Aggregate Planning COB 300 C The Operations Dimension Busing

Aggregate Planning 4 The development of a plan for: –Output rate for groups or families of products –Inventory levels to be maintained –Production backlogs –Changes in work force to support production strategy over the medium time horizon

Meeting demand while effectively utilizing a facility 4 Proactive Strategies: –Produce seasonal complements –Offer discounts and promotions –Increase advertising in slack periods

Meeting demand while effectively utilizing a facility 4 Reactive Strategies –Change number of employees –Overtime/slack time –Add/eliminate shifts –Plant shutdowns –Use inventory –Subcontract work –Backlogs/backorders –Lose sales

Cost Considerations in Aggregate Planning 4 Payroll 4 Hiring/Firing 4 Overtime 4 Inventory Carrying 4 Subcontracting 4 Back orders, stockouts, lost sales 4 Promotions and discounts

Aggregate Plan with Varying Work-Force (Chase) Starting employees = 100 Units per employee per month = 1000 Hiring cost per employee = $1000 Layoff cost per employee = $2000 Payroll cost per employee per month = $2000 ForecastPlanned Month Demand Production Employees Hired Laid off Jan100,000100,

Aggregate Plan with Varying Work-Force (Chase) Starting employees = 100 Units per employee per month = 1000 Hiring cost per employee = $1000 Layoff cost per employee = $2000 Payroll cost per employee per month = $2000 ForecastPlanned Month Demand Production Employees Hired Laid off Jan100,000100, Feb.120,000120,

Aggregate Plan with Varying Work-Force (Chase) Starting employees = 100 Units per employee per month = 1000 Hiring cost per employee = $1000 Layoff cost per employee = $2000 Payroll cost per employee per month = $2000 ForecastPlanned Month Demand Production Employees Hired Laid off Jan100,000100, Feb.120,000120, Mar.105,000105,

Aggregate Plan with Varying Work-Force (Chase) Starting employees = 100 Units per employee per month = 1000 Hiring cost per employee = $1000 Layoff cost per employee = $2000 Payroll cost per employee per month = $2000 ForecastPlanned Month Demand Production Employees Hired Laid off Jan100,000100, Feb.120,000120, Mar.105,000105, Apr.110,000110,

Aggregate Plan with Varying Work-Force (Chase) Starting employees = 100 Units per employee per month = 1000 Hiring cost per employee = $1000 Layoff cost per employee = $2000 Payroll cost per employee per month = $2000 ForecastPlanned Month Demand Production Employees Hired Laid off Jan100,000100, Feb.120,000120, Mar.105,000105, Apr.110,000110, TOTALS

Aggregate Plan with Varying Work-Force (Chase) Starting employees = 100 Units per employee per month = 1000 Hiring cost per employee = $1000 Layoff cost per employee = $2000 Payroll cost per employee per month = $2000 ForecastPlanned Month Demand Production Employees Hired Laid off Jan100,000100, Feb.120,000120, Mar.105,000105, Apr.110,000110, TOTALS Cost Payroll:435 $2,000 = $870,000

Aggregate Plan with Varying Work-Force (Chase) Starting employees = 100 Units per employee per month = 1000 Hiring cost per employee = $1000 Layoff cost per employee = $2000 Payroll cost per employee per month = $2000 ForecastPlanned Month Demand Production Employees Hired Laid off Jan100,000100, Feb.120,000120, Mar.105,000105, Apr.110,000110, TOTALS Cost Payroll:435 $2,000 = $870,000 Hiring: 25 $1,000= $ 25,000

Aggregate Plan with Varying Work-Force (Chase) Starting employees = 100 Units per employee per month = 1000 Hiring cost per employee = $1000 Layoff cost per employee = $2000 Payroll cost per employee per month = $2000 ForecastPlanned Month Demand Production Employees Hired Laid off Jan100,000100, Feb.120,000120, Mar.105,000105, Apr.110,000110, TOTALS Cost Payroll:435 $2,000 = $870,000 Hiring: 25 $1,000= $ 25,000 Layoff: 15 $2,000= $ 30,000

Aggregate Plan with Varying Work-Force (Chase) Starting employees = 100 Units per employee per month = 1000 Hiring cost per employee = $1000 Layoff cost per employee = $2000 Payroll cost per employee per month = $2000 ForecastPlanned Month Demand Production Employees Hired Laid off Jan100,000100, Feb.120,000120, Mar.105,000105, Apr.110,000110, TOTALS Cost Payroll:435 $2,000 = $870,000 Hiring: 25 $1,000= $ 25,000 Layoff: 15 $2,000= $ 30,000 $925,000

Aggregate Plan with Varying Inventory (Level Workforce) Number of Employees = 105 Units per employee per month = 1,000 Payroll cost per employee per month = $2,000 Beginning inventory = 15,000 units Unit cost of carrying inventory per month = $0.20 Forecast PlannedInventory Month Demand Production Beginning Ending Average Jan100, ,000 15,000 20,000 17,500

Aggregate Plan with Varying Inventory (Level Workforce) Number of Employees = 105 Units per employee per month = 1,000 Payroll cost per employee per month = $2,000 Beginning inventory = 15,000 units Unit cost of carrying inventory per month = $0.20 Forecast PlannedInventory Month Demand Production Beginning Ending Average Jan100, ,000 15,000 20,000 17,500 Feb.120, ,000 20,000 5,000 12,500

Aggregate Plan with Varying Inventory (Level Workforce) Number of Employees = 105 Units per employee per month = 1,000 Payroll cost per employee per month = $2,000 Beginning inventory = 15,000 units Unit cost of carrying inventory per month = $0.20 Forecast PlannedInventory Month Demand Production Beginning Ending Average Jan100, ,000 15,000 20,000 17,500 Feb.120, ,000 20,000 5,000 12,500 Mar.105, ,000 5,000 5,000 5,000

Aggregate Plan with Varying Inventory (Level Workforce) Number of Employees = 105 Units per employee per month = 1,000 Payroll cost per employee per month = $2,000 Beginning inventory = 15,000 units Unit cost of carrying inventory per month = $0.20 Forecast PlannedInventory Month Demand Production Beginning Ending Average Jan100, ,000 15,000 20,000 17,500 Feb.120, ,000 20,000 5,000 12,500 Mar.105, ,000 5,000 5,000 5,000 Apr.110, ,000 5, ,500

Aggregate Plan with Varying Inventory (Level Workforce) Number of Employees = 105 Units per employee per month = 1,000 Payroll cost per employee per month = $2,000 Beginning inventory = 15,000 units Unit cost of carrying inventory per month = $0.20 Forecast PlannedInventory Month Demand Production Beginning Ending Average Jan100, ,000 15,000 20,000 17,500 Feb.120, ,000 20,000 5,000 12,500 Mar.105, ,000 5,000 5,000 5,000 Apr.110, ,000 5, ,500 TOTALS 45,000 30,000 37,500

Aggregate Plan with Varying Inventory (Level Workforce) Number of Employees = 105 Units per employee per month = 1,000 Payroll cost per employee per month = $2,000 Beginning inventory = 15,000 units Unit cost of carrying inventory per month = $0.20 Forecast PlannedInventory Month Demand Production Beginning Ending Average Jan100, ,000 15,000 20,000 17,500 Feb.120, ,000 20,000 5,000 12,500 Mar.105, ,000 5,000 5,000 5,000 Apr.110, ,000 5, ,500 TOTALS 45,000 30,000 37,500 Cost Payroll:105 employees x 4 $2,000 = $840,000

Aggregate Plan with Varying Inventory (Level Workforce) Number of Employees = 105 Units per employee per month = 1,000 Payroll cost per employee per month = $2,000 Beginning inventory = 15,000 units Unit cost of carrying inventory per month = $0.20 Forecast PlannedInventory Month Demand Production Beginning Ending Average Jan100, ,000 15,000 20,000 17,500 Feb.120, ,000 20,000 5,000 12,500 Mar.105, ,000 5,000 5,000 5,000 Apr.110, ,000 5, ,500 TOTALS 45,000 30,000 37,500 Cost Payroll:105 employees x 4 $2,000 = $840,000 Inventory cost: 37,500 average $0.20 =$ 7,500

Aggregate Plan with Varying Inventory (Level Workforce) Number of Employees = 105 Units per employee per month = 1,000 Payroll cost per employee per month = $2,000 Beginning inventory = 15,000 units Unit cost of carrying inventory per month = $0.20 Forecast PlannedInventory Month Demand Production Beginning Ending Average Jan100, ,000 15,000 20,000 17,500 Feb.120, ,000 20,000 5,000 12,500 Mar.105, ,000 5,000 5,000 5,000 Apr.110, ,000 5, ,500 TOTALS 45,000 30,000 37,500 Cost Payroll:105 employees x 4 $2,000 = $840,000 Inventory cost: 37,500 average $0.20 =$ 7,500 $847,500

Chase versus Level Plans 4 Varying workforce (chase demand) –substantial hiring/firing costs –inventory carrying cost low to zero –workforce skill & dedication low 4 Varying inventory (level workforce) –low to zero hiring/firing costs –inventory carrying costs could be substantial –workforce skill and dedication high –may incur stockouts/backlog