 33 44 55 66 TotalTotal






Peak Requirement


w = = 15 employees18

1.20




Dock Aisle



11 22 33 44 55 66 TotalTotal






Peak Requirement


w = = 15 employees18

1.20


Chase Strategy Chase Strategy for Servicesfor Services

DockDock AisleAisle


11 22 33 44 55 66 TotalTotal





Mixed Strategies Mixed Strategies in Manufacturingin ManufacturingFigure 14.6


Production Production PlanningPlanningTableauTableau


AlternativesQuarter

1 2 3 4

TotalCapacity

UnusedCapacity

Requirements

Qu

arte

r

Subcontract

Overtime

Regular time

Subcontract

Overtime

Regular time

Subcontract

Overtime

Regular time

Subcontract

Overtime

Regular time

Beginning inventory

1

2

3

4

0 h 2h 3h 4h

r r+h r+2h r+3h u

c c+h c+2h c+3h 0

s s+h s+2h s+3h 0

r+b r r+h r+2h u

c+b c c+h c+2h 0

s+b s s+h s+2h 0

r+2b r+b r r+h u

c+2b c+b c c+h 0

s+2b s+b s s+h 0

r+3b r+2b r+b r u

c+3b c+2b c+b c 0

s+3b s+2b s+b s 0

D1 D2 D3 D4 + I4 U

I0

R1

O1

S1

R2

O2

S2

R3

O3

S3

R4

O4

S4


Production Production PlanningPlanningTableauTableauTru-RainbowTru-RainbowCompanyCompany


AlternativesQuarter

1 2 3 4

TotalCapacity

UnusedCapacity

Requirements

Qu

arte

r

Subcontract

Overtime

Regular time

Subcontract

Overtime

Regular time

Subcontract

Overtime

Regular time

Subcontract

Overtime

Regular time

Beginning inventory

1

2

3

4

0 h 2h 3h 4h

r r+h r+2h r+3h u

c c+h c+2h c+3h 0

s s+h s+2h s+3h 0

r+b r r+h r+2h u

c+b c c+h c+2h 0

s+b s s+h s+2h 0

r+2b r+b r r+h u

c+2b c+b c c+h 0

s+2b s+b s s+h 0

r+3b r+2b r+b r u

c+3b c+2b c+b c 0

s+3b s+2b s+b s 0

D1 D2 D3 D4 + I4 U

I0

R1

O1

S1

R2

O2

S2

R3

O3

S3

R4

O4

S4



AlternativesQuarter

1 2 3 4

TotalCapacity

UnusedCapacity

Requirements

Qu

arte

r

Subcontract

Overtime

Regular time

Subcontract

Overtime

Regular time

Subcontract

Overtime

Regular time

Subcontract

Overtime

Regular time

Beginning inventory

1

2

3

4

0 h 2h 3h 4h

r r+h r+2h r+3h u

c c+h c+2h c+3h 0

s s+h s+2h s+3h 0

r+b r r+h r+2h u

c+b c c+h c+2h 0

s+b s s+h s+2h 0

r+2b r+b r r+h u

c+2b c+b c c+h 0

s+2b s+b s s+h 0

r+3b r+2b r+b r u

c+3b c+2b c+b c 0

s+3b s+2b s+b s 0

D1 D2 D3 D4 + I4 U

I0

R1

O1

S1

R2

O2

S2

R3

O3

S3

R4

O4

S4

Quarter

1 2 3 4 Total

Demand 300 850 1500 350 3000Capacities Regular time 450 450 750 450 2100 Overtime 90 90 150 90 420 Subcontracting 200 200 200 200 800

Current inventory = 250,000Ending inventory = 300,000Regular time = $1.00/unitOvertime = $1.50/unitSubcontracting = $1.90/unitInventory holding cost = $0.30/gallon/quarterMaximum overtime = 20% of regular timeMaximum subcontract = 200,000No back orders or stockouts



Production Production PlanPlanTru-RainbowTru-RainbowCompanyCompany

1500 1500 —

1250 1250 —

1000 1000 —

750 750 —

500 500 —

250 250 —

0 0 —| | | |11 22 33 44

QuarterQuarter

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RequirementsRequirements




1500 1500 —

1250 1250 —

1000 1000 —

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0 0 —| | | |11 22 33 44

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Production planProduction plan





1500 1500 —

1250 1250 —

1000 1000 —

750 750 —

500 500 —

250 250 —

0 0 —| | | |11 22 33 44

QuarterQuarter

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510510

300300



InventoryInventoryaccumulationaccumulation




110110

400400

1500 1500 —

1250 1250 —

1000 1000 —

750 750 —

500 500 —

250 250 —

0 0 —| | | |11 22 33 44

QuarterQuarter

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InventoryInventoryconsumptionconsumption







110110

400400

1500 1500 —

1250 1250 —

1000 1000 —

750 750 —

500 500 —

250 250 —

0 0 —| | | |11 22 33 44

QuarterQuarter

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InventoryInventoryconsumptionconsumption











Total Cost

Quarter Cost




Total Cost

Quarter Cost

1 250($0) + 30($1.00) + 20($1.90) = $68




Total Cost

Quarter Cost

1 250($0) + 30($1.00) + 20($1.90) = $682 420($1.30) + 90($1.80) + 340($1.00) = 1,048




Total Cost

Quarter Cost

1 250($0) + 30($1.00) + 20($1.90) = $682 420($1.30) + 90($1.80) + 340($1.00) = 1,0483 110($1.30) + 90($1.80) + 200($2.20)

+ 750($1.00) + 150($1.50) = 2,100




Total Cost

Quarter Cost

1 250($0) + 30($1.00) + 20($1.90) = $682 420($1.30) + 90($1.80) + 340($1.00) = 1,0483 110($1.30) + 90($1.80) + 200($2.20)

+ 750($1.00) + 150($1.50) = 2,1004 450($1.00) + 90($1.50) + 110($1.90) = 794

Total $4,010



Regular-Time Overtime Subcon-Quarter Production Production tracting Total

Anticipation Inventory

Quarter Quantity



1 450 90 20 5602 450 90 200 7403 750 150 200 1,1004 450 90 110 650

Totals 2,100 420 530 3,050



Quarter Quantity



1 450 90 20 5602 450 90 200 7403 750 150 200 1,1004 450 90 110 650

Totals 2,100 420 530 3,050



Quarter Quantity

1 250 + 560 – 300 = 5102 510 + 740 – 850 = 4003 400 + 1,100 – 1,500 = 04 0 + 650 – 350 = 300


Solved Problem 1Solved Problem 1









Solved Solved Problem 2Problem 2


Documents

Agregate Planning