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10/16/2010
1
1313 Aggregate PlanningAggregate Planning
13 - 1© 2011 Pearson Education, Inc. publishing as Prentice Hall
PowerPoint presentation to accompany PowerPoint presentation to accompany Heizer and Render Heizer and Render Operations Management, 10e Operations Management, 10e Principles of Operations Management, 8ePrinciples of Operations Management, 8e
PowerPoint slides by Jeff Heyl
OutlineOutlineGlobal Company Profile: Frito-LayThe Planning Process
Planning HorizonsThe Nature of Aggregate Planning
13 - 2© 2011 Pearson Education, Inc. publishing as Prentice Hall
The Nature of Aggregate PlanningAggregate Planning Strategies
Capacity OptionsDemand OptionsMixing Options to Develop a Plan
Outline Outline –– ContinuedContinued
Methods for Aggregate PlanningGraphical MethodsMathematical Approaches
13 - 3© 2011 Pearson Education, Inc. publishing as Prentice Hall
Mathematical ApproachesComparison of Aggregate Planning Methods
Outline Outline –– ContinuedContinued
Aggregate Planning in ServicesRestaurantsHospitals
13 - 4© 2011 Pearson Education, Inc. publishing as Prentice Hall
National Chains of Small Service FirmsMiscellaneous ServicesAirline Industry
Yield Management
Learning ObjectivesLearning ObjectivesWhen you complete this chapter you When you complete this chapter you should be able to:should be able to:
1. Define aggregate planning
13 - 5© 2011 Pearson Education, Inc. publishing as Prentice Hall
2. Identify optional strategies for developing an aggregate plan
3. Prepare a graphical aggregate plan
Learning ObjectivesLearning ObjectivesWhen you complete this chapter you When you complete this chapter you should be able to:should be able to:
4. Solve an aggregate plan via the transportation method of linear
13 - 6© 2011 Pearson Education, Inc. publishing as Prentice Hall
transportation method of linear programming
5. Understand and solve a yield management problem
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FritoFrito--LayLayMore than three dozen brands, 15 brands sell more than $100 million annually, 7 sell over $1 billionPlanning processes covers 3 to 18
13 - 7© 2011 Pearson Education, Inc. publishing as Prentice Hall
monthsUnique processes and specially designed equipmentHigh fixed costs require high volumes and high utilization
FritoFrito--LayLayDemand profile based on historical sales, forecasts, innovations, promotion, local demand dataMatch total demand to capacity,
13 - 8© 2011 Pearson Education, Inc. publishing as Prentice Hall
expansion plans, and costsQuarterly aggregate plan goes to 38 plants in 18 regionsEach plant develops 4-week plan for product lines and production runs
Aggregate PlanningAggregate Planning
The objective of aggregate planning The objective of aggregate planning is to meet forecasted demand while is to meet forecasted demand while minimizing cost over the planning minimizing cost over the planning
13 - 9© 2011 Pearson Education, Inc. publishing as Prentice Hall
g p gg p gperiodperiod
The Planning ProcessThe Planning Process
Objective is to minimize cost over the planning period by adjusting
Determine the quantity and timing of production for the intermediate future
13 - 10© 2011 Pearson Education, Inc. publishing as Prentice Hall
Production ratesLabor levelsInventory levelsOvertime workSubcontracting ratesOther controllable variables
Aggregate PlanningAggregate Planning
A logical overall unit for measuring sales and outputA forecast of demand for an intermediate
Required for aggregate planning
13 - 11© 2011 Pearson Education, Inc. publishing as Prentice Hall
A forecast of demand for an intermediate planning period in these aggregate termsA method for determining costsA model that combines forecasts and costs so that scheduling decisions can be made for the planning period
Planning HorizonsPlanning HorizonsLong-range plans (over one year)Research and DevelopmentNew product plansCapital investmentsFacility location/expansion
Intermediate-range plans (3 to 18 months)Sales planning
Top executives
13 - 12© 2011 Pearson Education, Inc. publishing as Prentice Hall
Figure 13.1
Sales planningProduction planning and budgetingSetting employment, inventory,
subcontracting levelsAnalyzing operating plans
Short-range plans (up to 3 months)Job assignmentsOrderingJob schedulingDispatchingOvertimePart-time help
Operations managers
Operations managers, supervisors, foremen
Responsibility Planning tasks and horizon
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Aggregate PlanningAggregate Planning
Quarter 1Jan Feb Mar
150,000 120,000 110,000
Quarter 2
13 - 13© 2011 Pearson Education, Inc. publishing as Prentice Hall
Quarter 2Apr May Jun
100,000 130,000 150,000
Quarter 3Jul Aug Sep
180,000 150,000 140,000
Aggregate Aggregate PlanningPlanning
13 - 14© 2011 Pearson Education, Inc. publishing as Prentice Hall
Figure 13.2
Aggregate PlanningAggregate Planning
Combines appropriate resources into general termsPart of a larger production planning
t
13 - 15© 2011 Pearson Education, Inc. publishing as Prentice Hall
systemDisaggregation breaks the plan down into greater detailDisaggregation results in a master production schedule
Aggregate Planning Aggregate Planning StrategiesStrategies
1. Use inventories to absorb changes in demand
2. Accommodate changes by varying workforce size
13 - 16© 2011 Pearson Education, Inc. publishing as Prentice Hall
3. Use part-timers, overtime, or idle time to absorb changes
4. Use subcontractors and maintain a stable workforce
5. Change prices or other factors to influence demand
Capacity OptionsCapacity OptionsChanging inventory levels
Increase inventory in low demand periods to meet high demand in the future
13 - 17© 2011 Pearson Education, Inc. publishing as Prentice Hall
Increases costs associated with storage, insurance, handling, obsolescence, and capital investmentShortages may mean lost sales due to long lead times and poor customer service
Capacity OptionsCapacity OptionsVarying workforce size by hiring or layoffs
Match production rate to demandT i i d ti t f
13 - 18© 2011 Pearson Education, Inc. publishing as Prentice Hall
Training and separation costs for hiring and laying off workers New workers may have lower productivityLaying off workers may lower morale and productivity
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Capacity OptionsCapacity OptionsVarying production rate through overtime or idle time
Allows constant workforceM b diffi lt t t l
13 - 19© 2011 Pearson Education, Inc. publishing as Prentice Hall
May be difficult to meet large increases in demandOvertime can be costly and may drive down productivityAbsorbing idle time may be difficult
Capacity OptionsCapacity OptionsSubcontracting
Temporary measure during periods of peak demandMay be costly
13 - 20© 2011 Pearson Education, Inc. publishing as Prentice Hall
May be costlyAssuring quality and timely delivery may be difficultExposes your customers to a possible competitor
Capacity OptionsCapacity OptionsUsing part-time workers
Useful for filling unskilled or low skilled positions, especially in services
13 - 21© 2011 Pearson Education, Inc. publishing as Prentice Hall
Demand OptionsDemand OptionsInfluencing demand
Use advertising or promotion to increase demand in low periods
13 - 22© 2011 Pearson Education, Inc. publishing as Prentice Hall
Attempt to shift demand to slow periodsMay not be sufficient to balance demand and capacity
Demand OptionsDemand OptionsBack ordering during high-demand periods
Requires customers to wait for an order without loss of goodwill or
13 - 23© 2011 Pearson Education, Inc. publishing as Prentice Hall
order without loss of goodwill or the orderMost effective when there are few if any substitutes for the product or serviceOften results in lost sales
Demand OptionsDemand OptionsCounterseasonal product and service mixing
Develop a product mix of counterseasonal items
13 - 24© 2011 Pearson Education, Inc. publishing as Prentice Hall
counterseasonal itemsMay lead to products or services outside the company’s areas of expertise
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Aggregate Planning OptionsAggregate Planning OptionsOption Advantages Disadvantages Some Comments
Changing inventory levels
Changes in human resources are gradual or none; no abrupt
Inventory holding cost may increase. Shortages may result in lost
Applies mainly to production, not service, operations.
13 - 25© 2011 Pearson Education, Inc. publishing as Prentice HallTable 13.1
production changes.
sales.
Varying workforce size by hiring or layoffs
Avoids the costs of other alternatives.
Hiring, layoff, and training costs may be significant.
Used where size of labor pool is large.
Aggregate Planning OptionsAggregate Planning OptionsOption Advantages Disadvantages Some Comments
Varying production rates through overtime or
Matches seasonal fluctuations without hiring/ training costs.
Overtime premiums; tired workers; may not meet demand.
Allows flexibility within the aggregate plan.
13 - 26© 2011 Pearson Education, Inc. publishing as Prentice HallTable 13.1
idle timeg
Sub-contracting
Permits flexibility and smoothing of the firm’s output.
Loss of quality control; reduced profits; loss of future business.
Applies mainly in production settings.
Aggregate Planning OptionsAggregate Planning OptionsOption Advantages Disadvantages Some Comments
Using part-time workers
Is less costly and more flexible than full-time workers.
High turnover/ training costs; quality suffers; scheduling difficult.
Good for unskilled jobs in areas with large temporary labor pools.
13 - 27© 2011 Pearson Education, Inc. publishing as Prentice HallTable 13.1
Influencing demand
Tries to use excess capacity. Discounts draw new customers.
Uncertainty in demand. Hard to match demand to supply exactly.
Creates marketing ideas. Overbooking used in some businesses.
Aggregate Planning OptionsAggregate Planning OptionsOption Advantages Disadvantages Some Comments
Back ordering during high-demand
May avoid overtime. Keeps capacity constant.
Customer must be willing to wait, but goodwill is lost.
Many companies back order.
13 - 28© 2011 Pearson Education, Inc. publishing as Prentice HallTable 13.1
periods
Counter-seasonal product and service mixing
Fully utilizes resources; allows stable workforce.
May require skills or equipment outside the firm’s areas of expertise.
Risky finding products or services with opposite demand patterns.
Methods for Aggregate Methods for Aggregate PlanningPlanning
A mixed strategy may be the best way to achieve minimum costsTh ibl i d
13 - 29© 2011 Pearson Education, Inc. publishing as Prentice Hall
There are many possible mixed strategiesFinding the optimal plan is not always possible
Mixing Options to Mixing Options to Develop a PlanDevelop a Plan
Chase strategyMatch output rates to demand forecast for each period
13 - 30© 2011 Pearson Education, Inc. publishing as Prentice Hall
o ecast o eac pe odVary workforce levels or vary production rateFavored by many service organizations
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Mixing Options to Mixing Options to Develop a PlanDevelop a Plan
Level strategyDaily production is uniformUse inventory or idle time as buffer
13 - 31© 2011 Pearson Education, Inc. publishing as Prentice Hall
Use inventory or idle time as bufferStable production leads to better quality and productivity
Some combination of capacity options, a mixed strategy, might be the best solution
Graphical MethodsGraphical Methods
Popular techniquesEasy to understand and use
13 - 32© 2011 Pearson Education, Inc. publishing as Prentice Hall
Trial-and-error approaches that do not guarantee an optimal solutionRequire only limited computations
Graphical MethodsGraphical Methods1. Determine the demand for each period2. Determine the capacity for regular time,
overtime, and subcontracting each period3 Find labor costs hiring and layoff costs
13 - 33© 2011 Pearson Education, Inc. publishing as Prentice Hall
3. Find labor costs, hiring and layoff costs, and inventory holding costs
4. Consider company policy on workers and stock levels
5. Develop alternative plans and examine their total costs
Roofing Supplier Example 1Roofing Supplier Example 1
Month Expected DemandProduction
DaysDemand Per Day
(computed)Jan 900 22 41Feb 700 18 39Mar 800 21 38Apr 1,200 21 57
13 - 34© 2011 Pearson Education, Inc. publishing as Prentice Hall
Table 13.2
p ,May 1,500 22 68June 1,100 20 55
6,200 124
= = 50 units per day6,200124
Average requirement =
Total expected demandNumber of production days
Roofing Supplier Example 1Roofing Supplier Example 1
70 –
60 –
50 –e pe
r wor
king
day
Level production using average monthly forecast demand
Forecast demand
13 - 35© 2011 Pearson Education, Inc. publishing as Prentice Hall
Figure 13.3
40 –
30 –
0 –Jan Feb Mar Apr May June = Month22 18 21 21 22 20 = Number of
working days
Prod
uctio
n ra
te
Roofing Supplier Example 2Roofing Supplier Example 2Cost InformationInventory carrying cost $ 5 per unit per monthSubcontracting cost per unit $20 per unit
Average pay rate $10 per hour ($80 per day)
Overtime pay rate $17 per hour
13 - 36© 2011 Pearson Education, Inc. publishing as Prentice Hall
Table 13.3
Overtime pay rate p(above 8 hours per day)
Labor-hours to produce a unit 1.6 hours per unit
Cost of increasing daily production rate (hiring and training)
$300 per unit
Cost of decreasing daily production rate (layoffs)
$600 per unit
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Roofing Supplier Example 2Roofing Supplier Example 2Cost InformationInventory carrying cost $ 5 per unit per monthSubcontracting cost per unit $20 per unit
Average pay rate $10 per hour ($80 per day)
Overtime pay rate $17 per hour
MonthProduction
Days
Production at 50 Units
per DayDemand Forecast
Monthly Inventory Change
Ending Inventory
Jan 22 1,100 900 +200 200Feb 18 900 700 +200 400Mar 21 1,050 800 +250 650
13 - 37© 2011 Pearson Education, Inc. publishing as Prentice Hall
Table 13.3
Overtime pay rate p(above 8 hours per day)
Labor-hours to produce a unit 1.6 hours per unit
Cost of increasing daily production rate (hiring and training)
$300 per unit
Cost of decreasing daily production rate (layoffs)
$600 per unit
Apr 21 1,050 1,200 -150 500May 22 1,100 1,500 -400 100June 20 1,000 1,100 -100 0
1,850
Total units of inventory carried over from onemonth to the next = 1,850 units
Workforce required to produce 50 units per day = 10 workers
Roofing Supplier Example 2Roofing Supplier Example 2Cost InformationInventory carrying cost $ 5 per unit per monthSubcontracting cost per unit $20 per unit
Average pay rate $10 per hour ($80 per day)
Overtime pay rate $17 per hour
MonthProduction
Days
Production at 50 Units
per DayDemand Forecast
Monthly Inventory Change
Ending Inventory
Jan 22 1,100 900 +200 200Feb 18 900 700 +200 400Mar 21 1,050 800 +250 650
Costs CalculationsInventory carrying $9,250 (= 1,850 units carried x $5
per unit)Regular-time labor 99,200 (= 10 workers x $80 per
day x 124 days)
13 - 38© 2011 Pearson Education, Inc. publishing as Prentice Hall
Table 13.3
Overtime pay rate p(above 8 hours per day)
Labor-hours to produce a unit 1.6 hours per unit
Cost of increasing daily production rate (hiring and training)
$300 per unit
Cost of decreasing daily production rate (layoffs)
$600 per unit
Apr 21 1,050 1,200 -150 500May 22 1,100 1,500 -400 100June 20 1,000 1,100 -100 0
1,850
Total units of inventory carried over from onemonth to the next = 1,850 units
Workforce required to produce 50 units per day = 10 workers
Other costs (overtime, hiring, layoffs, subcontracting) 0
Total cost $108,450
Roofing Supplier Example 2Roofing Supplier Example 2
eman
d un
its
7,000 –
6,000 –
5,000 –
4,000 –
Cumulative level production using average monthly
forecast
Reduction of inventory
6,200 units
13 - 39© 2011 Pearson Education, Inc. publishing as Prentice Hall
Figure 13.4
Cum
ulat
ive
de
3,000 –
2,000 –
1,000 –
–Jan Feb Mar Apr May June
Cumulative forecast requirements
forecast requirements
Excess inventory
Roofing Supplier Example 3Roofing Supplier Example 3
Month Expected DemandProduction
DaysDemand Per Day
(computed)Jan 900 22 41Feb 700 18 39Mar 800 21 38Apr 1,200 21 57
13 - 40© 2011 Pearson Education, Inc. publishing as Prentice Hall
Table 13.2
p ,May 1,500 22 68June 1,100 20 55
6,200 124
Minimum requirement = 38 units per day
Roofing Supplier Example 3Roofing Supplier Example 3
70 –
60 –
50 –e pe
r wor
king
day
Level production using lowest
monthly forecast demand
Forecast demand
13 - 41© 2011 Pearson Education, Inc. publishing as Prentice Hall
40 –
30 –
0 –Jan Feb Mar Apr May June = Month22 18 21 21 22 20 = Number of
working days
Prod
uctio
n ra
te
Roofing Supplier Example 3Roofing Supplier Example 3Cost InformationInventory carrying cost $ 5 per unit per monthSubcontracting cost per unit $20 per unit
Average pay rate $10 per hour ($80 per day)
Overtime pay rate $17 per hour
13 - 42© 2011 Pearson Education, Inc. publishing as Prentice Hall
Table 13.3
Overtime pay rate p(above 8 hours per day)
Labor-hours to produce a unit 1.6 hours per unit
Cost of increasing daily production rate (hiring and training)
$300 per unit
Cost of decreasing daily production rate (layoffs)
$600 per unit
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Roofing Supplier Example 3Roofing Supplier Example 3Cost InformationInventory carry cost $ 5 per unit per monthSubcontracting cost per unit $10 per unit
Average pay rate $ 5 per hour ($40 per day)
Overtime pay rate $ 7 per hour
In-house production = 38 units per day x 124 days
= 4,712 units
13 - 43© 2011 Pearson Education, Inc. publishing as Prentice Hall
Table 13.3
Overtime pay rate p(above 8 hours per day)
Labor-hours to produce a unit 1.6 hours per unit
Cost of increasing daily production rate (hiring and training)
$300 per unit
Cost of decreasing daily production rate (layoffs)
$600 per unit
,
Subcontract units = 6,200 - 4,712= 1,488 units
Cost InformationInventory carry cost $ 5 per unit per monthSubcontracting cost per unit $10 per unit
Average pay rate $ 5 per hour ($40 per day)
Overtime pay rate $ 7 per hour
Roofing Supplier Example 3Roofing Supplier Example 3
In-house production = 38 units per day x 124 days
= 4,712 units
13 - 44© 2011 Pearson Education, Inc. publishing as Prentice Hall
Table 13.3
Overtime pay rate p(above 8 hours per day)
Labor-hours to produce a unit 1.6 hours per unit
Cost of increasing daily production rate (hiring and training)
$300 per unit
Cost of decreasing daily production rate (layoffs)
$600 per unit
,
Subcontract units = 6,200 - 4,712= 1,488 units
Costs CalculationsRegular-time labor $75,392 (= 7.6 workers x $80 per
day x 124 days)Subcontracting 29,760 (= 1,488 units x $20 per
unit)
Total cost $105,152
Roofing Supplier Example 4Roofing Supplier Example 4
Month Expected DemandProduction
DaysDemand Per Day
(computed)Jan 900 22 41Feb 700 18 39Mar 800 21 38Apr 1,200 21 57
13 - 45© 2011 Pearson Education, Inc. publishing as Prentice Hall
Table 13.2
p ,May 1,500 22 68June 1,100 20 55
6,200 124
Production = Expected Demand
Roofing Supplier Example 4Roofing Supplier Example 4
70 –
60 –
50 –e pe
r wor
king
day Forecast demand and
monthly production
13 - 46© 2011 Pearson Education, Inc. publishing as Prentice Hall
40 –
30 –
0 –Jan Feb Mar Apr May June = Month22 18 21 21 22 20 = Number of
working days
Prod
uctio
n ra
te
Roofing Supplier Example 4Roofing Supplier Example 4Cost InformationInventory carrying cost $ 5 per unit per monthSubcontracting cost per unit $20 per unit
Average pay rate $10 per hour ($80 per day)
Overtime pay rate $17 per hour
13 - 47© 2011 Pearson Education, Inc. publishing as Prentice Hall
Table 13.3
Overtime pay rate p(above 8 hours per day)
Labor-hours to produce a unit 1.6 hours per unit
Cost of increasing daily production rate (hiring and training)
$300 per unit
Cost of decreasing daily production rate (layoffs)
$600 per unit
Roofing Supplier Example 4Roofing Supplier Example 4Cost InformationCost InformationInventory carrying costInventory carrying cost $ 5 per unit per month$ 5 per unit per monthSubcontracting cost per unitSubcontracting cost per unit $10 per unit$10 per unit
Average pay rateAverage pay rate $ 5 per hour ($40 per day)$ 5 per hour ($40 per day)
Overtime pay rateOvertime pay rate $ 7 per hour $ 7 per hour
MonthMonthForecast Forecast
(units)(units)
Daily Daily Prod Prod RateRate
Basic Basic Production Production
Cost Cost (demand x (demand x
1.6 hrs/unit x 1.6 hrs/unit x $10/hr)$10/hr)
Extra Cost of Extra Cost of Increasing Increasing Production Production (hiring cost)(hiring cost)
Extra Cost of Extra Cost of Decreasing Decreasing Production Production (layoff cost)(layoff cost) Total CostTotal Cost
JanJan 900900 4141 $ 14,400$ 14,400 —— —— $ 14,400$ 14,400
FebFeb 700700 3939 11 20011 200 —— $1,200 $1,200 ( 2 $600)( 2 $600) 12 40012 400
13 - 48© 2011 Pearson Education, Inc. publishing as Prentice Hall
Table 13.3Table 13.3
Overtime pay rateOvertime pay rate pp(above 8 hours per day)(above 8 hours per day)
LaborLabor--hours to produce a unithours to produce a unit 1.6 hours per unit1.6 hours per unit
Cost of increasing daily production rate Cost of increasing daily production rate (hiring and training)(hiring and training)
$300 per unit$300 per unit
Cost of decreasing daily production rate Cost of decreasing daily production rate (layoffs)(layoffs)
$600 per unit$600 per unit
FebFeb 700700 3939 11,20011,200 (= 2 x $600)(= 2 x $600) 12,40012,400
MarMar 800800 3838 12,80012,800 —— $600 $600 (= 1 x $600)(= 1 x $600) 13,40013,400
AprApr 1,2001,200 5757 19,20019,200 $5,700 $5,700 (= 19 x $300)(= 19 x $300) —— 24,90024,900
MayMay 1,5001,500 6868 24,00024,000 $3,300 $3,300 (= 11 x $300)(= 11 x $300) —— 24,30024,300
JuneJune 1,1001,100 5555 17,60017,600 —— $7,800 $7,800 (= 13 x $600)(= 13 x $600) 25,40025,400
$99,200$99,200 $9,000$9,000 $9,600$9,600 $117,800$117,800
Table 13.4Table 13.4
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Comparison of Three PlansComparison of Three Plans
Cost Plan 1 Plan 2 Plan 3
Inventory carrying $ 9,250 $ 0 $ 0
Regular labor 99,200 75,392 99,200
13 - 49© 2011 Pearson Education, Inc. publishing as Prentice Hall
Table 13.5
Overtime labor 0 0 0Hiring 0 0 9,000Layoffs 0 0 9,600Subcontracting 0 29,760 0Total cost $108,450 $105,152 $117,800
Plan 2 is the lowest cost option
Mathematical ApproachesMathematical ApproachesUseful for generating strategies
Transportation Method of Linear Programming
Produces an optimal plan
13 - 50© 2011 Pearson Education, Inc. publishing as Prentice Hall
Management Coefficients ModelModel built around manager’s experience and performance
Other ModelsLinear Decision RuleSimulation
Transportation MethodTransportation MethodSales Period
Mar Apr MayDemand 800 1,000 750Capacity:
Regular 700 700 700Overtime 50 50 50
13 - 51© 2011 Pearson Education, Inc. publishing as Prentice Hall
Table 13.6
CostsRegular time $40 per tireOvertime $50 per tireSubcontracting $70 per tireCarrying $ 2 per tire per month
Subcontracting 150 150 130Beginning inventory 100 tires
Transportation ExampleTransportation ExampleImportant points1. Carrying costs are $2/tire/month. If
goods are made in one period and held over to the next, holding costs are incurred
13 - 52© 2011 Pearson Education, Inc. publishing as Prentice Hall
incurred2. Supply must equal demand, so a dummy
column called “unused capacity” is added
3. Because back ordering is not viable in this example, cells that might be used to satisfy earlier demand are not available
Transportation ExampleTransportation ExampleImportant points4. Quantities in each column designate
the levels of inventory needed to meet demand requirements
13 - 53© 2011 Pearson Education, Inc. publishing as Prentice Hall
5. In general, production should be allocated to the lowest cost cell available without exceeding unused capacity in the row or demand in the column
Transportation Transportation ExampleExample
13 - 54© 2011 Pearson Education, Inc. publishing as Prentice Hall
Table 13.7
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Management Coefficients Management Coefficients ModelModel
Builds a model based on manager’s experience and performanceA i d l i t t d
13 - 55© 2011 Pearson Education, Inc. publishing as Prentice Hall
A regression model is constructed to define the relationships between decision variablesObjective is to remove inconsistencies in decision making
Other ModelsOther Models
Linear Decision Rule
Minimizes costs using quadratic cost curvesOperates over a particular time period
13 - 56© 2011 Pearson Education, Inc. publishing as Prentice Hall
Simulation
Uses a search procedure to try different combinations of variablesDevelops feasible but not necessarily optimal solutions
Summary of Aggregate Summary of Aggregate Planning MethodsPlanning Methods
TechniquesSolution
Approaches Important AspectsGraphical
methodsTrial and
errorSimple to understand and
easy to use. Many solutions; one chosen
13 - 57© 2011 Pearson Education, Inc. publishing as Prentice Hall
solutions; one chosen may not be optimal.
Transportation method of linear programming
Optimization LP software available; permits sensitivity analysis and new constraints; linear functions may not be realistic.
Table 13.8
Summary of Aggregate Summary of Aggregate Planning MethodsPlanning Methods
TechniquesSolution
Approaches Important AspectsManagement
coefficients model
Heuristic Simple, easy to implement; tries to mimic manager’s decision process; uses
13 - 58© 2011 Pearson Education, Inc. publishing as Prentice Hall
model decision process; uses regression.
Simulation Change parameters
Complex; may be difficult to build and for managers to understand.
Table 13.8
Aggregate Planning in Aggregate Planning in ServicesServices
Controlling the cost of labor is critical1. Accurate scheduling of labor-hours
to assure quick response to customer d d
13 - 59© 2011 Pearson Education, Inc. publishing as Prentice Hall
demand2. An on-call labor resource to cover
unexpected demand3. Flexibility of individual worker skills4. Flexibility in rate of output or hours of
work
Five Service ScenariosFive Service Scenarios
RestaurantsSmoothing the production process
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pDetermining the optimal workforce size
HospitalsResponding to patient demand
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Five Service ScenariosFive Service ScenariosNational Chains of Small Service Firms
Planning done at national level
13 - 61© 2011 Pearson Education, Inc. publishing as Prentice Hall
and at local levelMiscellaneous Services
Plan human resource requirementsManage demand
Law Firm ExampleLaw Firm ExampleLabor-Hours Required Capacity Constraints
(2) (3) (4) (5) (6)(1) Forecasts Maximum Number of
Category of Best Likely Worst Demand in QualifiedLegal Business (hours) (hours) (hours) People PersonnelTrial work 1 800 1 500 1 200 3 6 4
13 - 62© 2011 Pearson Education, Inc. publishing as Prentice Hall
Table 13.9
Trial work 1,800 1,500 1,200 3.6 4Legal research 4,500 4,000 3,500 9.0 32Corporate law 8,000 7,000 6,500 16.0 15Real estate law 1,700 1,500 1,300 3.4 6Criminal law 3,500 3,000 2,500 7.0 12Total hours 19,500 17,000 15,000Lawyers needed 39 34 30
Five Service ScenariosFive Service ScenariosAirline industry
Extremely complex planning problem
13 - 63© 2011 Pearson Education, Inc. publishing as Prentice Hall
Involves number of flights, number of passengers, air and ground personnel, allocation of seats to fare classesResources spread through the entire system
Yield ManagementYield ManagementAllocating resources to customers at prices that will maximize yield or revenue
1. Service or product can be sold in advance of consumption
13 - 64© 2011 Pearson Education, Inc. publishing as Prentice Hall
advance of consumption2. Demand fluctuates3. Capacity is relatively fixed4. Demand can be segmented5. Variable costs are low and fixed costs
are high
Demand Curve
Yield Management ExampleYield Management Example
Passed-up
Potential customers exist who are willing to pay more than the $15 variable cost of the room, but not $150
Some customers who paid
Room sales
100
13 - 65© 2011 Pearson Education, Inc. publishing as Prentice HallFigure 13.5
pcontribution
Money left on the table
Some customers who paid $150 were actually willing to pay more for the roomTotal
$ contribution= (Price) x (50
rooms)= ($150 - $15)
x (50)= $6,750
Price
50
$150Price charged
for room
$15Variable cost
of room
Total $ contribution =(1st price) x 30 rooms + (2nd price) x 30 rooms =
($100 - $15) x 30 + ($200 - $15) x 30 =$2,550 + $5,550 = $8,100
Demand Curve
Yield Management ExampleYield Management ExampleRoom sales
100
60
13 - 66© 2011 Pearson Education, Inc. publishing as Prentice HallFigure 13.6
Price
60
30
$100Price 1
for room
$200Price 2
for room
$15Variable cost
of room
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Yield Management MatrixYield Management Matrixe nd
to b
edi
ctab
le
PriceTend to be fixed Tend to be variable
Quadrant 1: Quadrant 2:
Movies HotelsStadiums/arenas Airlines
C ti t R t l
13 - 67© 2011 Pearson Education, Inc. publishing as Prentice Hall
Dur
atio
n of
use
Tend
to b
eTe
nU
ncer
tain
pred Convention centers Rental cars
Hotel meeting space Cruise lines
Quadrant 3: Quadrant 4:
Restaurants Continuing careGolf courses hospitals
Internet serviceproviders
Figure 13.7
Making Yield Management Making Yield Management WorkWork
1. Multiple pricing structures must be feasible and appear logical to the customer
13 - 68© 2011 Pearson Education, Inc. publishing as Prentice Hall
the customer2. Forecasts of the use and
duration of use3. Changes in demand
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