PRODUCTION AND OPERATIONS MANAGEMENT Ch. 14: Aggregate Scheduling POM - J. Galván

Learning Objectives Describe planning Distinguish the types of plans Define aggregate scheduling Relate aggregate scheduling to the overall planning process Explain aggregate scheduling options Develop aggregate schedules POM - J. Galván 4 2

Aggregate Planning Requires Logical overall unit for measuring sales and outputs Forecast for intermediate planning period in these aggregate units Method for determining costs Model that combines forecasts and costs so that scheduling decisions can be made POM - J. Galván 6 3

Planning Setting goals & objectives Example: Meet demand within the limits of available resources at the least cost Determining steps to achieve goals Example: Hire more workers Setting start & completion dates Example: Begin hiring in Jan.; finish, Mar. Assigning responsibility POM - J. Galván 7 4

Planning Horizons Planning Horizon 1 year 5 years Today 3 Months Short-range plans Job assignments Ordering Job scheduling Dispatching Intermediate-range plans Sales planning Production planning and budgeting Setting employment, inventory, subcontracting levels Analyzing operating plans Long-range plans R&D New product plans Capital expenses Facility location, expansion Responsible: Operations managers, supervisors, foremen Responsible: Operations managers Responsible: Top executives POM - J. Galván 8 5

Types of Plans Today 3 months 1 year 5 years Long-Range Management Level Today 3 months 1 year 5 years Long-Range Facility location Intermediate-Range Aggregate plans Short-Range Dispatching High Low Top Executives Supervisors Operations Managers 18 months POM - J. Galván 9 6

Relationships of the Aggregate Plan Plan for Production Priority Planning & Scheduling Demand Forecasts, orders Master Schedule Detailed Work Schedules Plant Capacity External Inventory On Hand Raw Materials Available Work Force Marketplace and Demand Research and Technology Product Decisions Process POM - J. Galván 10 7

What’s Needed for Aggregate Planning A mathematically based aggregate planning model requires considerable: time problem definition model development model verification model application expertise people who understand the problem people who understand both the modeling process, and the specific model money money to pay for all of the above often requires funding for several people for several months! POM - J. Galván 11 8

Aggregate Scheduling Provides the quantity and timing of production for intermediate future Usually 3 to 18 months into future Combines (‘aggregates’) production Often expressed in common units Example: Hours, dollars, equivalents (e.g., FTE students) Involves capacity and demand variables POM - J. Galván 12 9

Aggregate Scheduling Goals Meet demand Use capacity efficiently Meet inventory policy Minimize cost Labor Inventory Plant & equipment Subcontract POM - J. Galván 13 10

Aggregate Planning Strategies Pure Strategies Capacity Options — change capacity: changing inventory levels varying work force size by hiring or layoffs varying production capacity through overtime or idle time subcontracting using part-time workers POM - J. Galván 14 11

Aggregate Planning Strategies Pure Strategies Demand Options — change demand: influencing demand backordering during high demand periods counterseasonal product mixing POM - J. Galván 15 12

Aggregate Planning Options - Advantages and Disadvantages Some Comments Changing INVENTORY levels Changes in inventories are gradual, not abrupt production changes Inventory holding costs; shortages resulting in lost sale may occur if demand increases Applies mainly to production, not service settings Varying WORKFORCE SIZE by hiring or layoffs Avoids use of other alternatives Hiring, layoff, and training costs Used where many unskilled people seek extra income POM - J. Galván 16 13

Advantages/Disadvantages - continued Option Advantage Disadvantage Some Comments Varying PRODUCTION RATES through overtime or idle time Matches seasonal fluctuations without hiring/training costs Overtime premiums, tired workers, may not meet demand Allows flexibility within the aggregate plan SUBCONTRACTING Permits flexibility and smoothing of the firm's output Loss of quality control; reduced profits; loss of future business Applies mainly in production settings POM - J. Galván 17 14

Advantages/Disadvantages - continued Option Advantage Disadvantage Some Comments Using PART-TIME WORKERS 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 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. POM - J. Galván 18 15

Advantage/Disadvantage - continued Option Advantage Disadvantage Some Comments BACK ORDERING during high-demand periods May avoid overtime. Keeps capacity constant Customer must be willing to wait, but goodwill is lost. Many companies backlog. COUNTER SEASONAL products and service mixing Fully utilizes resources; allows stable workforce. May require skills or equipment outside a firm's areas of expertise. Risky finding products or services with opposite demand patterns. POM - J. Galván 19 16

Aggregate Scheduling Strategies Mixed strategy Combines 2 or more aggregate scheduling options Level scheduling strategy Produce same amount every day Keep work force level constant Vary non-work force capacity or demand options Often results in lowest production costs POM - J. Galván 20 17

Aggregate Scheduling Methods Graphical & charting techniques Popular & easy-to-understand Trial & error approach Mathematical approaches Transportation method Linear decision rule Management coefficients model Simulation POM - J. Galván 21 18

The Graphical Approach to Aggregate Planning Forecast the demand for each period Determine the capacity for regular time, overtime, and subcontracting, for each period Determine the labor costs, hiring and firing costs, and inventory holding costs Consider company policies which may apply to the workers or to stock levels Develop alternative plans, and examine their total costs POM - J. Galván 22 19

Comparison of Aggregate Planning Methods Techniques Approaches Aspects Charting/graphical methods Transportation method Management coefficient model Trial and error Optimization Heuristic Simple to understand, easy to use. Many solutions; one chosen may not be optimal LP software available;permits sensitivity analysis and constraints. Linear function may not be realistic Simple, easy to implement; tries to mimic manager’s decision process; uses regression POM - J. Galván 23 20

Controlling the Cost of Labor in Service Firms Close control of labor hours to ensure quick response to customer demand Some form of-on-call labor resource that can be added or deleted to meet unexpected demand Flexibility of individual worker skills to permit reallocation of available labor Individual worker flexibility in rate of output or hours of work to meet demand POM - J. Galván 24 21