1. Operations Management Dr. Ron Tibben-Lembke
Aggregate Planning
Operations Management
Dr. Ron Tibben-Lembke

2. Learning Objectives Describe planning Distinguish the types of plans
Define aggregate scheduling
Relate aggregate scheduling to the overall planning process
Explain aggregate scheduling options
Develop aggregate schedules

3. Example
You’ve started a new company. You’ve developed 2 production plans:
Month Forecast Plan 1 Plan 2 Jan Feb Mar
You estimate 1 worker can make 100 units per month. Which plan do you use? How many workers do you hire? How do you meet demand?

4. Planning Setting goals & objectives Determining steps to achieve goals
Example: Meet demand within the limits of available resources at the least cost
Determining steps to achieve goals
Example: Hire more workers
Setting start & completion dates
Example: Begin hiring in Jan.; finish, Mar.
Assigning responsibility

5. Types of Plans Management Level High Long-Range Facility location
Top Executives
Intermediate-Range
Aggregate plans
Operations Managers
Short-Range
Dispatching
Supervisors
Low
Today
3 months
1 year
18 months
5 years

6. Aggregate Scheduling
Production quantity & timing of production for intermediate future
Usually 3 to 18 months into future
Combines (‘aggregates’) production
Expressed in common units
Example: Hours, dollars, equivalents (e.g., FTE students)
Time to make ‘average’ product

7. Relationships of Aggregate Schedule
Forecast &
Resource
Production
Firm Orders
Availability
Planning
Work force
Inventory
Material
Master
Subcontractors
Requirements
Production
Planning
Scheduling
No, modify CRP, MRP, or MPS
Capacity
Shop
Requirements
Realistic?
Floor
Yes
Planning
Schedules

8. Aggregate Level Scheduling
Aggregate Schedule: Month Jan Feb Mar Apr May No. of Chips
© 1995 Corel Corp.

9. Aggregate Schedule Example
Aggregate Schedule: Month Jan Feb Mar Apr May No. of Chips
Master Production Schedule: Month Jan Feb Mar Apr May P4 1.5 ghz P4 1.7 ghz

10. Aggregate Scheduling Goals
Meet demand
Use capacity efficiently
Meet inventory policy
Minimize cost
Labor
Inventory
Plant & equipment
Subcontract

11. Aggregate Scheduling Options
Capacity
Demand
Inventory
Hire or layoff
Overtime or idle
Subcontract
Part-time workers
Outsource
Promotion & price
Back ordering
Counterseasonal product mixing

12. Costs “Smoothing” costs: Holding costs - charged on inv At end
Hiring: advertise, interview, train
Firing: severance, bad morale, future hiring
Holding costs - charged on inv At end
Shortage costs
Labor costs / overtime, materials
Subcontracting / outsourcing

13. Aggregate Scheduling Strategies
Level scheduling strategy
Produce same amount every day
Keep work force level constant
Vary non-work force capacity or demand
Often results in lowest production costs
Chase strategy
Hire / Fire workers to make production capacity meet necessary production

14. Aggregate Scheduling Strategies
Mixed strategy
Combines 2 or more aggregate scheduling options
Overtime
Price
Mixed Strategy
Sub-contract
Inventory

15. Aggregate Scheduling Methods
Graphical & charting techniques
Popular & easy-to-understand
Trial & error approach
Mathematical approaches
Linear Programming
Simulation
More involved, but usually better answers

16. JC Company p. 292 Materials Cost: $100/unit
Labor: 5 hours per unit, $4/hr RT, $6/hr OT
Subcontract $20/unit ($120 - $100 matl savings)
Holding cost $1.5/unit/mo
Stockout cost $5/unit/mo
Hiring cost $200
Firing cost $250
Starting inventory 400 units, safety stock 25%

17. Exhibit 11.3 Goal of 25% of sales as “safety stock”
For planning, assume safety stock never used

18. Hire and Fire, no OT: Plan 1
Start with workers needed for month 1
May have too many at end

19. Constant Workforce: Plan 2
Total D = 8,000 units
5*8,000 = 40,000 hours
125 days total = 1,000 hrs
40,000/1,000 = 40 workers
No penalty missing safety stock

20. Subcontract: Plan 3 April has lowest demand 21 days * 8 hrs = 168
850*5/168 = 25.3 workers
Subcontract rest

21. Constant Workers with OT: 4
Find # workers to do all except biggest mos in RT
Trial and error
Not enough safety stock

22. Linear Programming Parameters
CH = hiring cost CF = firing cost
CI = Inv. Cost CR = reg production
CO = Ovt. Cost CI = idle cost
CS = subcontract nt = days in period t
K = daily prod. I0 = Inventory to start
W0 = workers to start
Dt = Demand for t

23. Variables It = Inventory for t Ot = Overtime
Wt = workers for t Ut = idle time
Ht = hired in t St = subcontracted
Ft = fired in t
Pt= production for t
All must be >= 0

24. Constraints Workforce conservation Wt = Wt-1 + Ht - Ft
Units Conervation
It = It-1 + Pt + St - Dt
Production and workforce level
Pt= K*nt*Wt + Ot - Ut
Each of these must be satisfied for all t

25. LP Formulation

26. LP Considerations
LP can be modified to include minimum inv. level each period
Negative inventory can be allowed
Care needed when rounding

27. Conclusion Described role of aggregate planning
Described types of plans
Explained aggregate scheduling options
Developed aggregate schedules
Chase, Level, and Hybrid
Linear Programming