1. AGGREGATE PLANNING IN A SUPPLY CHAIN MEMBERS SAMSON AKYOO 1100 ERNEST MBEZI 1129 GLADYS G. YAMBESI 1151 MWETE AMISI ALI 1152 ANZURUNI B. MALISAWA 1153 EDMUND E. KATUMBO 1160

2. INTRODUCTION Definition: Aggregate planning is a process by which a company determines ideal levels of capacity, production, subcontracting, inventory, stock outs, an even pricing over a specified time horizon. Aggregate planning is a process by which a company determines ideal levels of capacity, production, subcontracting, inventory, stock outs, an even pricing over a specified time horizon. Why doing Aggregate planning? To satisfy demand while maximizing profit To satisfy demand while maximizing profit To solve problems involving aggregate planning rather than stock-keeping unit (SKU)-level decisions. To solve problems involving aggregate planning rather than stock-keeping unit (SKU)-level decisions.Example; aggregate planning can be used to determine the total level of production in a given company for a given period of time. aggregate planning can be used to determine the total level of production in a given company for a given period of time.

3. Introduction Contd… A planning horizon: is the time period over which the aggregate plan is to produce a solution-usually between 3 and 18 months A planning horizon: is the time period over which the aggregate plan is to produce a solution-usually between 3 and 18 months That means a company must also specify the duration of each period within the planning horizon That means a company must also specify the duration of each period within the planning horizon Example; weeks, months, or quarters Example; weeks, months, or quarters

4. Introduction Contd… Traditional Vs. Modern view In traditional view, much of aggregate planning is focused within an enterprise and may not always be seen as a part of supply chain issue. In traditional view, much of aggregate planning is focused within an enterprise and may not always be seen as a part of supply chain issue. The effectiveness in traditional view To be effective, it requires inputs from throughout the supply chain, and it its results have a tremendous impact on supply chain performance To be effective, it requires inputs from throughout the supply chain, and it its results have a tremendous impact on supply chain performance

5. Introduction Contd… In modern view, aggregate planning answers the question “how should a firm best utilize the facilities that it currently has” The effectiveness in modern view It is a useful tool for thinking about decisions with an intermediate time frame work of between one particular period of time and another one. So in this time frame, it is too early to determine production levels by SKU, but it is also too late to arrange for traditional capacity. It is a useful tool for thinking about decisions with an intermediate time frame work of between one particular period of time and another one. So in this time frame, it is too early to determine production levels by SKU, but it is also too late to arrange for traditional capacity.

6. Objectives behind aggregate planner In aggregate planning, the planner aims at identifying the following parameters over the specified time horizon, namely: Production Rate: the number of units to be completed per unit time (such as per week or per month) Production Rate: the number of units to be completed per unit time (such as per week or per month) Work force: the number of workers/units of capacity needed for production Work force: the number of workers/units of capacity needed for production Overtime: the amount of overtime production planned Overtime: the amount of overtime production planned Machine capacity Level: the number of units of machine capacity needed for production Machine capacity Level: the number of units of machine capacity needed for production Subcontracting: the subcontracted capacity required over the planning horizon Subcontracting: the subcontracted capacity required over the planning horizon

7. Objectives behind aggregate planner Contd…… Backlog: demand not satisfied in the period in which it arises but carried over to future periods Backlog: demand not satisfied in the period in which it arises but carried over to future periods Inventory on Hand: the planned invetory carried over the various periods in the planning horizon Inventory on Hand: the planned invetory carried over the various periods in the planning horizon So, aggregate planning serves: So, aggregate planning serves: As a blueprint for operations and estaglishes the parameters with which short-term production and distribution decisions are made. As a blueprint for operations and estaglishes the parameters with which short-term production and distribution decisions are made. Allows the supply chain to alter capacity allocations and change supply contact. Allows the supply chain to alter capacity allocations and change supply contact.

8. PRE-REQUISITES FOR AGGREGATE PLANNING Aggregate planning, generally, takes place over months or quarters Aggregate planning, generally, takes place over months or quarters It requires the following information: Demand forecast Ft for each period t in a planning horizon that extends over T periods Demand forecast Ft for each period t in a planning horizon that extends over T periods Production costs Production costs Such as: labor costs, regular time, ($/hour), and overtime costs ($/hour), cost of subcontracting production ($/unit or $/hour), cost of changing capacity, specifically cost of hiring/laying off workforce,labor/machine, and so on. Such as: labor costs, regular time, ($/hour), and overtime costs ($/hour), cost of subcontracting production ($/unit or $/hour), cost of changing capacity, specifically cost of hiring/laying off workforce,labor/machine, and so on.

9. AGGREGATE PLANNING STRATEGIES Aggregate planner must make trade-offs of costs to reach a profitable combination. Aggregate planner must make trade-offs of costs to reach a profitable combination. To lower inventory cost- planner increase capacity cost or delay delivery to customer To lower inventory cost- planner increase capacity cost or delay delivery to customer Choose one strategy as a lever of other two costs Choose one strategy as a lever of other two costs If costs of varying capacity is low- no need to build inventory or carry block logs If costs of varying capacity is low- no need to build inventory or carry block logs If costs of varying capacity is high- compensate by building some inventory and carrying some backlogs from peak demand periods to off-peak demand periods. If costs of varying capacity is high- compensate by building some inventory and carrying some backlogs from peak demand periods to off-peak demand periods. - Capacity (regular time, overtime, subcontracted) - Inventory - Backlog/lost sales because of delay

10. THE THREE STRATEGIES are 1. Chase Strategy-using capacity as the lever:- production rate is synchronized with demand rate by varying machines or hiring and laying off employees as the demand rate varies. Synchronization is problematic in practice-varying capacity & workforce Synchronization is problematic in practice-varying capacity & workforce Can be expensive to implement if the cost of varying machine or labour capacity over time is high. Can be expensive to implement if the cost of varying machine or labour capacity over time is high. Gives negative impact on the morale of the workforce. Gives negative impact on the morale of the workforce. Result in low levels of inventory in supply chain and high levels of change in capacity and workforce. Result in low levels of inventory in supply chain and high levels of change in capacity and workforce. Should be used when inventory cost are high and cost of change levels of machines and labour capacity is low. Should be used when inventory cost are high and cost of change levels of machines and labour capacity is low.

11. 3-Strategies Cont… 2. Capacity strategy/ time flexibility from workforce:- using utilisation as the lever: if there is excess machine capacity (i.e. if machines are not used 24 hrs/day/week) Workforce is kept stable but the number of hours worked is varied over time in an effort to synchronize production with demand. Workforce is kept stable but the number of hours worked is varied over time in an effort to synchronize production with demand. Use variable amount of time or a flexible schedule to achieve synchronization Use variable amount of time or a flexible schedule to achieve synchronization Avoid changing workforce Avoid changing workforce Used when inventory carrying cost are relatively high and machine capacity inexpensive. Used when inventory carrying cost are relatively high and machine capacity inexpensive.

12. 3-Strategies Cont… 3. Level strategy- using inventory as the lever. Maintains a stable machine capacity and workforce with constant output rate. Maintains a stable machine capacity and workforce with constant output rate. Inventory levels fluctuate over time resulting in shortages or surpluses. Inventory levels fluctuate over time resulting in shortages or surpluses. Inventories built up in anticipation of future demand or backlogs are carried from high-to low-demand periods. Inventories built up in anticipation of future demand or backlogs are carried from high-to low-demand periods. Employees benefit from stable working conditions. Employees benefit from stable working conditions. May accumulate inventories and customers orders may be delayed costs of changing capacity relatively low. May accumulate inventories and customers orders may be delayed costs of changing capacity relatively low.

13. AGGREGATE PLANNING USING LINEAR PROGRAMING. In order to maximize profit while meeting demand, companies faces some constraints but linear programming finds the solution that creates the highest profit and satisfies the constraints. In order to maximize profit while meeting demand, companies faces some constraints but linear programming finds the solution that creates the highest profit and satisfies the constraints. Steps involved includes: Steps involved includes: 1. Identifying Sets of decision variables 2. Formulate the demand function 3. Identify the constraints. 4. Correct the forecast errors in aggregate plans

14. LINEAR PROGRAMING V/S RED TOMATO TOOLS Month Demand forecast Month Demand forecast January 1,600 January 1,600 February 3,000 February 3,000 March 3,200 March 3,200 April 3,800 April 3,800 May 2,200 May 2,200 June 2,200 June 2,200 January inventory 1,000 January inventory 1,000 Jan. employees (at the beginning) 80 Jan. employees (at the beginning) 80 NB:-No stock out required/ at least inventory (June) 500units NB:-No stock out required/ at least inventory (June) 500units

15. Costs of Red Tomato Item Costs Material cost $10/unit Material cost $10/unit Inventory holding cost $2/unit/month Inventory holding cost $2/unit/month Marginal cost of stock out/backlog $5/unit/month Marginal cost of stock out/backlog $5/unit/month Hiring and training costs $300/worker Hiring and training costs $300/worker Layoff cost $500/worker Layoff cost $500/worker Labour hours required 4/unit Labour hours required 4/unit Regular time cost $4/hour Regular time cost $4/hour Overtime cost $6/hour Overtime cost $6/hour Cost of subcontracting $30/unit Cost of subcontracting $30/unit Retail price/tool $40 Retail price/tool $40 20 Working days/month, 8hours/day $4/employee 20 Working days/month, 8hours/day $4/employee

16. Step 1. identifying decision variables W t = workforce size for month t, t= 1,….6 W t = workforce size for month t, t= 1,….6 H t = number of employees hired at the beginning of of month t, H t = number of employees hired at the beginning of of month t, L t = number of employees laid off at the beginning of month t, t= 1,…..6 L t = number of employees laid off at the beginning of month t, t= 1,…..6 P t = number of units produced in month t, P t = number of units produced in month t, I t = inventory at the end of month t, t=1,…..6 I t = inventory at the end of month t, t=1,…..6 S t = number of units stocked out/backlogged at the end of month t, S t = number of units stocked out/backlogged at the end of month t, C t = number of units subcontracted for month t, C t = number of units subcontracted for month t, O t =number of overtime hours worked in month t, O t =number of overtime hours worked in month t,

17. Step 2. Objective function. The objective function is to minimize the total cost incurred or maximizing total profit after having satisfied all demands. The objective function is to minimize the total cost incurred or maximizing total profit after having satisfied all demands. These costs are as follows: These costs are as follows: - Regular-time labour cost= $4x8hrsx20days/month= $640 - Overtime labour cost= $6x10hrs/month=$60 - Cost of hiring and laying offs= $300/worker+$500/worker= $800/wkr - Cost of inventory and stock out= $2+$5= $7 - Cost of materials and subcontracting= $10/unit+$30/unit=$40/unit - Total Costs Incurred During Planning Horizon =W t +O t +(H t +L t )+(I t +S t )+(P t +C t )= 640+60+7+40= $747

18. Step 3. Constraints that decision variables must not violate. 1. Workforce, hiring, and layoff constraints. W t = w t -1+H t -L t for t=1,…6. 2. Capacity constraints( units produced can not exceed available capacity). P t < 40W t +O t /4 for t=1,….6 3. Inventory balance constraints. (balance filled either with in- house production or subcontracting in future period). It- 1+P t +C t =D t +S t -1+I t -S t for t=1,…..6. 4. Overtime limit constraints. (no employee should work more than 10hrs overtime) O t < 10 O t for t=1,…6

19. Aggregate plan for Red Tomato T H t L t W t O t I t S t C t P t 0 0 0 80 0 1000 0 0 1 0 15 65 0 1,983 0 0 2,583 2 0 0 65 0 1,567 0 0 2583 3 0 0 65 0 950 0 0 2583 4 0 0 65 0 0 267 0 2583 5 0 0 65 0 117 0 0 2583 6 0 0 65 0 500 0 0 2583

20. Step 4. Forecast error in Aggregate Plans To improve the quality of aggregate plans, forecast errors must be taken into account. Forecast errors are dealt with using either: To improve the quality of aggregate plans, forecast errors must be taken into account. Forecast errors are dealt with using either: 1. Safety inventory:-Inventory held to satisfy demand that is higher than forecasted 2. Safety capacity:- Capacity used to satisfy demand that is higher than forecasted. A company can create buffer forecast error using safety inventory and safety capacity in a variety of ways, some of which are: Use overtime as a form of safety capacity Use overtime as a form of safety capacity Carry extra workforce permanently as a form of safety capacity. Carry extra workforce permanently as a form of safety capacity. Use subcontractors as a form of safety capacity Use subcontractors as a form of safety capacity Build and carry extra inventories as a form of safety inventory. Build and carry extra inventories as a form of safety inventory. Purchase capacity or product from an open or spot market as a form of safety capacity. Purchase capacity or product from an open or spot market as a form of safety capacity.

21. Implementing Aggregate Planning in Practice. 1. Think beyond the entire supply chain: work with downstream partners to produce forecasts, with upstream partner to determine constraints, and with other supply chain entities that can improve the quality of the inputs into the aggregate plan. 2. Make plans flexible, because forecasts are always wrong: the plan should appropriately adjust to handle any future changes in demand. 3. Rerun the aggregate plan as new data emerge: aggregate plans provides a map 3 to 18 months this means managers should use the last values of forecast to rerun aggregate plan. 4. Use aggregate planning as capacity utilisation increases: planning should be done to best utilize the capacity to meet the forecasted demand. Therefore, as capacity utilization increases, it becomes more important to perform aggregate planning.

22. CONCLUSION Identifying the decision that are best solved by aggregate planning. Aggregate planning is best to determine capacity, production, and inventory decisions for each period of time over a range of the 3 to 18 months. It is most important to perform aggregate planning when capacity is limited and lead times are long. Identifying the decision that are best solved by aggregate planning. Aggregate planning is best to determine capacity, production, and inventory decisions for each period of time over a range of the 3 to 18 months. It is most important to perform aggregate planning when capacity is limited and lead times are long. Importance of aggregate planning: aggregate planning has a significant impact on supply chain performance and must be viewed as an activity that involves all supply chain partners. An aggregate plan prepared by an enterprise in isolation is not useful because it does not take into account all requirements of the customers stage and constraints from the suppliers stage. Localised aggregate planning can not do a good job of matching supply and demand. Good aggregate planning is done in collaboration with both customers and suppliers because accurate input is required from both stages. The quality of these inputs, in terms of both the demand forecast to be met and the constraints to be dealt with, determines the quality of the aggregate plan. The results of the aggregate plan must also be shared across the supply chain because they influence activities at both customers and suppliers. For suppliers, the aggregate plan determines anticipated orders; whereas for customers, the aggregate plan determines planned supply. Importance of aggregate planning: aggregate planning has a significant impact on supply chain performance and must be viewed as an activity that involves all supply chain partners. An aggregate plan prepared by an enterprise in isolation is not useful because it does not take into account all requirements of the customers stage and constraints from the suppliers stage. Localised aggregate planning can not do a good job of matching supply and demand. Good aggregate planning is done in collaboration with both customers and suppliers because accurate input is required from both stages. The quality of these inputs, in terms of both the demand forecast to be met and the constraints to be dealt with, determines the quality of the aggregate plan. The results of the aggregate plan must also be shared across the supply chain because they influence activities at both customers and suppliers. For suppliers, the aggregate plan determines anticipated orders; whereas for customers, the aggregate plan determines planned supply.

23. Conclusion cont… Information needed to produce an aggregate plan. To create an aggregate plan, a planner needs a demand forecast, cost and production information, and any supply constraints. The demand forecast consists of an estimate of demand for each period of time in the planning horizon. The production and cost data consist of capacity levels and cost to raise and lower them, production costs, costs to store the product, costs of stocking out the product, and any restriction that limits these factors. Supply constraints determine limits on sourcing, overtime, or materials. Information needed to produce an aggregate plan. To create an aggregate plan, a planner needs a demand forecast, cost and production information, and any supply constraints. The demand forecast consists of an estimate of demand for each period of time in the planning horizon. The production and cost data consist of capacity levels and cost to raise and lower them, production costs, costs to store the product, costs of stocking out the product, and any restriction that limits these factors. Supply constraints determine limits on sourcing, overtime, or materials. The basic trade-offs to consider when creating aggregate plan: the trade-offs involve balancing the cost of capacity, the cost of inventory, and the cost of stock outs to maximize profitability. Increasing any one of the three allows the planner to lower the other two. The basic trade-offs to consider when creating aggregate plan: the trade-offs involve balancing the cost of capacity, the cost of inventory, and the cost of stock outs to maximize profitability. Increasing any one of the three allows the planner to lower the other two. Aggregate planning using Excel: Aggregate planning problems can be solved in Excel by setting up cells for the objective function and the constraints and using the solver to produce the solution. Aggregate planning using Excel: Aggregate planning problems can be solved in Excel by setting up cells for the objective function and the constraints and using the solver to produce the solution.

24. THANK YOU ! MERCI BEAUCOUP!