1. McGraw-Hill/Irwin Copyright © 2007 by The McGraw-Hill Companies, Inc. All rights reserved. 7 Aggregate Planning

2. 13-2 Planning Horizon Aggregate planning: Intermediate-range capacity planning, usually covering 2 to 12 months. Short range Intermediate range Long range Now2 months1 Year

3. 13-3  Short-range plans (Detailed plans)  Machine loading  Job assignments  Intermediate plans (General levels)  Employment  Output  Long-range plans  Long term capacity  Location / layout Overview of Planning Levels

4. 13-4 Planning Sequence Business Plan Establishes operations and capacity strategies Aggregate plan Establishes operations capacity Master schedule Establishes schedules for specific products Corporate strategies and policies Economic, competitive, and political conditions Aggregate demand forecasts Figure 13.1

5. 13-5 Aggregate Planning  Begin with forecast of aggregate demand  Forecast intermediate range  General plan to meet demand by setting  Output levels  Employment  Finished goods inventory level  Production plan is the output of aggregate planning  Update plan periodically – rolling planning horizon always covers the next 12 – 18 months

6. 13-6  Resources  Workforce  Facilities  Demand forecast  Policies  Subcontracting  Overtime  Inventory levels  Back orders  Costs  Inventory carrying  Back orders  Hiring/firing  Overtime  Inventory changes  Subcontracting Aggregate Planning Inputs

7. 13-7  Total cost of a plan  Projected levels of inventory  Inventory  Output  Employment  Subcontracting  Backordering Aggregate Planning Outputs

8. 13-8 Aggregate Planning Strategies  Proactive  Alter demand to match capacity  Reactive  Alter capacity to match demand  Mixed  Some of each

9. 13-9  Pricing  Promotion  Back orders  New demand Demand Options

10. 13-10  Hire and layoff workers  Overtime/slack time  Part-time workers  Inventories  Subcontracting Capacity Options

11. 13-11 Aggregate Planning Strategies  Maintain a level workforce  Maintain a steady output rate  Match demand period by period  Use a combination of decision variables

12. 13-12 Basic Strategies  Level capacity strategy:  Maintaining a steady rate of regular-time output while meeting variations in demand by a combination of options.  Chase demand strategy:  Matching capacity to demand; the planned output for a period is set at the expected demand for that period.

13. 13-13 Chase Approach  Advantages  Investment in inventory is low  Labor utilization in high  Disadvantages  The cost of adjusting output rates and/or workforce levels

14. 13-14 Level Approach  Advantages  Stable output rates and workforce  Disadvantages  Greater inventory costs  Increased overtime and idle time  Resource utilizations vary over time

15. 13-15 1.Determine demand for each period 2.Determine capacities for each period 3.Identify policies that are pertinent 4.Determine units costs 5.Develop alternative plans and costs 6.Select the best plan that satisfies objectives. Otherwise return to step 5. Techniques for Aggregate Planning

16. 13-16 Cumulative Graph 12345 67 8910 Cumulative production Cumulative demand Cumulative output/demand Figure 13.3

17. The number of workers Number of workers in a period = Number of workers at end of the previous period Number of new workers at start of the period +- Number of laid-off workers at start of the period

18. 13-18 Average Inventory Average inventory Beginning Inventory + Ending Inventory 2 = Inventory at the end of a period = Inventory at end of the previous period Production in the current period +- Amount used to satisfy demand in the current period

19. The Cost Cost for a period = Output cost (Reg. + OT +Subcontract ) Hire/Lay off cost + + Inventory Cost + Back- order cost

20. Calculating The Costs  The appropriate costs are calculated as follows: Types of CostHow to Calculate Output RegularRegular cost per unit x Quantity of regular output OvertimeOvertime cost per unit x Overtime quantity SubcontractSubcontract cost per unit x Subcontract quantity Hire/lay off HireCost per hire x Number hired Lay offCost per layoff x Number laid off InventoryCarrying cost per unit x Average inventory Back orderBack order cost per unit x Number of backorder unit

21. 13-21 Mathematical Techniques Linear programming: Methods for obtaining optimal solutions to problems involving allocation of scarce resources in terms of cost minimization. Simulation models: Computerized models that can be tested under different scenarios to problems.

22. 13-22 Summary of Planning Techniques Table 13.7

23. 13-23  Services occur when they are rendered  Demand for service can be difficult to predict  Capacity availability can be difficult to predict  Labor flexibility can be an advantage in services Aggregate Planning in Services

24. 13-24 Aggregate Plan to Master Schedule Aggregate Planning Disaggregation Master Schedule Figure 13.4

25. 13-25  Master schedule: The result of disaggregating an aggregate plan; shows quantity and timing of specific end items for a scheduled horizon.  Rough-cut capacity planning: Approximate balancing of capacity and demand to test the feasibility of a master schedule. Disaggregating the Aggregate Plan

26. 13-26 Master Scheduling  Master schedule  Determines quantities needed to meet demand  Interfaces with  Marketing  Capacity planning  Production planning  Distribution planning

27. 13-27 Master Scheduler  Evaluates impact of new orders  Provides delivery dates for orders  Deals with problems  Production delays  Revising master schedule  Insufficient capacity

28. 13-28 Master Scheduling Process Master Scheduling Beginning inventory Forecast Customer orders Inputs Outputs Projected inventory Master production schedule Uncommitted inventory Figure 13.6

29. 13-29 Solved Problems: Problem 1