1 Slides used in class may be different from slides in student pack Chapter 16 Aggregate Sales and Operations Planning  Operations Planning Overview  The Hierarchical Planning Process  Aggregate Production Planning  Examples: Chase and Level strategies

2 Slides used in class may be different from slides in student pack Operations Planning Overview  Long-range planning – Greater than one year planning horizon – Usually with yearly increments  Intermediate-range planning – Six to eighteen months – Usually with monthly or quarterly increments  Short-range planning – One day to less than six months – Usually with weekly increments

3 Slides used in class may be different from slides in student pack Master Production Scheduling Material Requirements Planning Order Scheduling Weekly Workforce & Customer Scheduling Daily Workforce & Customer Scheduling Process Planning Strategic Capacity Planning Sales and Operations (Aggregate) Planning Long- range Intermediate- range Short- range Manufacturing Services Sales Plan Aggregate Operations Plan Forecasting and Demand Mgmt.

4 Slides used in class may be different from slides in student pack Hierarchical Production Planning Annual demand by item and by region Monthly demand for 15 months by product type Monthly demand for 5 months by item Forecasts needed Allocates production among plants Determines seasonal plan by product type Determines monthly item production schedules Decision ProcessDecision Level Corporate Plant manager Shop superintendent

5 Slides used in class may be different from slides in student pack Aggregate Planning  Goal: Specify the optimal combination of – – –  Product group or broad category - family (Aggregation)  Intermediate-range planning period: 6-18 months

6 Slides used in class may be different from slides in student pack Balancing Aggregate Demand and Aggregate Production Capacity JanFebMarAprMayJun JanFebMarAprMayJun Suppose the figure to the right represents forecast demand in units. Now suppose this lower figure represents the aggregate capacity of the company to meet demand. What we want to do is balance out the production rate, workforce levels, and inventory to make these figures match up.

7 Slides used in class may be different from slides in student pack     – – – – Aggregate Scheduling Goals

8 Slides used in class may be different from slides in student pack Required Inputs to the Production Planning System Planning for production External capacity Competitors’ behavior Raw material availability Market demand Economic conditions Current physical capacity Current workforce Inventory levels Activities required for production External to firm Internal to firm

9 Slides used in class may be different from slides in student pack Key Strategies for Meeting Demand  Chase - Match production to customer order rate by hiring and laying off employees  Level - Stable workforce with constant output, inventory and backlogs absorb fluctuations in demand  Some combination of the two - Stable workforce, variable hours - vary output through overtime or flexible schedules

10 Slides used in class may be different from slides in student pack Costs Relevant to Aggregate Planning  Direct and indirect labor costs and overtime  Costs associated with changing the production rate - hiring, training, layoffs, temps  Inventory holding costs - costs of capital, storage, insurance, taxes, spoilage, obsolescence  Backordering costs - expediting, loss of goodwill, lost sales due to stocking out

11 Slides used in class may be different from slides in student pack Aggregate Planning Examples: Unit Demand and Cost Data Materials$5/unit Holding costs$1/unit per mo. based on ending inv. Marginal cost of backorder$1.25/unit per mo. Hiring and training cost$200/worker Layoff costs$250/worker Labor hours required.15 hrs/unit Straight time labor cost$8/hour Beginning inventory250 units Productive hours/worker/day7.25 Paid straight hrs/day8 Suppose we have the following unit demand and cost information: Demand/moJanFebMarAprMayJun

12 Slides used in class may be different from slides in student pack Cut-and-Try Example: Determining Straight Labor Costs and Output Demand/moJanFebMarAprMayJun Given the demand and cost information below, what are the aggregate hours/worker/month, units/worker, and dollars/worker? Productive hours/worker/day7.25 Paid straight hrs/day8

13 Slides used in class may be different from slides in student pack Chase Strategy (Hiring & Firing to meet demand/ No Shortage) Lets assume our current workforce is 7 workers.

14 Slides used in class may be different from slides in student pack Below are the complete calculations for the remaining months in the six month planning horizon.

15 Slides used in class may be different from slides in student pack Below are the complete calculations for January with the other costs included.

16 Slides used in class may be different from slides in student pack Below are the complete calculations for the remaining months in the six month planning horizon with the other costs included.

17 Slides used in class may be different from slides in student pack Level Workforce Strategy (Surplus and Shortage Allowed - minimize ending inventory) Lets take the same problem as before but this time use the Level Workforce strategy. What workforce level will minimize ending inventory? Total demand = Beginning inventory: Total production required = Minimum production required per month = Workers required = Actual monthly production =

18 Slides used in class may be different from slides in student pack Below are the complete calculations for the six months in the planning horizon.

19 Slides used in class may be different from slides in student pack

20 Slides used in class may be different from slides in student pack Master Scheduling Process - Determine amounts and dates of each end item to be produced Master scheduling Beginning inventory Forecast Customer orders Inputs Outputs Projected inventory Master production schedule Uncommitted inventory

21 Slides used in class may be different from slides in student pack Master Scheduling Drives:  Rough cut capacity planning verifies equipment and labor availability  Material requirements planning (MRP) - breaks end product requirements into a materials plan for component parts