 The McGraw-Hill Companies, Inc Irwin/McGraw-Hill 1 Facilities and Aggregate Planning Chapter 12 Due Date!

 The McGraw-Hill Companies, Inc Irwin/McGraw-Hill 2 Outline Facilities Decisions Facilities Strategy Aggregate Planning Definition Planning Options Basic Strategies Aggregate Planning Costs Example of Costing Sales and Operations Planning

 The McGraw-Hill Companies, Inc Irwin/McGraw-Hill 3 Hierarchy of Capacity Decisions (Figure 12.1) Facilities decisions Aggregate planning Scheduling Months Planning Horizon Scheduling Facilities decisions Aggregate Planning

 The McGraw-Hill Companies, Inc Irwin/McGraw-Hill 4 Definition of “Capacity” Capacity is defined as the maximum output that can be produced over a given period of time.

 The McGraw-Hill Companies, Inc Irwin/McGraw-Hill 5 Facilities Decisions How much total capacity is needed? How large should each unit of capacity be? When is the capacity needed? What type of facilities/capacity are needed?

 The McGraw-Hill Companies, Inc Irwin/McGraw-Hill 6 Factors Affecting Facilities Strategy Predicted demand Cost of facilities Likely behavior of competitors Business strategy International considerations

 The McGraw-Hill Companies, Inc Irwin/McGraw-Hill 7 Strategies for “Capacity Cushion” Try not to run out Build to average forecast Maximize utilization

 The McGraw-Hill Companies, Inc Irwin/McGraw-Hill 8 What is “Optimum” Unit Size? Economies of scale Diseconomies of scale

 The McGraw-Hill Companies, Inc Irwin/McGraw-Hill 9 Timing of Facility Additions Preempt the competition Wait-and-see strategy

 The McGraw-Hill Companies, Inc Irwin/McGraw-Hill 10 Types of Facilities Product-focused (55%*) Market-focused (30%) Process-focused (10%) General purpose (5%) * Figures in parenthesis indicate the approximate percentage of companies in the Fortune 500 using each type of facility

 The McGraw-Hill Companies, Inc Irwin/McGraw-Hill 11 Aggregate Planning Characteristics A time horizon of about 12 months An aggregated level of demand for one or few categories of product The possibility of changing both supply and demand variable A variety of management objectives Facilities that are considered fixed (cannot be expanded or reduced)

 The McGraw-Hill Companies, Inc Irwin/McGraw-Hill 12 Planning Options Options for influencing demand. Options for influencing supply

 The McGraw-Hill Companies, Inc Irwin/McGraw-Hill 13 Options for Influencing Demand 1. Pricing 2. Advertising and promotion 3. Backlog or reservation 4. Development of complementary products

 The McGraw-Hill Companies, Inc Irwin/McGraw-Hill 14 Options for Influencing Supply 1. Hiring and layoff of employees 2. Using overtime and undertime 3. Using part-time or temporary labor 4. Carrying inventory 5. Subcontracting 6. Making cooperative arrangements

 The McGraw-Hill Companies, Inc Irwin/McGraw-Hill 15 Basic Strategies “Level” strategy (level work force) “Chase” strategy (chase the demand)

 The McGraw-Hill Companies, Inc Irwin/McGraw-Hill 16 Comparison of Chase versus Level Strategy

 The McGraw-Hill Companies, Inc Irwin/McGraw-Hill 17 Aggregate Planning Costs 1. Hiring and firing costs 2. Overtime and undertime costs 3. Inventory-carrying costs 4. Subcontracting costs 5. Part-time labor costs 6. Cost of stockout or back order

 The McGraw-Hill Companies, Inc Irwin/McGraw-Hill 18 Example of Costing Cumulative Demand and Production (Figure 12.4)

 The McGraw-Hill Companies, Inc Irwin/McGraw-Hill 19 Sales & Operations Planning Definition of S&OP Purpose of S&OP Procedure for developing S&OP Advantages of S&OP