Copyright 2006 John Wiley & Sons, Inc. Beni Asllani University of Tennessee at Chattanooga Sales and Operational Planning Operations Management Chapter 14 Roberta Russell & Bernard W. Taylor, III

Copyright 2006 John Wiley & Sons, Inc.14-2 Lecture Outline  Aggregate Planning Process  Strategies for Adjusting Capacity  Strategies for Managing Demand  Quantitative Techniques for Aggregate Production Planning  Hierarchical Nature of Planning  Aggregate Planning for Services

Copyright 2006 John Wiley & Sons, Inc.14-3 Aggregate Planning   Determine the resource capacity needed to meet demand over an intermediate time horizon Aggregate refers to product lines or families Aggregate planning matches supply and demand   Objectives Establish a company wide game plan for allocating resources Develop an economic strategy for meeting demand

Master production schedule and MRP systems Detailed work schedules Process planning and capacity decisions Aggregate plan for production Aggregate Planning Figure 14.2 Product decisions Demand forecasts, orders Marketplace and demand Research and technology Raw materials available External capacity (subcontractors) Workforce Inventory on hand

Copyright 2006 John Wiley & Sons, Inc.14-5 Meeting Demand Strategies  Adjusting capacity Resources necessary to meet demand are acquired and maintained over the time horizon of the plan Resources necessary to meet demand are acquired and maintained over the time horizon of the plan Minor variations in demand are handled with overtime or under-time Minor variations in demand are handled with overtime or under-time  Managing demand Proactive demand management Proactive demand management

Copyright 2006 John Wiley & Sons, Inc.14-6 Strategies for Adjusting Capacity  Level production Producing at a constant rate and using inventory to absorb fluctuations in demand Producing at a constant rate and using inventory to absorb fluctuations in demand  Chase demand Hiring and firing workers to match demand Hiring and firing workers to match demand  Peak demand Maintaining resources for high-demand levels Maintaining resources for high-demand levels  Overtime and under-time Increasing or decreasing working hours Increasing or decreasing working hours  Subcontracting Let outside companies complete the work Let outside companies complete the work  Part-time workers Hiring part time workers to complete the work Hiring part time workers to complete the work  Backordering Providing the service or product at a later time period Providing the service or product at a later time period

Copyright 2006 John Wiley & Sons, Inc.14-7 Strategies for Managing Demand   Shifting demand into other time periods Incentives Sales promotions Advertising campaigns   Offering products or services with counter- cyclical demand patterns   Partnering with suppliers to reduce information distortion along the supply chain

Copyright 2006 John Wiley & Sons, Inc.14-8 Quantitative Techniques For APP   Pure Strategies   Mixed Strategies   Linear Programming   Transportation Method   Other Quantitative Techniques

Copyright 2006 John Wiley & Sons, Inc.14-9 Transportation Method 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 inventory300 units EXPECTEDREGULAROVERTIMESUBCONTRACT QUARTERDEMANDCAPACITYCAPACITYCAPACITY

10 Transportation Tableau Unused PERIOD OF PRODUCTION1234CapacityCapacity Beginning0369 Inventory300———300 Regular —1000 Overtime Subcontract500 Regular1200——1200 Overtime Subcontract Regular1300—1300 Overtime200—200 Subcontract Regular Overtime Subcontract Demand PERIOD OF USE

Copyright 2006 John Wiley & Sons, Inc Other Quantitative Techniques  Linear decision rule (LDR)  Search decision rule (SDR)  Management coefficients model

Copyright 2006 John Wiley & Sons, Inc Hierarchical Nature of Planning Items Product lines or families Individual products Components Manufacturing operations Resource Level Plants Individual machines Critical work centers Production Planning Capacity Planning Resource requirements plan Rough-cut capacity plan Capacity requirements plan Input/ output control Aggregate production plan Master production schedule Material requirements plan Shop floor schedule All work centers

Copyright 2006 John Wiley & Sons, Inc Aggregate Planning for Services 1.Most services can’t 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.Labor is usually the most constraining resource for services